25-09-2013, 02:41 PM
Supply and Demand
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Demand: determinants of demand.
The following factors determine the demand for a good:
Price of the good
Tastes
Information
Prices of related goods
Complements and substitutes
Income
Government rules and regulations
Other
Demand: the demand curve
Quantity demanded - the amount of a good that consumers are willing to buy at a given price, holding constant the other factors that influence purchases.
Demand curve - the quantity demanded at each possible price, holding constant the other factors that influence purchases
Supply: the demand curve
Quantity supplied - the amount of a good that firms want to sell at a given price, holding constant other factors that influence firms’ supply decisions, such as costs and government actions
Supply curve - the quantity supplied at each possible price, holding constant the other factors that influence firms’ supply decisions
Market Equilibrium
Equilibrium - a situation in which no one wants to change his or her behavior.
excess demand the amount by which the quantity demanded exceeds the quantity supplied at a specified price.
excess supply the amount by which the quantity supplied is greater than the quantity demanded at a specified price
Why Supply Need Not Equal Demand
The quantity that firms want to sell and the quantity that consumers want to buy at a given price need not equal the actual quantity that is bought and sold.
Example: price ceiling.
Perfectly competitive markets
Everyone is a price taker.
Firms sell identical products.
Everyone has full information about the price and quality of goods.
Costs of trading are low.