What a competitive market is and how it is described by the supply and demand model That the demand curve and supply curve are the difference between movements along a curve and shifts of a curve DHOW the supply and demand curves determine a market’s equilibrium price and equilibrium quantity Olin the case of a shortage or surplus, how price moves the market back to equilibrium The theory of supply and demand assumes that commodities are traded in perfectly nominative markets AAA perfectly competitive market is a market in which Other are many buyers Many sellers Dan all sellers sell the exact same product Ads a result, each buyer and seller has a negligible impact on the market price Supply and Demand AAA competitive market: many buyers and sellers

Tote quantity demanded of a good falls when the price of the good rises, and vice versa, provided all other factors that affect buyers’ decisions are unhesitatingly demanded is the amount of a good that buyers are willing and able to purchase Demand is a full description of how the quantity demanded changes as the price of the good changes. Demand Schedule AAA demand schedule shows how much of a good or service consumers will want to buy at different prices. Demand Schedule for Coffee Beans Price of coffee beans (per pound) Quantity of coffee (billions of pounds) 2. 00 7. 1 1 . 75 7. 5 1. 50 8. 1 1 . 25 8. 9 1. 00 10. 0 0. 75 11. 5 0. 50 14. Demand Curve Price of coffee bean (per gallon) A demand curve is the graphical representation of the demand schedule; it shows how much of a good or service consumers want to buy at any given price. As price rises, the quantity demanded falls 7 9 Demand curve, D 11 13 15 17 beans (billions of pounds) An Increase in Demand Moan increase in the population and other factors generate an increase in demand – a rise in the quantity demanded at any given price. This is represented by the two demand schedules – one wowing demand in 2002, before the rise in population, the demand in 2006, after the rise in Demand Schedules for Coffee Beans beans demanded in 2002 2006 8. 5 9. 0 9. 7 10. 7 12. 0 13. 8 17. Increase in population more coffee coffee gallon) curve in 2006 curve 2002 2 A shift of the demand curve is a change in the quantity demanded at any given price, by a new demand curve. Movement Along the Demand Curve A movement along the beans (per demand curve is a change in the quantity demanded off good that is the result of a change in that good’s price. A shift of the demand curve… s not the same thing as a movement along the demand curve c 10 Shifts of the Demand Circumnavigated”, A “decrease An “increase demand” Price demand means a rightward leftward shift shifts the demand curve: at any given price, consumers demand a larger quantitatively than before. (Del ODD) (Del ODD) Decrease in 3 Quantity What Causes a Demand Curve to Shift?

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Changes in the Prices of Related Goods Substitutes: Two goods are substitutes if a fall in the price of one of the goods makes consumers less willing to buy the other good. Complements: Two goods are complements if a all in the price of one good makes people more willing to buy the other good.Changes in Income Normal Goods: When a rise in income increases the demand for a good – the normal case – we say that the good is a normal good. Lonelier Goods: When a rise in income decreases the demand for a good, it is an inferior good. Changes in Tastes Changes in Expectations Population or number of buyers Advertisements Individual Demand Curve and the Market Curve The market curve is the horizontal sum of the Dare’s Individual Market Demand Curve Dingo’s Individual \$2 Denmark Daryl 20