shiAnswer the following in relation to demand and your reading from Chapter Four in your text.

1. Define a market

A market is a "group of buyers and sellers of a particular good or service." The buyers determine the demand, the sellers determine the supply. There can be many different types of markets, organized or less organized. In a market buyers and sellers interact, and because of this the forces of supply and demand determine the quantity of the good sold and the price.

2. What is a competitive market?

• A competitive market is a market that has many buyers and sellers so that each has a negligible impact or influence on the market price (the opposite of a monopoly)
  
• each seller has limited control over the price because of competition
• ex. if an ice cream seller charges more than the going price then the buyers will go buy ice cream somewhere else
• No single buyer can influence the price because each buyer only purchases a small amount
• Competetive markets prices are predicted to equalize the amount of goods or services sought by buyers and the amount of goods or services produced by sellers, resulting in an economic equilibrium.
  

3. What is the relationships between price and quantity demand?

• Quantity demanded: the amount of a good that buyers are willing and able to purchase
• On a Price vs. Quantity graph, the quantity demand is a move along the Demand curve
• A move to the left means an increase price, decrease quantity
• A move to the right means a decrease price, increase quantity
• Therefore it can be said that quantity demanded is negatively related to the price
• If price rises people will demand less. If price falls people will demand more

4. Illustrate the law of demand with an example.

Law of Demand: As the price of a good rises, the quantity demand falls. Or, as the price falls, the quantity demand increases. (assuming all things are equal, or ceteris peribus)

• Example: the price of running sneakers is increasing, so the quantity demand for those sneakers will drop. But if the price of those sneakers starts to fall and they become cheaper, then the quantity demand will rise

• What is a demand schedule?
• A demand schedule is graph that shows the amount of a good that buyers are willing to buy at different prices. Although this ignores all non-price factors that could also affect demand.
• it shows the relationship between the price of a good and the quantity demanded
• ex. A demand schedule showing the "price of ice-cream cone" and "quantity of cones demanded". This schedule can be used to graph the demand curve
• Explain the difference between market demand and individual demand.
• Individual demand focuses only on the demand of a product for a certain individual, while market demand sums up all the individual demands for a good/service
• The sum of the quantity demanded by all buyers would give you the market demand
• To analyze how markets work we need to determine the market demand
• Market demand depends on all factors that determine the demand of individual buyers (ex. incomes, tastes, expectations, prices of related goods) and on the number of buyers

7. What are the factors that shift the demand curve and give an example for each factor, indicating which direction it would shift the demand curve.

Factors - Change in...

• Price of complements
  • i.e. If the price of hamburgers decrease, what will happen to the demand curve for ketchup?
    • Answer: If the price of burgers decreases, demand will increase thus the demand for ketchup will also increase shifting the graph to the right
• Price of substitutes
  • i.e. The price of coffee rises, what happens to the demand curve for tea?
    • Answer: The demand curve would shift to the right, meaning an increase in demand because a decrease in demand of a substitute, coffee
• Income ex. People's average incomes are said to be reduced by 5%. This will shift the demand curve to the left
• Preferences ex. government sponsors campaigns which show how smoking can give you cancer. What will happen to the demand for cigarettes? The demand curve for cigs will shift to the left
• Future Expectations
  • Victoria's Secret is having its "Semi-Annual" sale on Friday. What will happen to the demand curve for Thursday?
    • Answer: the demand curve will shift to the left because demand will decrease if consumers know goods will be cheaper on Friday.
• Number of buyers ex. a deadly disease in Frankfurt has caused many refugees to flee to Berlin. what will happen to the demand curve for goods in Berlin? It will shift to the right

• Change in demand = shift of Demand curve to the right or left

• Change in quantity demand = move along the demand curve to the right or left

- caused by the changes of prices of the item. A simple way to determine whether a change in quantity demand or a change in demand occurred is to determine whether demand changed DUE TO price changes (change in quantity demand) or if price changed DUE TO a change in the consumers

9. What is the difference between quantity supplied and supply?
Supply is the ammount of a good produced at every given price, while quantity supplied is the ammount of good produced at a particular price.

• Supply = shift of the supply curve to the right or left -
• When one of the causes that shift supply occurs first, then it is a shift
• Quantity supply = move along the supply curve
• When the price changes, there is a move in quantity supplied

10. Market supply vs. individual supply

• Market supply is the sum of the supplies of all sellers.
• Individual supplie is what individual people or businesses own. You find the Market supply curve by adding up all the individual supply.

11. What causes shifts in the supply curve, give an example for each.

Advance in technology- A new machine is created and it can produce at twice the speed as the previous machine.

Cost of inputs- If the price of wood goes up, the supply of wooden chairs will decrease as they will have to spend more money on less amount of wood.

Natural disaster or unexpected event- A hurricane in Florida destroys orange fields, causing a decrease in supply.

Gov't Regulations- Taxation may be placed on a good causing the supply to decrease

ex. government puts a tax on imported foreign cars. Supply of foreign cars goes down

Number of producers- More people move into Belgrano causing builders to make more housing, thus the supply of homes will increase

12. How are prices established?

prices are established at the equilibrium, or the intersection between the supply curve and the demand curve

If supply and demand shitfs, then the price will shift accordingly too
13. What are the three steps to analyzing changed in the equilibrium? Use examples.

Decide whether the event shifts the supply curve, the demand curve or both.

Decide whether the curve shifts to the right or left.

Use supply-and-demand diagram to examine how the shift affects the equilibrium price and quantity.
Eg; How does the market for ice cream change during a hot summer?
1)Hot weather affects demand curve - change in preferance. Supply curve remain unchanged.
2)More ppl want ice cream - demand curve shifts to the right.
3)Increase in demand raises the equilibrium price and equilibrium quantity.

Conclusion : Hot weather increases the price of ice cream and the quantity of ice cream sold.