Lecture 2

Demand & Supply

a market is a ‘place’ (an institution or arrangement) where buyers and sellers come together (interact) to buy and sell (exchange) G/S’s and resources, … the product market is the market where G/S’s are traded the factor market is the market for resources (land, labour, capital) in the free market system, the forces of demand & supply determine: the Q of each G/S produced and sold the P at which each G/S is sold so the price mechanism involves producers changing supply in reaction to consumer demand changes in the free market, there are not many government restrictions on the operation of the markets eg: war in the Middle East price of petrol increases long hot summer price of ice-cream increases cold or frosty weather price of oranges increases Demand Demand or the Demand curve: a curve or graph showing the inverse relationship (negative slope) between the price of a G/S and the quantity demanded of that G/S (per time period), ceteris paribus. The graph can be drawn from a table of data. Quantity demanded (Qd ): the amount of a G/S that buyers (consumers) are willing and able to buy at each possible price see figures 3.1, 3.2 individual demand: the demand by a single consumer of a G/S market demand: the demand by all the consumers of a G/S market demand curve: is the sum of all the individual demand curves for a G/S see figure 3.3 Draw a graph of your own and put some data on it. Give the graph a title (say what the product is) and put all the labels on it. Quantity demanded ( Qd) Law of demand: the principle that there is an inverse (negative) relationship between P and Qd (per time period) of a G/S, ceteris paribus (holding everything else constant) when the price of a G/S falls, the quantity demanded will increase when the price of a G/S rises, the quantity demanded will decrease This is due to: income effect: if P of G/S rises