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Market
Buyers- households/consumers
Suppliers- producers/firms
Demand-The ability and willingness to buy specific
quantities of good at alternate prices in a given time period
Or the desire to buy a product, which is backed up by
willingness and ability to pay for it.
Quantity demanded- the amount of a product that the
consumers wish to purchase.
Demand schedule- a table which shows the quantities of a
good, a consumer is willing and able to buy at alternate
prices, in a given time period.
Quantity (consumer A)
6
5
4
3
2
1
Quantity
(consumer A)
Quantity
(consumer B)
Market
0.5
10
16
13
1.5
10
2.5
Price
D
Quantity
Determinants of demand
(Non-price determinants of demand)
Shifts in the demand curve - Any change that raises the quantity that
buyers wish to purchase at a given price shifts the demand curve to
the right. Any change that lowers the quantity that buyers wish to
purchase at a given price shifts the demand curve to the left.
In short, the change in the determinants of quantity demanded is
represented as follows:
Supply
Quantity
0.5
1.5
2.5
S
Quantity
Determinants of supply
Price
pl
y
re
as
e
in
su
p
In
c
S1
S2
in ec
re
su
as
pp
e
ly
S
1 Quantity
Market Equilibrium
Market Equilibrium- point where demand and supply
intersect with each other.
Equilibrium price- the price that balances supply and
demand.
Equilibrium quantity- the quantity supplied and the
quantity demanded when the price has adjusted to
balance supply and demand.
At equilibrium price, the quantity of the good that
buyers are willing and able to buy exactly balances the
quantity that sellers are willing and able to sell.
This equilibrium price is sometimes called the marketclearing price.
Market Equilibrium
Price
Demand
Supply
0.5
1.5
2.5
Price D
Eq. price
2
D
3
Eq. quantity
Quantity
P0
Excess supply S
Excess demand
Q0
Quantity
Fig.1.a.
Price
Fig.1.b.
D1
D
p1
p
E
S
Price
S
E
1
D1
p
D1
D
q
q1 Quantity
p1
E1
S
D1
q1 q Quantity
Fig.3.
Price
D1
S1
E
S
E1
D1
D
S1
q
q1
Quantity