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Chapter 2

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Kaye Anne Servigon

on 28 September 2012

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Transcript of Chapter 2

Market is where buyers and sellers meet Different kinds of markets Wet market is where people usually buy vegetables, meat etc. Dry Market is where people buy shoes, clothes, or other dry goods Other intangible markets: Stock market which is also known as equity market is a public body in which a free network of economic transactions occurs Real estate market Potential buyers and sellers of real property at the current time; also, current transaction activity for real property.
This includes markets for various property types, such as housing market, office market, condominium market, land market. Labor market The nominal market in which workers find paying work, employers find willing workers, and wage rates are determined. Demand pertains as to the quantity of a good or service that people are ready to buy at given prices within a given time period Demand implies three things: desire to possess a thing;
the ability to pay for it or means of purchasing it; and
willingness in utilizing it Law of Demand states that if price goes up, the quantity demanded will go down. Conversely, if price goes down the quantity demanded will go up ceterus paribus. Demand Schedule is a table that shows the relationship of prices and the specific quantities demanded at each of these prices Demand Curve Demand Function shows the relationship between demand for a commodity and the factors that determine or influence this demand Qd= f (own price, income, price of related goods, etc.) Change in Quantity Demanded
vs.
Change in Demand There is change in quantity demanded if the movement is along the same demand curve.

A change in quantity demanded is brought about by an increase (decrease) in the product's price.

The direction of the movement however is inverse considering the Law of Demand. Change in Quantity Demanded Change in Demand There is a change in demand if the entire demand curve shifts to the right side resulting to an increase in demand.
Conversely demand decreases or falls if the entire demand curve shifts downward or to the left. Forces that cause the
demand curve to change Expectations of future prices Substitute goods Population change Occasional or
seasonal products (cc) photo by theaucitron on Flickr Taste or preferences pertain to the personal likes or dislikes of customers for certain goods and services Changing incomes Increasing incomes of household raise the demand for certain goods or services or vice versa. This is because an increase in one's income generally raises his or her capacity or power to demand for goods and services which (s) he is not able to purchase at lower income. The various events or seasons in a given year also result to a movement of the demand curve with reference to particular goods. An increasing population leads to an increase in the demand for some types of goods and services, and vice versa. More people simply mean that more goods and services are to be demanded. goods that are interchanged with another good If buyers expect the price of a good or service to rise (or fall) in the future, it may cause the current demand to increase (or decrease). Also, expectations about the future may alter demand for a specific commodity. Chapter 2: The Basic Analysis of
Demand and Supply is a graphical representation showing the relationship between price and quantities demanded per time period. It has negative slope thus it slopes downward from left to right. The downward slope indicates the inverse relationship between price and quantity demanded. Supply (Firms/Seller's side) is the quantity of goods or services that firms are ready and willing to sell at a given price within a period of time, other factors being held in constant. It is the quantity of goods or services which a firm is willing to sell at a given price, at given point in time. Law of Supply states that if the price of a good or service goes up, the quantity supplied for such good or service will also go up; if the price goes down the quantity supplied also goes down, ceteris paribus Supply Schedule is a schedule listing the various prices of a product and the specific quantities supplied at each of these prices Supply Curve is a graphical representation showing the relationship between the price of the product or factor of production and the quantity supplied per time period Supply Function is a form of mathematical notation that links the dependent variable, quantity supplied (Qs), with various independent variables which determine quantity supplied Qs = f (own price, number of sellers, price of factor inputs, technology, etc. ) Change in Quantity Supplied
vs.
Change in Supply Change in Quantity Supplied There is a change in quantity supplied if the movement is along the same supply curve. A change in quantity supplied is brought about by an increase (decrease) in the product's own price. Change in Supply There is a change in supply when the entire demand supply curve shifts rightward or leftward. At the same price, therefore, more amounts of a good or service are supplied by producers or sellers so the entire supply curve moves rightward.

On the other hand, supply decreases if the entire supply curve shifts to the left. Forces that cause the supply curve to change Optimization in the use of factors of production An optimization in the utilization of resources will increase supply, while a failure to achieve such will result to a decrease in supply.

Optimization refers to the process, or methodology of making something as fully perfect, functional, or effective as possible. Technological change The introduction of cost-reducing innovations in production technology increases supply on one hand. On the other hand, this can also decrease supply by means of freezing the production through the problems that the new technology might encounter, such as technical trouble. Future expectations This factor impacts sellers as much buyers. If sellers anticipate a rise in prices, they may choose to hold back the current supply to take advantage of the future increase in price, thus decreasing market supply. If sellers however expect a decline in the price for their products, they will increase present supply. Number of Sellers The number of sellers has a direct impact on quantity supplied. Simply put, the more sellers there are in the market the greater supply of goods and services will be available. Weather conditions Bad weather, such as typhoons, drought or other natural disasters, reduces supply of agricultural commodities while good weather has an opposite impact. Government policy Removing quotas and tariffs on imported products also affect supply. Lower trade restrictions and lower quotas or tariffs boost imports, thereby adding more supply of goods in market. Market Equilibrium The meeting of supply and demand. Equilibrium understood as a "state of balance" It pertains to a balance that exist when quantity demanded equals quantity supplied.
It is the general agreement of the buyer and the seller at a particular price and at a particular quantity. Equilibrium Market Price It is the price agreed by the seller to offer its good or service for sale and for the buyer to pay for it.
It is the price at which quantity demanded of a good is exactly equal to the quantity supplied. What happens when there is
market disequilibrium? Surplus It is a condition in the market where the quantity supplied is more than quantity demanded.
When there is a surplus, the tendency is for sellers to lower market price in order for the goods to be easily disposed from the market.
This means that there is a downward pressure. Shortage It is a condition in the market in which quantity demanded is higher than supplied.
It exists below the equilibrium point.
There is an upward pressure to prices to restore equilibrium in the market. Price controls are classified into two types: Floor Price Price Ceiling is the legal minimum price imposed by the government is the legal maximum price imposed by the government THE END... end of chapter 2...
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