L3: Demand, Supply, and Price

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Cards (40)

  • Market
    • made up of buyers and sellers making choices under conditions of scarcity.
  • BUYERS
    • ask about the types of goods and services available and the prices they must pay for them.
  • sellers
    • inquire about the types of goods and services buyers want and the prices they are willing to pay.
  • THE MARKET SETTING
    • From the seller’s point of view, competition among buyers brings the highest prices possible.
    • From the buyer’s point of view, competition among sellers brings the lowest prices possible.
  • The Demand and Supply Model
    • designed to show how prices are determined perfectly competitive markets - markets where no buyer or seller has any influence over the price.
  • Characteristics of Perfectly Competitive Market
    1. Identical Products
    2. Barrierless Entry and Exit
    3. Transparency in the Product Information
    4. Sellers and Suppliers Acts as a Price Takers
    5. Sellers and Suppliers Can't Influence The Market Price of Products and Services
  • Identical Products
    • All the companies' products are homogenous and indistinguishable from each other.
  • Barrierless Entry and Exit
    • Any company can enter the said market and exit from it easily.
  • Transparency in the Product Information
    • The consumers know all the information about a product and its qualities from the producers.
  • Sellers and Suppliers Acts as a Price Takers
    • The products are identical, and consumers have all the information on the products. Hence the consumers of the product become the price-determining factor or price maker. As a result, producers and sellers become price takers here.
  • Examples of Perfectly Competitive Market
    1. Crop Industry
    2. Dairy Industry
    3. Supermarket
    4. Foreign Exchange
    5. Online Shopping
  • The Imperfect Market
    • individual buyers and sellers can influence prices and production.
    • There is no full disclosure of information about products and prices.
    • There are high barriers to entry or exit in the market.
  • Types of Imperfect Market
    1. Monopoly
    2. Oligopoly
    3. Monopolistic Competition
    4. Monopsony and Oligopsony
  • Monopoly
    • This is a structure in which there is only one (dominant) seller. Products offered by this entity have no substitutes. These markets have high barriers to entry and a single seller who sets the prices on goods and services. Prices can change without notice to consumers.
    • e.g. MERALCO
  • Oligopoly
    • This structure has many buyers but few sellers. These few players in the market may bar others from entering. They may set prices together or, in the case of a cartel, only one takes the lead to determine the price for goods and services while the others follow.
    • e.g. PETRON, SHELL, CALTEX
  • MONOPOLISTIC COMPETITION
    • there are many sellers who offer similar products that can't be substituted. Businesses compete with one another and are price makers, but their individual decisions do not affect the other.
    • e.g. FASTFOOD CHAINS
  • MONOPSONY AND OLIGOPSONY
    • These structures have many sellers, but few buyers. In both cases, the buyer is the one who manipulates market prices by playing firms against one another.
  • Price
    • in a market economy are agreed by the buyer and the seller after bargaining.
  • Supply - represents the choice sellers make;
    Demand - represents the choice buyers make.
  • market price
    • price at which buyers and sellers agree to trade a product or service in the market.
  • CHARACTERISTICS OF MARKET PRICE
    1. Equilibrium Price
    2. Dynamic
    3. Determinant
  • Equilibrium Price
    • This is the price where the quantity of a product that sellers are willing to sell matches the quantity that buyers are willing to buy.
  • Determinant
    • The market price is determined by the forces of supply and demand.
  • Dynamic
    • The market price can change based on factors like supply, demand, and other market conditions.
  • MARKET DEMAND
    • relationship between the price of a good or service and the quantity number of units all consumers in a market would choose to buy during a given time period.
  • In economics,
    • DEMAND - the entire relationship between price and quantity demanded.
    • QUANTITY DEMANDED - refers to a given quantity chosen by buyers at a particular price.
  • THE LAW OF DEMAND
    • (Ceteris Paribus - “all other things being equal”)
    • as the price of a product or service increases, the quantity demanded by consumers decreases, and as the price decreases, increases.
  • FACTORS AFFECTING DEMAND
    1. PRICE OF THE PRODUCT
    2. CONSUMER INCOME
  • CONSUMER INCOME
    • As income increases, demand for goods and services may also increase.
  • PRICE OF THE PRODUCT
    • The main determinant of changes in the quantity demanded.
  • DEMAND SCHEDULE
    • is a table that shows the quantity of a product or service that consumers are willing and able to buy at different price levels over a specific period.
  • TYPES OF DEMAND SCHEDULE
    1. INDIVIDUAL DEMAND SCHEDULE
    2. MARKET DEMAND SCHEDULE
  • Individual Demand Schedule
    • Shows the demand of a single consumer for a product at various price levels.
  • MARKET DEMAND SCHEDULE
    • Shows the total demand of all consumers in the market for a product at various price levels.
  • DEMAND CURVE
    • a graphical representation of the demand schedule that shows the relationship between the price of a product or service and the quantity demanded
  • CHARACTERISTICS OF A DEMAND CURVE
    • Downward Sloping - It illustrates the inverse relationship between price and quantity demanded.
    • Horizontal axis (x-axis) – Represents the quantity demanded.
    • Vertical axis (y-axis) – Represents the price of the product or service.
    • Ceteris Paribus – The curve assumes that all other factors affecting demand remain constant
  • FACTORS AFFECTING THE DEMAND CURVE
    • MOVEMENT ALONG THE CURVE
    • SHIFT OF THE DEMAND CURVE
  • Factors Affecting Demand in Curve
    1. Income
    2. Taste / Preference
    3. Price of Related Goods
    4. Expectation of Future Prices
    5. Number of Buyers
  • Income
    • An increase income leads consumers to buy more of most goods at each and every price. A decrease income leads consumers to buy less of most goods at each and every price.
    • Normal Good - quantity increased
    • Inferior Good - quality increased
  • Taste / Preference
    • Substitute goods - These are goods that can be used in place of each other. When the price of one substitute increases, the demand for the other substitute typically increases as well.
    • Complementary goods - These are goods that are often used together. When the price of one complementary good increases, the demand for the other complementary good usually decreases.