The Market: Demand, Supply, Equilibrium

Topic 2- Economics

The Market

a social institution in which goods and services and factors of production are freely exchanged. It is not always a physical place, but there is market where an exchange takes place e.g shopping centre or a phone call

Interveners- it is necessary that there are 2 agents..

the paintiffs and the bidders

Demanders or buyers

go to the market to acquire the goods and/or services that satisfy their needs, or the productive factors they require to produce

The suppliers or sellers

make the goods and services they have produced or the factors they own available on the market to buyers

How does the exchange take place?

buyers and sellers carry out their transactions using money as a means of payment

money

simplifies transactions, translating the value of each item in monetary units

Price

element that makes it possible to bring buyers and sellers in a market into agreement. It is defines as the number of monetary units that must be paid to obtain a physical unit of a good/service

The tourist market

the good being exchanged is tourism, it is an economic activity and forms a very complex sector where many economic activities converge

What are the different types of market classifications

The type of good/service, competence, regulation

Depending on the type of good/ service: Markets for goods and services

(what to produce) or markets for factors of production (how and for whom to produce)

According to the degree of competence- Competitive markers

the number of participants is very large and no one has the power to influence prices and quantities

According to the degree of competence- Non-competitive markets

they have some power over certain pricing and/or quantity decisions

Depending on the degree of regulation- free markets

when no authority controls market conditions. Participants buy and sell freely

Intervened or regulated markets

when prices or quantities are determined by someone outside the market (spanish electricity market)

Individual demand curve

collects the different quantities that a consumer wants to demand for each price

Market demand curve

the sum of the individual demands that make it up

The law of demand says…

that when the price of a good increases, without any other variables changing, individuals demand a smaller quantity of that good

The law of demand implies that the demand curve has a

negative slope, the higher the price of a good, the less consumers want to buy it

What are the 2 types of movement in the demand curve

shifts OF the demand curve and movements ALONG the demand curve

A shift OF the demand curve

is a change in the quantity demanded at any given price, which is represented by a movement of the original demand curve to a new position, defined by a new demand curve

A movement ALONG the demand curve

is a change in the quantity demanded of a good as a result of a change in the price of that good

What are the factors that explain the shift of the demand curve

Changes in the prices of related goods, income changes, changes in consumer preferences, and changes in expectations

supply scheduele

shows how much of a product producers are willing to offer at different prices. It can be represented in a table

supply curve

a graphical representation of a supply scheduele, which reflects how much of a good/ service producers want to supply at any given price. The quantity offered is the actual quantity that producers are willing to offer at a given price

The individual offer table

shows the different quantities a company is willing to offer at each given price

The market offer table

collects the different quantities that producers want to sell for each price. The sum of the individual bids

The law of supply says that

the higher the price of a good/service, the more profitable its production can be and therefore the greater its supply will be

The law of supply implies that the supply curve has a

positive slope, the higher the price of a good, the greater the quantity that producers wish to offer

What are the 2 movements in the supply curve

shifts OF the supply curve and movement ALONG the supply curve

A shift OF the supply curve

a shift of the supply curve is a change in the quantity of a good/service at any given price level. It is represented by a shift of the original demand curve to a new position, represented by a new supply curve

A movement ALONG the supply curve

is a change in the quantity supplied of a good as a result of a change in the price of that good

What are the main factors of shifts in supply curves

changes in the prices of factors of production, changes in technology, changes in expectations

Shift in supply curve- Changes in the prices of the factors of production

An increase in the price of the factors of production implies a reduction in supply e.g if oil rises plane tickets get more expensive

Shift in supply curve- Changes in technology

When a better technology becomes available, capable of reducing the cost of production, supply grows for any price, and the curve shifts to the right

Shift in supply curve- Changes in expectations

the expectations that the price will be higher in the future may cause the supply to fall today for any given price, but if the expectation is that the price will fall, the supply may grow today