Supply and Demand Market: A group of buyers and sellers of an individual good or service. May not refer to a single geographic place. Competitive Market: A market in which there are many buyers and many sellers so that each has a negligible impact on the market price. Perfectly Competitive Market: Homogeneous Product Buyers and sellers are price takers. Other Market Forms: Monopoly: One seller. Oligopoly: Only a few sellers. Monopolistic Competition: Differentiated products. Monopsony: Only one buyer. Demand Demand: The amount of a good or service that buyers are willing and able to buy at a particular price. Individual Demand Market Demand Determinants of Individual Demand Price of this good: Law of Demand. Prices of Related Goods Compliments and Substitutes Income Normal goods Inferior goods Tastes Expectations Future income Future price of the good in question Future prices of other goods Movements along demand curve (change in quantity demanded) Shifts in demand curve (change in demand) Pencil Demand IBM Price Quantity Demanded $0.05 650 $0.10 500 $0.15 350 $0.20 200 $0.25 50 Prudential Price Quantity Demanded $0.05 350 $0.10 300 $0.15 250 $0.20 200 $0.25 150 Market Demand IBM Prudential Market Price Demand Demand Demand $0.05 650 350 1000 $0.10 500 300 800 $0.15 350 250 600 $0.20 200 200 400 $0.25 50 150 200 Supply Supply: The amount of a good or service that sellers are willing and able to sell at a particular price Individual Supply Market Supply Determinants of Individual Supply Price: Law of Supply Input Prices Technology Expectations Future price of the good in question Movements along a supply curve (change in the quantity supplied) Shifts in a supply curve (change in supply) Pencil Supply Staples Price Quantity Supplied $0.05 160 $0.10 220 $0.15 280 $0.20 340 $0.25 400 Office Max Price Quantity Supplied $0.05 240 $0.10 280 $0.15 320 $0.20 360 $0.25 400 Market Supply Price Staples Office Market Supply Max Supply Supply .05 160 240 400 .10 220 280 500 .15 280 320 600 .20 340 360 700 .25 400 400 800 Equilibrium Equilibrium Price: $0.15/Pencil Equilibrium Quantity: 600 Pencils Pencils bought by IBM: 350 Pencils bought by Prudential: 250 Pencils sold by Staples: 280 Pencils sold by Office Max: 320 Price Pe Qe Quantity Critically analyze the following argument that might be put forth by a journalist. "New discoveries of oil reserves tend to reduce crude oil prices. However, such discoveries may be a bad development. The resulting decrease in price will stimulate demand and the increase in demand may cause the price to skyrocket. The price of oil may therefore wind up higher than it was before the new discoveries."
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