Markets

1
Markets

• Demand side Buyers
• Supply side Sellers
• Both sides respond to prices
• Perfectly competitive markets There are many
  buyers and sellers, none of whom individually can
  set the price

2
Markets

• Demand side Buyers
• Supply side Sellers
• Prices can be set by
• Auctions (EBay, livestock sales, bonds)
• Sticker prices
• Negotiations
• In imperfect markets agent has the ability to
  individually influence price

3
Markets

• Demand side Buyers
• Supply side Sellers
• Markets can be local, regional or national

4
The Key Markets in a Capitalist System
PRODUCT
FIRMS
HOUSEHOLDS
LABOR
Sell Goods Hire Labor Invest in capital
Buy goods Sell labor Borrow and invest
CAPITAL
5
The Key Markets in a Capitalist System
PRODUCT
FIRMS
HOUSEHOLDS
Sell Goods
Buy goods
We will concentrate initially on product markets
6
Demand Side The cookie in class market
PC
QD Quantity of cookies demanded PC Price of
cookies QD f ( PC, ..)
D
QC
7
Demand Side The cookie in class market
PC
QD Quantity of cookies demanded PC Price of
cookies QD f ( PC, ..)
What else affects cookie demand?
D
QC
8
Demand Side The cookie in class market
PC
QD Quantity of cookies demanded PC Price of
cookies Y income PX Price of other goods Pop
Population T Taste QD f ( PC,Y, PX, Pop, T)
D
QC
9
Demand Side The cookie in class market
PC
QD Quantity of cookies demanded PC Price of
cookies Y income PX Price of other goods Pop
Population T Taste QD f ( PC,Y, PX, Pop, T)
Movement along the line
Shift in the line
D
QC
10
Demand Side The cookie in class market
PC
Suppose income (Y) rises from 100 to 200 QD f
( PC,Y, PX, Pop, T)
Normal good Demand for the good increases when
income rises
D, Y 200
D, Y 100
QC
11
Demand Side The cookie in class market
PC
Suppose income (Y) rises QD f ( PC,Y, PX, Pop,
T)
Inferior good Demand for the good falls when
income rises
D, Y 100
D, Y 200
QC
12
Examples of inferior goods?
13
Demand Side The cookie in class market
PC
Suppose price of other goods (PX) rises from 1
to 2 QD f ( PC,Y, PX, Pop, T)
Substitutes When the price of the other good
rises, demand for cookies rises
D, PX 2
D, PX 1
QC
14
Examples of substitutes for cookies?
15
Demand Side The cookie in class market
PC
Suppose price of other goods (PX) rises from 1
to 2 QD f ( PC,Y, PX, Pop, T)
Complements When the price of the other good
rises, demand for cookies falls
D, PX 1
D, PX 2
QC
16
Examples of complements for cookies?
17
Supply Side The cookie in class market
Suppose we could legally sell cookies in class
what factors would affect incentives to supply?
S
QS Quantity of cookies demanded PC Price of
cookies QS f ( PC, ..)
PC
QS
18
Supply Side The cookie in class market
Suppose we could legally sell cookies in class
what factors would affect incentives to supply?
S
QS Quantity of cookies demanded PC Price of
cookies QS f ( PC, ..)
PC
What else affects cookie supply
QS
19
Supply Side The cookie in class market
Suppose we could legally sell cookies in class
what factors would affect incentives to supply?
S
QS Quantity of cookies demanded PC Price of
cookies PI Price of inputs Tech Technology QS
f ( PC, PI, Tech)
PC
QS
20
Supply Side The cookie in class market
Suppose we could legally sell cookies in class
what factors would affect incentives to supply?
S
QS Quantity of cookies demanded PC Price of
cookies PI Price of inputs Tech Technology QS
f ( PC, PI, Tech)
PC
Movement along the line
Shift in the line
QS
21
Supply Side The cookie in class market
S, PI 2
S, PI 1
PC
Suppose Price of inputs (PI ) rises QS f ( PC,
PI, Tech)
QS
22
Supply Side The cookie in class market
Suppose Technology rises QS f ( PC, PI, Tech)
S, Tech 1
PC
S, Tech 2
QS