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What Is a Market?
What Is a Market?
What Is Competition?
What Is Competition?
Monopoly
What Is Competition?
DEMAND
Oligopoly
Few sellers
Not always aggressive competition
Monopolistic Competition
Many sellers
Slightly differentiated products
Each seller may set price for its own product
Demand Schedule
Demand Curve
2.00
1.50
1.00
0.50
0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of
Ice-Cream Cones
2. ... increases quantity
of cones demanded.
Catherines Demand
2.00
2.00
1.00
1.00
1.00
Market Demand
2.00
cones.
Nicholass Demand
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Price of IceCream
Cones
$2.00
1.00
0
2007 Thomson South-Western
Consumer income
Prices of related goods
Tastes
Expectations
Number of buyers
Consumer Income
Increase
in demand
Decrease
in demand
Demand curve, D3
Demand
curve, D1
Demand
curve, D2
Quantity of
Ice-Cream
Cones
2007 Thomson South-Western
$3.00
2.50
Increase
in demand
2.00
1.50
$3.00
An increase
in income...
2.00
Decrease
in demand
1.50
1.00
1.00
0.50
0 1
D1
2 3 4 5 6 7 8 9 10 11 12
An increase
in income...
2.50
D2
Quantity of
Ice-Cream
Cones
0.50
0 1
D2
D1
2 3 4 5 6 7 8 9 10 11 12
Quantity of
Ice-Cream
Cones
2007 Thomson South-Western
SUPPLY
Supply Schedule
Supply Curve
2.50
2.00
1.50
1.00
0.50
0
1 2
9 10 11 12 Quantity of
Ice-Cream Cones
Input prices
Technology
Expectations
Number of sellers
$3.00
1.00
Change in Supply
S
A rise in the price
of ice cream
cones results in a
movement along
the supply curve.
Quantity of
Ice-Cream
Cones
Supply curve, S3
Decrease
in supply
Supply
curve, S2
Increase
in supply
Quantity of
Ice-Cream Cones
Equilibrium Quantity
Supply Schedule
Supply
Equilibrium
Equilibrium price
$2.00
Equilibrium
quantity
0
Demand
9 10 11 12 13
Quantity of Ice-Cream Cones
10
Equilibrium
Surplus
Price of
Ice-Cream
Cone
Supply
Surplus
$2.50
2.00
Demand
0
4
Quantity
demanded
10
Quantity
supplied
Quantity of
Ice-Cream
Cones
2007 Thomson South-Western
Equilibrium
Shortage
Price of
Ice-Cream
Cone
Supply
$2.00
1.50
Shortage
4
Quantity
supplied
Demand
10
Quantity of
Quantity
Ice-Cream
demanded
Cones
2007 Thomson South-Western
11
Equilibrium
Supply
2.00
2. . . . resulting
in a higher
price . . .
Initial
equilibrium
D
0
3. . . . and a higher
quantity sold.
10
New equilibrium
$2.50
Quantity of
Ice-Cream Cones
2007 Thomson South-Western
12
S2
1. An increase in the
price of sugar reduces
the supply of ice cream. . .
S1
New
equilibrium
$2.50
Initial equilibrium
2.00
2. . . . resulting
in a higher
price of ice
cream . . .
Demand
3. . . . and a lower
quantity sold.
Quantity of
Ice-Cream Cones
2007 Thomson South-Western
Summary
Summary
13
Summary
Summary
Summary
To analyze how any event influences a market,
we use the supply-and-demand diagram to
examine how the event affects the equilibrium
price and quantity.
In market economics, prices are the signals
that guide economic decisions and thereby
allocate resources.
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