1. Overview

This course covers the market forces of supply and demand. It explains how prices and allocation of scarce resources are determined in market economies through the interaction of buyers and sellers. The course discusses key assumptions of the market model, characteristics of competitive markets, demand and supply behavior, shifts versus movements along curves, and market equilibrium concepts. It also introduces elasticity to quantify responsiveness in demand and supply relative to price and other economic factors. Applications include pricing variations and income effects.

Key ideas include:

Market model assumptions (many buyers/sellers, perfect information, etc.)
Demand curve: law of demand, shifts vs movements
Supply curve: law of supply, factors causing shifts
Market equilibrium: price, quantity, surplus, shortage
Price as signals
Elasticity concepts: price elasticity, income elasticity, cross elasticity
Effects of elasticity on revenue and market behavior

2. Core Concepts & Key Elements

Introduction to Supply and Demand
- Forces determining prices and resource allocation
- Market model assumptions simplify real-world behavior
Assumptions of the Market Model
- Many buyers and sellers: no individual price control
- Perfect information on prices and quality
- Identical goods treated as perfect substitutes
- Buyers and sellers act in self-interest under property rights
- Freedom of entry and exit to promote competition
Competitive Markets
- Many buyers and sellers with negligible market impact
- Goods identical; buyers perceive no difference
- Participants are price takers
- Perfect competition characteristics ensure efficiency
Demand Curve
- Quantity demanded: willingness & ability to buy at given price
- Law of Demand: price increase → quantity demanded decreases
- Demand schedule: tabular price-quantity demand relationship
- Demand curve: graphical representation of price vs quantity demanded
Market vs Individual Demand
- Market demand = horizontal sum of individual demands
Shifts vs Movements Along Demand Curve
- Movement: caused by price changes of the good itself
- Shift: caused by factors other than price (income, tastes, etc.)
- Shift direction: right = increase, left = decrease
Factors Causing Demand Shifts
- Prices of related goods: substitutes and complements
- Income effect: normal vs inferior goods
- Number of buyers
- Advertising
- Consumer tastes
- Expectations about future prices or income
Supply Curve
- Quantity supplied: willingness & ability to sell at given price
- Law of Supply: price increase → quantity supplied increases
- Supply schedule: tabular price-quantity supplied relationship
- Supply curve: graphical price vs quantity supplied
Market vs Individual Supply
- Market supply = horizontal sum of individual supplies
Shifts in Supply Curve
- Profitability of related goods and joint supply
- Technology advancements
- Natural and social factors (weather, attitudes)
- Input prices (costs)
- Expectations of producers
- Number of sellers in the market
Equilibrium in Supply and Demand
- Equilibrium price: balances quantity supplied and demanded
- Equilibrium quantity: quantity at equilibrium price (intersection point)
- Surplus: price above equilibrium → excess supply → price falls
- Shortage: price below equilibrium → excess demand → price rises
Price as Signals
- Signals cost for buyers and profitability for sellers
- Guide decisions and efficient resource allocation
Analyzing Changes in Equilibrium
- Identify curve(s) affected, shift or movement
- Determine shift direction (left or right)
- Predict new equilibrium price and quantity changes
Elasticity Introduction
- Responsiveness of quantity demanded/supplied to price or other factors
- Types: price elasticity of demand/supply, income elasticity, cross elasticity
Price Elasticity of Demand (PED)
- % change quantity demanded / % change price
- Determinants: substitutes, necessity vs luxury, income share, time horizon
- Elastic demand: >1 (responsive); inelastic <1; unit elastic =1
- Calculation methods: percentage change, midpoint, point elasticity
Varieties of Demand Curves
- Perfectly price inelastic (PED=0): quantity demanded fixed
- Price inelastic (PED<1)
- Unit elastic (PED=1)
- Price elastic (PED>1)
- Perfectly price elastic (PED=∞)
Total Revenue and Elasticity
- Price inelastic demand: price increase raises total revenue
- Price elastic demand: price increase lowers total revenue
Other Demand Elasticities
- Income elasticity: % change quantity demanded / % change income
- Normal vs inferior goods differ in response
- Cross-price elasticity: + for substitutes, - for complements
Price Elasticity of Supply (PES)
- % change quantity supplied / % change price
- Determinants: time period, capacity, production flexibility, firm size
- Measurement methods similar to PED
Varieties of Supply Curves
- Perfectly price inelastic supply (PES=0)
- Price inelastic supply (PES<1)
- Unit elastic supply (PES=1)
- Price elastic supply (PES>1)
- Perfectly price elastic supply (PES=∞)
Applications of Elasticity
- Train travel pricing varies by time due to elasticity differences
- Farmer incomes drop despite productivity gains due to supply-demand shifts

3. High-Yield Facts

Market model assumptions: many buyers/sellers, perfect info, identical goods, self-interest, free entry/exit
Law of Demand: Price ↑ → Quantity demanded ↓ (ceteris paribus)
Demand schedule example: €0.00 milk → 20 L, €0.90 → 2 L
Law of Supply: Price ↑ → Quantity supplied ↑
Demand shift causes: Income, prices of substitutes/complements, tastes, buyers number, advertising, expectations
Supply shift causes: Technology, input prices, number of sellers, expectations, natural factors, joint supply
Equilibrium price: quantity demanded = quantity supplied
Surplus: Price > equilibrium → Q supplied > Q demanded
Shortage: Price < equilibrium → Q demanded > Q supplied
Price elasticity of demand:
- Elastic > 1, Inelastic < 1, Unit Elastic = 1, Perfectly elastic = ∞, Perfectly inelastic = 0
- Midpoint formula: PED = %ΔQd / %ΔP using averages
Income elasticity: Normal goods ↑ with income; Inferior goods ↓
Cross elasticity: positive=substitutes, negative=complements
Price elasticity of supply: elasticities measured similarly to demand
Train tickets: Peak time inelastic demand → higher price; off-peak elastic → lower price
Farmers’ incomes fall: Supply shift strong, demand shift weak → prices fall despite more production

4. Summary Table

Concept	Key Points	Notes
Market model assumptions	Many buyers/sellers, perfect info, identical goods	Ensures efficient competitive markets
Law of Demand	Price ↑ → Quantity demanded ↓	Demand curve slopes downward
Law of Supply	Price ↑ → Quantity supplied ↑	Supply curve slopes upward
Demand shifts	Income, related goods, tastes, buyers, advertising	Shift demand curve left or right
Supply shifts	Technology, input prices, number sellers, expectations	Shift supply curve left or right
Equilibrium	Intersection of supply and demand curves	Price balances quantity supplied/demanded
Surplus & Shortage	Surplus: price too high; shortage: price too low	Market forces restore equilibrium
Price as signals	Guide buyer/seller decisions	Aid resource allocation
Elasticity	Responsiveness of Q demanded/supplied to price/income	Critical for market outcome predictions
Price Elasticity of Demand	PED = %ΔQd/%ΔP, elastic>1, inelastic<1	Midpoint method preferred
Income Elasticity	Normal goods ↑, inferior goods ↓ with income	Indicates type of good
Cross Elasticity	+ for substitutes, - for complements	Measures intergoods relations
Price Elasticity of Supply	PES = %ΔQs/%ΔP, depends on production flexibility	Short run less elastic than long run
Application examples	Train pricing, farmer incomes	Illustrate elasticity’s real-world impact

5. Mini-Schema (ASCII)

Market Forces of Supply and Demand
 ├─ Market Model Assumptions
 │    ├─ Many Buyers and Sellers
 │    ├─ Perfect Information
 │    ├─ Identical Goods
 │    ├─ Self-Interest & Property Rights
 │    └─ Freedom of Entry and Exit
 ├─ Demand
 │    ├─ Law of Demand
 │    ├─ Demand Curve & Schedule
 │    ├─ Market vs Individual Demand
 │    ├─ Movement vs Shift of Demand Curve
 │    └─ Shift Factors (Income, Related Goods, Tastes, Advertising, Etc.)
 ├─ Supply
 │    ├─ Law of Supply
 │    ├─ Supply Curve & Schedule
 │    ├─ Market vs Individual Supply
 │    └─ Shift Factors (Technology, Input Prices, Number of Sellers, Expectations)
 ├─ Equilibrium
 │    ├─ Equilibrium Price & Quantity
 │    ├─ Surplus & Shortage
 │    └─ Price as Signal
 └─ Elasticity
      ├─ Price Elasticity of Demand
      ├─ Varieties of Demand Elasticity
      ├─ Income & Cross Elasticity of Demand
      ├─ Price Elasticity of Supply
      └─ Real-World Applications (Train Pricing, Farmer Incomes)

6. Rapid-Review Bullets

Market prices set by supply and demand interaction
Efficient market needs many buyers and sellers, perfect information
Goods in market are identical for perfect competition
Price takers accept market price without influence
Law of Demand: Qd decreases as price rises (ceteris paribus)
Demand shifts caused by income, related goods, tastes, and expectations
Law of Supply: Qs increases as price rises
Supply shifts caused by technology, input costs, number of sellers
Equilibrium is intersection of supply and demand curves
Surplus: Qs > Qd, price falls; shortage: Qd > Qs, price rises
Price signals convey buyer cost and seller profit info
Elasticity measures responsiveness to price or income changes
PED > 1: elastic, PED < 1: inelastic, PED=1: unit elastic
Income elasticity distinguishes normal and inferior goods
Cross elasticity positive for substitutes, negative for complements
PES depends on production flexibility and time horizon
Train travel prices reflect different demand elasticities by time
Farmer incomes may fall despite higher productivity due to demand-supply imbalance
Midpoint method standard for elasticity calculation
Perfectly inelastic demand or supply curves are vertical lines
Perfectly elastic demand or supply curves are horizontal lines

Market Forces of Supply and Demand - Revision Sheet

1. 📌 Essentials

Market equilibrium occurs where supply equals demand.
Demand curves slope downward; supply curves slope upward.
Price elasticity measures responsiveness of quantity to price changes.
Surplus occurs when price is above equilibrium; shortage when below.
Perfect competition features many buyers and sellers; products are identical.
Law of demand: higher prices lead to lower quantity demanded.
Law of supply: higher prices lead to higher quantity supplied.
Demand shifts due to income, tastes, related goods, expectations.
Supply shifts due to technology, input costs, number of sellers.
Elasticity influences total revenue: elastic demand means price changes affect total revenue significantly.

2. 🧩 Key Structures & Components

Demand Curve — shows the relationship between price and quantity demanded.
Supply Curve — depicts how quantity supplied varies with price.
Market Equilibrium — intersection of demand and supply curves.
Surplus & Shortage — imbalance signals market to adjust prices.
Elasticity — measures how responsive Qd or Qs are to price, income, or related good changes.
Related Goods — substitutes (positive cross elasticity) and complements (negative cross elasticity).

3. 🔬 Functions, Mechanisms & Relationships

Demand decreases as price increases (movement along demand curve).
Demand shifts right with increased income or popularity; shifts left with opposite factors.
Supply increases with technological improvements; decreases with higher input costs.
Equilibrium price adjusts to balance Qd and Qs.
Surpluses push prices downward; shortages push prices upward.
Elasticity determines whether price changes lead to big or small shifts in quantity.
Cross and income elasticities interpret inter-goods relationships and income effects.
Price signals guide buyer costs and seller profits, optimizing resource allocation.

4. 📊 Comparative Table

Item	Key Features	Notes
Demand Curve	Slopes downward; Qd ↓ as P ↑	Reflects law of demand
Supply Curve	Slopes upward; Qs ↑ as P ↑	Reflects law of supply
Demand Shift Causes	Income, prices of related goods, tastes, expectations	Shift demand right or left
Supply Shift Causes	Technology, input costs, number of sellers, expectations	Shift supply right or left
Market Equilibrium	Intersection of supply and demand curves	Clears market; price balances Qd and Qs
Surplus vs Shortage	Surplus: P > Pe; Shortage: P < Pe	Market forces restore equilibrium
Price Elasticity of Demand	PED > 1: elastic; < 1: inelastic; = 1: unit elastic	Affects total revenue responsiveness
Income Elasticity	Normal > 0; Inferior < 0	Shows demand response to income changes
Cross-Price Elasticity	Positive: substitutes; Negative: complements	Indicates relationship between goods
Price Elasticity of Supply	PES varies with time and flexibility	Short-term less elastic than long-term

5. 🗂️ Hierarchical Diagram (ASCII)

Market Forces of Supply and Demand
 ├─ Assumptions of Market Model
 │    ├─ Many Buyers and Sellers
 │    ├─ Perfect Information
 │    ├─ Homogeneous Goods
 │    ├─ Self-Interest & Property Rights
 │    └─ Free Entry & Exit
 ├─ Demand
 │    ├─ Law of Demand
 │    ├─ Demand Curve & Shifts
 │    │    ├─ Income, Tastes, Related Goods, Expectations
 │    └─ Movement along demand curve
 ├─ Supply
 │    ├─ Law of Supply
 │    ├─ Supply Curve & Shifts
 │    │    ├─ Technology, Input Costs, Number of Sellers
 │    └─ Movement along supply curve
 ├─ Equilibrium
 │    ├─ Price & Quantity
 │    ├─ Surplus & Shortage
 │    └─ Price Signals
 └─ Elasticity
      ├─ Price Elasticity of Demand
      ├─ Income & Cross Elasticities
      └─ Price Elasticity of Supply

6. ⚠️ High-Yield Pitfalls & Confusions

Confusing movement along the curve with shifts.
Assuming demand is always elastic at high prices—it's not.
Overlooking factors that cause demand or supply shifts.
Misinterpreting elasticity directions—elastic > 1, inelastic < 1.
Ignoring time horizon effects: supply elasticity differs in short vs long term.
Overgeneralizing perfect elasticity or inelasticity—rare in real markets.
Not equating equilibrium with maximum efficiency—market failures occur.
Miscalculating elasticity—using the wrong formula or midpoint for % change.

7. ✅ Final Exam Checklist

Define demand and supply; explain their slopes.
List assumptions of the market model.
Identify determinants causing demand shifts.
Identify determinants causing supply shifts.
Draw and label demand, supply, and equilibrium.
Describe surplus and shortage implications.
Explain price signals and resource allocation.
Calculate PED using percentage changes or midpoint method.
Classify demand as elastic, inelastic, or unit elastic.
Understand income elasticity: normal vs inferior goods.
Interpret cross elasticity: substitutes vs complements.
Calculate price elasticity of supply, noting determinants.
Recognize effects of elasticity on total revenue.
Identify causes and effects of demand and supply shifts.
Recognize different elasticity curves (perfectly elastic, inelastic).
Understand real-world applications: pricing strategies, income impacts.

Fundamentals of Supply and Demand Market Dynamics

Crée tes propres fiches en 30 secondes

1. Overview

2. Core Concepts & Key Elements

3. High-Yield Facts

4. Summary Table

5. Mini-Schema (ASCII)

6. Rapid-Review Bullets

Fundamentals of Supply and Demand Market Dynamics

Crée tes propres fiches en 30 secondes

Market Forces of Supply and Demand - Revision Sheet

1. 📌 Essentials

2. 🧩 Key Structures & Components

3. 🔬 Functions, Mechanisms & Relationships

4. 📊 Comparative Table

5. 🗂️ Hierarchical Diagram (ASCII)

6. ⚠️ High-Yield Pitfalls & Confusions

7. ✅ Final Exam Checklist

Fundamentals of Supply and Demand Market Dynamics

Fundamentals of Supply and Demand Market Dynamics

Which of the following is an assumption of the market model?

Fundamentals of Supply and Demand Market Dynamics

Progression globale

Détail par thème

Introduction au système

Les différents types

Structure axiale

Structure appendiculaire

Suivi de progression par thème