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Demand and Supply! by Ads4India
1 - DEMAND AND SUPPLY
Market structures, demand function, supply function, market equilibrium price in perfect competition, scarcity and surplus, tabulation, displacement curves of demand and supply.
1.1 - CLASSIFICATION OF MARKETS
The market is the place where sellers and buyers of certain goods and services. Formerly, the word had a geographical market which today no longer exists, since technological advances in communications allow economic transactions until there are no physical contact between buyer and seller, such as sales by phone and / or Internet.
Economists classify the following markets:
Perfect competition - This is a market characterized by the following factors:
a) Existence of a large number of small buyers and sellers;
b) the product traded is homogeneous;
c) There is free entry and exit of firms in the market;
d) Perfect transparency, ie, perfect knowledge by the buyers and sellers of everything that happens in the market;
e) Perfect mobility of productive resources
As can be seen by its characteristics, the perfectly competitive market is not easily found in practice, although it can be said that the markets that come closest to her are the markets for agricultural products.
The market of perfect competition is studied by economists to serve as a paradigm (referential perfection) for analysis of other markets.
Monopoly - is the market that is characterized by the existence of a single vendor. The monopoly can be legally or technically.
Oligopoly - is the market where there is a small number of sellers or where, despite a large number of vendors, a small portion of these dominates most of the market.
Monopsony - is a market where there is only one buyer.
Oligopsony - the market is characterized by the existence of a small number of buyers or that, although there are a large number of buyers, a small portion of these accounts for a very expressive part of the purchases occurred in the market.
Monopolistic Competition - this is a market that despite a large number of producers (and therefore be a competitive market), each of them is like monopoly of its product, as this is distinguished from the others.
This is not the only possible classification of markets, although the most used.
An important difference between the structures of markets lies in the degree of control that buyers and sellers have about the price at which the product is traded on the market.
In perfect competition, no seller or buyer, considered separately, has influence over the market price.
In this market, so it is only the combined influence of all sellers and all buyers who determines the market price.
In other market structures, or the seller or buyer, alone, may impose a price on the market.
1.2. DEMAND - CONCEPT:
The demand for a given asset is given by the amount of good that buyers wish to purchase a certain period of time. She is represented by the symbol DX.
The demand of good x depends on a number of factors, of which economists regard as the most relevant:
The price of good x (Px);
The consumer's income (Y);
The price of other goods (Pz);
The habits and tastes of consumers (H).
Mathematically, we can express the demand of good x by the following expression:
Dx = f (Px, Y, Pz, H, etc.).
Where the letter f means that Dx is a function of word and so on. embraces other possible variables.
Demand for good x is therefore the result of joint or combined action of all these variables.
Thus, for example, if you want to know what happens to the demand of good x if the price of that increase, we must assume that all other variables that influence the demand to remain with the same value, so that the demand variation is attributable solely to changes in price.
In this case, we can rewrite the demand of good x as the only function of the price of x, since the other variables remain unchanged with its value:
Dx = f (Px)
To this list we will call the demand function of good x and its graphical representation will be called the demand curve of good x.
Assuming that the good is perfectly divisible x, its demand curve will probably assume the following format:
Mathematically, it can be said that demand for good x is an inverse function or decreasing the price.
While it is perfectly acceptable to common sense that the quantity demanded of good x varies inversely to its price, economists justify such behavior in demand due to two effects:
a) income-effect - when the price of good x increases, the consumer is in real terms, poorer, and therefore will reduce the consumption of the good, the reverse occurs if the price of good x decrease.
b) Effect of substitution - if the price of good x increases and other goods remains constant, consumers seek to replace their consumption by another very similar if the price decreases, consumers will increase consumption of good x at the expense of decreased consumption of goods substitutes.
1.2.2 - EXCEPTIONS TO THE LAW OF DEMAND
Some days are exceptions to the law of demand: so-called Giffen goods and goods of Veblen.
The Giffen goods are goods of small value but of great importance in the budgets of low-income consumers.
The Veblen goods are goods of conspicuous consumption, such as artwork, jewelry, tapestries and luxury cars.
Both Giffen goods such as Veblen have demand curves with positive slope, ie, ascending from left to right.
1.2.3 - MARKET DEMAND CURVE
All that was revealed was referring to the individual consumer, but also applies to the market as a whole, since the market demand curve is the result of aggregation of individual curves.
Thus, for example, if the market is composed of two consumers (A and B), it would have:
Individual A Individual B Market
1.3 - SUPPLY
Q quantity of good x, per unit time, the sellers want to offer the market is the supply of good x. Similarly the demand, supply is also influenced by several variables, including:
a) the price of good x (Px);
b) the price of inputs used in production (Pi);
c) technology (T);
d) price of other goods (Pz).
Mathematically, we can express the supply of good x (Ox) by the following function:
X = f (Px. Pi. T. Pz. Etc.).
OBS.: Etc. = Refers to other possible variables that may influence the bid.
Assuming the hypothesis of Carteris paribus:
X = f (Px)
Expression that is called supply function of good x, its graphical representation, shown below, is called the curve of good x.
The offer of good x is an ascending curve from left to right, showing that the higher the price, the greater the quantity that producers wish to offer on the market.
The offer of good x is therefore a direct function or increasing the price.
1.4 - BALANCE OF MARKET COMPETITION IN PERFECT
1.4.1 - CONCEPT: The supply and demand of good x jointly determine the equilibrium price in the market of perfect competition. The equilibrium price is defined as the price that equates the quantity demanded by buyers and the amounts offered by vendors, so that both groups will be satisfied.
1.4.2 - MATHEMATICAL TREATMENT
Although economists refer to the curves of demand and supply, they can also be expressed linearly.
QDX = 280 - 4px (demand)
QOx = - 20 + 2px (supply)
QDX px = 280 - = 20 + QOx 4px 2px
30 280 - (4 x 30) = 160-20 + (2 x 30) = 40
40 280 - (4 x 40) = 120-20 + (2 x 40) = 60
50 280 - (4 x 50) = 80-20 + (2 x 50) = 80
60 280 - (4 x 60) = 40-20 + (2 x 60) = 100
Observing the table above, it is easily seen that the equilibrium price is $ 50.
To obtain the equilibrium price, it would be easier to match up the quantities demanded and supplied (since the equilibrium price equates the two quantities).
280 - 20 + = 4px 2px
300 = 6px
300 Px =
6
Px = 50
1.4.3 - TABLE: In a perfectly competitive market if the government set the price at a value below the equilibrium, there will be shortage of good (excess quantity demanded on the supply).
Considering that the solution for the shortage, which would increase the market price, it is not possible because it is tabled, there is no alternative except to the administration of scarcity.
1.5 - CHANGE IN MARKET PRICE OF BALANCE DUE TO SHIFTS OF SUPPLY AND DEMAND CURVES
1.5.1 - SHIFTS OF DEMAND CURVES
The demand curve shifts from its original position when one of those variables that we assumed when we establish the constant curve changes value. She will move to the right of the original position when changing the variable value before assumed constant help to increase demand and to the left of the original position when help reduce demand.
1.5.1.1 - CHANGE IN INCOME CONSUMERS
1.5.1.1.1 - PROPERTY NORMAL: normal goods are those whose consumption increases as consumer income rises.
Suppose that a certain income level of consumers, the demand curve of x and submit the following pairs and quantities demanded:
Px QPX
10 100
November 1990
12 81
13 76
The chart would be as follows:
If consumers' income rises, they will probably also increase the quantity demanded of good x such that, for the possible price levels:
Px QPX QP'x
10 100 110
11 90 100
12 81 91
13 76 86
1.5.1.1.2 - LOWER PROPERTY: inferior goods are goods whose demand decreases when the level of consumer income increases and increases when the consumer gets poorer.
If good x is an inferior good, higher income consumers reduce their demand curve shifts to the left and the equilibrium price and quantity decrease.
1.5.1.2 - CHANGES IN THE PRICES OF OTHER PROPERTY (PZ) A and Z may have determined the following relationships with good x:
a) Z is a commodity independent of x;
b) Z is a substitute for x;
c) Z is complementary to x.
1.5.1.2.1 - SUBSTITUTE GOODS: These are goods where the consumption of one excludes the consumption of another. The replacement need not be total, just the fact that he buy larger quantities of butter involves a certain reduction in their consumption of margarine.
1.5.1.2.2 - ADDITIONAL ITEMS: These are goods whose consumption is usually done simultaneously. Just as the possibility of substitution, complementarity need not be total, ie, the consumption of one necessarily implies the consumption of another, just that the consumption of both is associated in any way. Example: Bread and butter.
1.5.1.3 - CONSUMER TASTES AND HABITS: This variable is influenced by advertising campaigns and propaganda and x. For example, if an advertising campaign to convince consumers that the consumption of a product is good health, this should increase demand and hence increase its price and equilibrium quantity.
1.5.2 - SHIFTS IN THE SUPPLY CURVE: The supply curve moves relative to its original position when one of those variables that were assumed constant plotting the change in value. If the change in value of the variable increase the offer, it will shift to the right and decrease to the left of the original position.
1.6 - MATHEMATICAL TREATMENT OF THE DEMAND FUNCTION REVISITED
The demand of good x can be expressed mathematically as follows:
Dx = f (Px, Y, Pz, H, etc.).
Assuming that the demand function is linear, one can have, for example:
QDX = - 2px + 0.05 Y - 1.5 Pz
Applying the hypothesis of cateris paribus, it is assumed that the consumer's income and the price of other goods remain constant in 1000 and 8, respectively, to obtain the demand curve of good x:
QDX =-2px + (0.05 x 1000) - (1.5 x 
QDX-2px + = 50-12
QDX = 38 - 2px
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