Markets and Price Determination：市场和价格的确定.pptVIP

Markets and Price Determination ECON 704 Module 2, Part 2 Agenda Describe characteristics of a competitive market Understand the determinants of demand and supply in a market Use demand and supply to determine market prices and changes therein Understand the role of the price system in allocating resources Prices and Markets Oil – worldwide production more than its ever been…so why has price increased so much? Platinum… $540/oz. May 2002 to $1296/oz Sept 2007 If red wine is discovered to be healthier, what would happen to the price of beer? What will happen in the market your business is in? The market for your labor? Assumption: Competitive Market A market is buyers and sellers of a good or service A market is perfectly competitive when many buyers and many sellers free entry and exit individually no power to influence prices (price takers) product is undifferentiated participants have complete information Competitive Markets, cont. Close Examples: agricultural grains; some precious metals Non-competitive markets: monopolies: single seller oligopoly: few sellers with substantial pricing interdependence monopolistic competition: many sellers of similar but differentiated products Buyers and Sellers Buyers demand the product and consume it or use it as input into further production Buyers DEMAND a good or service; is a function of perceived benefit. The quantity demanded depends on price and other determinants. Sellers produce the product using inputs and sell it to the buyer Sellers SUPPLY a good or service; is a function of costs of production Demand Quantity Demanded (QD) is the amount buyers are willing and able to buy, and falls as price increases (Law of Demand). Demand is the relationship between P and QD If price changes, Demand does not change!! Qty demanded changes along given demand Other determinants disturb the P/ QD relationship and change demand $0.30 0.25 0.20 0.15 0.10 0.05 2 1 3 4 5 6 7 8 9 10 12 11 Price of pencils Quantity of Pencils (in hund