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The law of demand tells us, that ceteris paribus, the lower the price, the greater the quantity demanded and vice versa.
Xavier is willing and able to pay the most for the initial units of the good or service, but is quickly satisfied.
With a pure private good, the Market Demand Curve is the horizontal summation of all individual's demand curves. So that at each price, the market quantity is the quantity Xavier will purchase plus the quantity Yves will purchase plus the quantity Zelda will purchase. The relationship between price and the quantity demanded by the entire market is the market demand curve.
Point elasticity is the price elasticity of demand at a specific point on the demand curve instead of over a range of it.
We can start by analysing demand from a purely microeconomic point of view: a single individual, let’s say her name is Joan. From a macroeconomic point of view, the demand curve is just the aggregation of all demand curves from all buyers in a particular market.
On the other side, supply is the set of offers made in the market for the sale of goods and services.
Let’s see how the supply curve can be built, starting with an individual’s offer, let’s say his name is Robert. Again, the market’s supply curve is just the aggregation of all supply curves from all sellers in a particular market. The demand and supply curves define the market clearing, that is, where the demand of the products meets its supply.
It is possible for disequilibrium to occur when the amount demanded does not equal the amount supplied. When analysing demand and supply and their respective curves, it is important to distinguish between two aspects: movements along curves and shifts in curves. A movement refers to a change in either the demand or supply curve, which occurs when a change in the quantity is caused by a change in price and vice versa.
Demand curves may shift for multiple reasons, for example, an increase in the consumers’ level of income would increase the aggregate demand of a normal good for each price, and hence shift the demand curve to the right (left figure). Slideshare uses cookies to improve functionality and performance, and to provide you with relevant advertising. To be part of the demand for a good, consumers have to be willing and able to purchase the good.


While Zelda is more frugal, but when the price is very low, she is willing and able to buy the most.
The concept of market is usually defined as a number of buyers and sellers of a given good or service that are willing to negotiate in order to exchange those goods.
The demand curve shows the quantity of a specific product that individuals or society are willing to buy according to its price and their income. The supply curve records the location of the points corresponding to the amount offered for a particular good or service at the different prices. Robert is willing to supply books for $10 or more, this is, Robert won’t supply any books for $5 (point a).
Let’s say the market for books has only two sellers: Robert and the librarian next door, Gregory. At this point we have what is known as, an equilibrium point, with its corresponding price and quantity of equilibrium. An increase in the price of a good or service would cause a movement along its demand curve, decreasing the amount demanded. Both demand and supply are defined and illustrated; determinants of demand and supply are listed and explained.
When deriving demand, we are assuming that the only factor that causes consumers to buy more or less is the price of the good. Prices act as obstacles for buyers and keep them from being able to buy everything that they want.
This curve shows an inverse relationship between price and quantity demanded giving it a downward slope. If the price of a book is $35 or more, Joan won’t demand any (point a), given her preferences (basically, she would rather spend her money on something else). This curve shows a direct relationship between price and quantity supplied, giving it an upward slope. However, if the price of books goes up to $10, he will be willing to sell one book (point b).
In situations in which the quantity demanded is higher than the quantity supplied, the market is suffering from an excess demand.
In the case of supply curves, as we previously saw, an increase in price would also increase quantity. When a shift occurs, the curve moves, meaning that for each price there will be a new different quantity being demanded or offered.


Other variables that can shift the supply curve include technological progress, expectations, number of sellers, etc.
The concept of equilibrium and the effects of changes in demand and supply on equilibrium price and quantity are explained and illustrated. An example of a local market is the farmer’s market that brings together buyers and sellers of produce in the summer. It is assumed that all other factors that influence the amount that consumers will buy are constant. The reason why this happens is known as the law of demand: ceteris paribus, and considering ordinary goods, the higher the price the lower the quantity demanded, and vice versa. The reason why this happens is known as the law of supply: ceteris paribus, and considering ordinary goods, the higher the price the higher the quantity supplied, and vice versa.
It’s important to understand that movement along the curves does never actually change the equilibrium point, as movements along the curves do not affect it. This curve shifts can occur in two directions, upwards and downwards, or if preferred, rightwards and leftwards. The chapter also includes brief discussions of efficiency (productive and allocative) and price controls (floors and ceilings). An example of a national market is the US real estate market and the New York Stock Exchange is an international market. Prices will have to gradually adjust through different market mechanisms until the equilibrium price is met.
In the adjacent figure we can see a price increase (let’s say, because an increase of VAT), which causes a movement along the demand curve. In the Last Word, you can read how creation of a legal market for human organs could reduce the shortages of kidneys, lungs, and other needed organs available for transplant.
Notice that the supply curve goes up and seems not to have limits, an assumption made for simplicity’s sake. It’s worth mentioning that, for simplicity’s sake (though violating monotonicity), we consider that the demand curve ends at the axes. Of course Robert will have troubles to supply more than a certain amount of books, but let’s keep it simple and not think about the upper end of the supply curve.



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