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5 -- Part 1: Market Outcomes and Tax Incidence
They all have their headquarters in Seattle.
Starbucks supplies coffee from coast to coast and seems to be everywhere someone wants a cup of coffee.
Nordstrom, a giant retailer with hundreds of department stores, supplies fashion apparel to meet a broad spectrum of individual demand, from the basics to designer collections.
Bill Gates and other investors in the company have made a lot of money from the demand for Microsoft products.
These words are used by economists when describing an economy.
Many people think that the price of the good is determined by the seller.
Our first instinct is usually to wonder about the price of something rather than how much someone will pay for it.
Our ability to fully appreciate how prices are determined is undermined by this one-sided impression of the market.
This chapter explains how markets work and the nature of competition.
The formal model of demand and supply was introduced to shed light on the process.
We look at demand and supply separately.
We combine them to see how they interact to establish a market price and determine how much is produced.
There is a rush at target on Black Friday.
Markets bring trading partners together.
Consumers are motivated by self-interest and must decide how to use market forces that guide their money to choose the goods that they need or want the most.
Goods and services are exchanged in a market economy through established prices.
The levels of demand for a product and how much is supplied affect those prices.
When demand is low, hotel rates near Disney World are reduced in the fall and peak in March.
If spring break takes you to a ski resort, you will find a lot of company and high prices.
Ski resorts have a lot of lodging available at great rates if you are looking for an outdoor adventure.
Many parents know how expensive peak season is.
The supply of oil and the price of gasoline can be disrupted due to political unrest in the Middle East.
Consumers respond to higher gas prices by changing their driving habits or buying more fuel efficient cars.
Inform the story and demand it.
We begin our exploration of supply and demand by looking at markets.
A market is formed when buyers and sellers come together.
The buyers and sellers both create demand for the product.
The price and quantity of a particular good or the amount of a service is determined by the interaction of buyers and sellers in a market.
Goods and services are exchanged.
When there are so many buyers and sellers that each are online, there are some markets that operate in brick and mortar stores.
The Place Market in Seattle is a collection of markets spread across 9 acres.
It has brought together buyers and sellers of fresh, organic, and output for a hundred years.
The markets at Pike Place are competitive because of the large number of buyers and sellers.
The impact is very small.
Similar goods are sold by each vendor at the market.
No single buyer or seller has any influence over the market price because they are just a small part of the whole market.
A highly competitive market is created by the two characteristics of similar goods and many participants.
The price and quantity of a good are determined by the market rather than by any one person or business.
Let's look at the sales of salmon at the market.
Dozens of vendors sell salmon at this market.
It's the same for those buying salmon.
Customers can influence the seller to find salmon at the remaining vendors.
No single buyer or seller has any influence on the price of salmon.
The market for good or service by exercising for salmon is a competitive one.
The cost of taking the elevator to the top of the building is not cheap.
Many customers buy tickets because they think the view is worth the price.
There is no other place in New York City that has such a great view.
When sellers produce goods and services that are different from their competitors, they gain some control over the price that they charge.
The more unusual the product, the more control the seller has over the price.
The market is imperfect when a seller has control over the price.
The seller has a lot of pricing power because of specialized products, such as popular video games, front- row concert tickets, or dinner reservations at a trendy restaurant.
There are many other types of markets in between the competitive environment at the Pike Place Market and the lack of competition in the Empire State Building.
The market for fast- food restaurants is highly competitive but sells products that are not the same.
In later chapters, we'll talk about different market structures, such as monopoly.
The Empire State Building has one of the best views in New York City and we will keep our analysis focused on supply and demand.
How much market power does each firm have?
Each gas station sells the same product and competes for the same customers, so they charge the same price.
The market is competitive.
Individual stations have some market power.
It would take a long time for residents to find another furni ture store.
The small town store can charge more than other stores.
The store has a lot of power.
This market is not competitive.
Because consumers can buy fresh produce from many stands at a farmers' market, individual vendors have very little market pricing power.
They need to charge the same price in order to get customers.
The market is competitive.
When a group wants something badly enough to pay or trade for it, there is demand.
The price of the good or service can affect how much an individual or group buys.
When the price of a good increases, consumers are more likely to buy something else.
If the current price of salmon is $5 per pound, many consumers will buy something else.
The price of salmon went up to $20 per pound.
As price goes up, quantity demands go down.
As price goes down, quantity demanded goes up.
The law of demand falls when the price goes up.
Table 3.1 shows the relationship between Ryan and Seacrest.
Ryan won't buy salmon when the price is less than $25.00 per pound.
The quantity was demanded.
The amount that Ryan buys is related to the price.
Ryan demands 4 pounds per month at a price of $10.00.
He wants 3 pounds if the price goes up to $12.50 per pound.
Ryan buys less salmon when the price goes up.
He buys more when the price falls.
Ryan would demand 8 pounds if the price fell to zero.
Even if the salmon is free, there is a limit to his demand because he would grow tired of eating the same thing.
The curve is drawn as a straight line.
The independent variable is always demanded by economists.
The downward sloping curve is created by the relationship between the price and quantity demanded.
He buys 4 pounds of salmon when the price is $10 per pound.
Ryan reduced the quantity that he buys to 3 pounds.
The $7.50 figure shows a negative relationship between the price and the quantity demanded.
We have studied individual demand, but the market is made up of many different buyers.
We look at the collective demand of all of the buyers in a market.
Over 100 individuals buy salmon at the individual quantities market.
To make our analysis sim demanded by each buyer in pler, let's assume that our market consists of only two buyers.
Ryan buys 4 pounds a month at a price of $10 per pound.
The market demand curve is determined by adding 2 pounds to Ryan's 4 pounds for a total of 6 pounds.
Any demand curve shows the law of demand with movements along the curve that reflect a price change's effect on the quantity demanded of the good or service.
A demand curve can only be affected by a change in price.
We add the quantity demanded by Ryan and the quantity demanded byMelissa to calculate the market demand for salmon.
We looked at the relationship between price and quantity demanded.
The law of demand shows that consumers respond to price changes by changing their purchases.
Many variables affect how much a good or service is purchased.
News about possible risks or benefits associated with the consumption of a good or service can change demand.
The warning would cause consumers to buy less cantaloupes, and overall demand would decline.
Demand has moved from 6 melons to 3 as the price remains at $5 per cantaloupe.
The quantity demanded will increase or decrease in response to a price change.
The demand curve is shifted to the left by a decrease in overall demand.
The news media might just announce the results of a medical study that says cantaloupe contains a natural substance that lowers cholesterol.
Eating more demand for it will increase if a new medical study is correct.
Demand shifted because of changes in consumers' tastes and preferences in our cantaloupe example.
Demand can be shifted by many different movements along the ables.
The quantity demanded changes along the demand curve when the price changed.
When something other than price changes, a shift of the demand curve is indicated by the black arrows.
When a factor decreases demand, the demand curve shifts to the left.
When a factor increases demand, the demand curve shifts to the right.
The price of a substitute good goes down.
The price of a substitute good goes up.
The price of a good increases.
The price of a good falls.
The good is out of style.
The good is in good shape.
There is a belief that the price of the good will decline in the future.
There is a belief that the price of the good will go up in the future.
The number of buyers decreases.
There are more buyers in the market.
There are variables that can shift demand in Figure 3.4.
You shift the demand curve to the left if the change reduces how much you buy.
You shift the curve to the right if the change increases how much you buy.
You have more to spend when your income goes up.
Your income affects your demand.
Consumers are going to buy more constant.
A meal at a restaurant is an example of a normal good.
The demand curve shifts to the right when income goes up.
If income falls, the demand for restaurant meals goes down and the curve shifts to the left.
Consumers with more purchasing power will purchase less inferior goods.
Rooms in boarding houses, as opposed to one's own out of necessity, and hamburger and ramen noodles, as opposed to filet choice, are examples.
Consumers buy less of an inferior good when their income goes up.
You can often find examples of inferior and normal goods in the form of different brands within a specific product market.
The price of related goods can shift the demand curve.
The demand for other goods is influenced by certain goods.
A photo needs to be printed in color.
When a price is down, what happens?
You would expect the quantity demanded to go down.
Substitute goods work in opposite ways when the price of a substitute increases.
When the quantity demanded good increases, the quantity demanded declines, and the quantity demanded alternative good increases.
If the price of the PS4 goes up and the price of the XBOX goes down, the demand for good goes up.
The quantity demanded of the PS4 will decline.
It takes a while for fashion to go in and out of style.
You can see that fashion changes from season to season and year to year when you walk into a store.
It is safe to assume that they will go out of style in a few years because they were popular 20 years ago.
Demand increases when something is popular.
Demand for it will decrease once it falls out of favor.
The demand for a particular good can be altered by fluctuations in tastes and preferences.
Changes in fashion trends are purely subjective, but other changes in preferences are the result of new information about the goods and services we buy.
Positive medical findings determine it.
Consumers' tastes in fashion at the time.
A scene from the movie shows the difference between movements along the demand curve and a shift of the entire demand curve.
The hula hoop will be sold for $1.79.
Business is slow.
Tim Robbins plays the president of the company in the movie and he plays with a hula hoop.
Suddenly, sitting behind a big desk waiting to hear about sales, everyone wants a hula hoop and there is a run on the new toy.
The price has changed and preferences have changed, so demand has increased.
Until the hula hoop is free with any pur is born, the hula hoop craze is on.
The toy store owner believes that the entire demand curve has been shifted to attract consumers because of the generous offer.
The toy store ordered new hula hoops into the alley.
This example shows how the price of a boy who is skipping school can change.
The demand curve can't be shifted by picking up the hula.
When an outside event lets out, a crowd of students round the corner and human behavior ensues.
If people learn that eating cantaloupe lowers cholesterol, they will demand more melon.
Expectations about the future influenced your current demand.
We are likely to buy more today to beat the price increase if we expect a price to be higher tomorrow.
The result is an increase in demand.
What if a pizza place likes to run a late- night special?
The owners want you to give them some advice.
He proposes two marketing ideas.
The price of large pizzas should be reduced.
Offer two bottles or cans of soda with every large pizza and reduce the price of a good.
Consider why late- night specials exist.
The pizzeria has to encourage late night patrons to buy pizzas because most people prefer to eat dinner early in the evening.
When regular prices would leave the establishment largely empty, "Specials" are used.
Look at the question.
The owners want to know which option would increase demand the most.
The owners are looking for something that will increase demand.
The first option is a reduction in the price of pizzas.
The option is graphically shown on the previous page.
A reduction in the price of a large pizza can cause a change in demand.
The second option is a reduction in the price of a good.
Let's look at the option graphically.
The entire demand curve shifts due to a reduction in the price of a good.
This is the correct answer because the question asks which marketing idea would increase demand more.
The other answer, cutting the price of pizzas, will cause an increase in demand.
If you move along a curve instead of shifting it, you won't analyze it correctly.
Current demand will decrease if there is an expectation of a lower price in the future.
The market demand curve is the sum of individual demand curves.
Market demand can be increased by more individual buyers entering the market.
3 million people are added to the United States' population each year through immigration and births.
The existing population of 325 million has the same needs and wants.
New people add 1% to the overall size of existing markets on an annual basis.
Consider two markets, one for baby products and the other for health care, including medicine, cancer treatments, hip replacement surgery, and nursing facilities.
In Italy, where the birthrate has plummeted over several generations, the demand for baby products will decline and the demand for health care will expand.
Shifts in demand are a result of demographic changes in society.
Population trends play an important role in determining whether the market is expanding or contracting.
Excise taxes are taxes on a single product or service and sales taxes are taxes on most goods and services.
Consumers have to pay a higher tax in order to get the good.
Lower taxes reduce the cost to consumers.
Our understanding of markets is incomplete without also analyzing supply.
Producers are interested in selling fresh salmon at the market.
They move in opposite directions.
They move in the same direction.
If the market price was $2.50 per pound, few producers would sell it, but many would.
The amount of a good or service quantity is increased by higher prices.
The quantity that producers are willing supplied to decrease is caused by lower prices.
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