Prepared By Khalid Omar

Market

Definition: Market Its a Place (Mechanism or Media or

System) where buyer & seller Meet (Interact)

to Exchange goods and services

When we say Market we means that, two said of the market (Demand & Supply) because we cant use one said only to speck about market

General Rule :

When Demand is increase the price will increase that assumed the other facts are constant.
Exception : Sometime if demand are increase the price may be not increase because the supply also increase by the same percentage. Also if supply increased by lees than the Demand the price will increase & if supply increase more than the demand the price will go down.

MARKET All countries work with Economic system, will give us Market price MARKET
Demand Official Price
Gov. Ceiling price Subsidies price

Supply Market Price

Privet Agency

Decision
Value of product Goods & Services Producer

Consumer

Market D
Factors Effect Demand Demand Function
Price of x
Consumer Test Income Consumer preference

S
Factors Effect Supply Supply Function
Sx = f ( .. )
Price of related goods Complementary goods Substituted or Competitive goods

D x = f ( Px
(-) Product x

Y , T . PR )

The relationship between Demand & price is negative

Short - Run immediate Effect Now

Long Run Not Immediate Effect

General Rules : Law of Demand When price increase Quantity demand Decrease , with other factors Constant. Close Substituted like Pepsi & Cooce Substituted only like coffee & tea or Pepsi & Seven Complementary Goods are the products that Complete satisfaction from the main product ( like Sugar & Tea or Camera & Memory cards ) As long as the complementary product is available and ship will effect to increase demand of main product

While The substituted product price increase the demand of main product is increase .
Although When consumer income increase ( as long Run Effect ) the demand will increase for normal goods but demand will decrease from inferior goods ( like Foul& Flafl) Market Force to go at Market price, When we say market we mean Demand & Supply Law of Demand: {When price is Increase, Quantity of Demand will decrease} Vise versa

 When we ask about the effect of any factor we need to know two things Time ( Ether short run or long run effect) & direction ( Decrease or Increase )
R/M, Labor, Utility

Supply Function: Sx = f ( Px )
Short Run Immediate

Cost of production , Gov. polices , technology

.
Long run

Government polices:1- Fiscal polices. Tax, Gov. Disbursement Law of supply:- When price is increase the 2- Monetary polices. Interest Rat, Credit System 3- Regulation polices. Investment law License, Quantity of supply will increase ( positive

relationship ) & vise versa ( Other factor are constant.

Technology :- Labor Intensive Or capital Intensive When we shifted from labor intensive to capital intensive the supply will increase.

If Government increase supply it will reflect on: -Price decrease - Tax collection Increase. - Job Opportunity Increase. - Export increase.
Test Question sample : Q: Demand is relationship between consumer demand and Cost of production. A: False , Demand function is a relation between demand and Px / Y,T,PR While cost of production is one of component of supply function is Sx = f ( Px ) / Cost , Gov., Tech.
s c

Q : Consumer income and price of production both they effect consumer decision in the same way. A: False : If Consumer income increase Demand will increase at long run while price of production increase demand will decrease,

Question :- There is no difference between demand & Quantity of demand ? Answer : False - Increasing in Quantity Demand is short run effect related to increase of the price the shifting will be at the same curve but increasing in demand it self will be as reflection of anther facet like Customer income , Test or PR .

3- Differentiate between Demand Function Or Supply Function and law of Demand or Law of Supply ? S Dx = f ( Px ) P P2 P1
D Q2 Q1 Law of Demand When price Decrease Quantity Demand Increase
Movement in the same curve

Y, T , PR P P1

Shifting the curve related to change in demand as reflection of changes of any other factor beyond the price like Customer income , test Or price of related product.

Q
Q1 Q2

Sx = f ( Px )

Product Cost , Gov. polices , Technology

P
S

P P1

P2 P1

Q1 Q2

Q1

Q2

Change Quantity Supply at the same curve related to Change of the price

Change Supply by shifting the curve related to Change of other fact like ( Cost ,Gov. ) not change in price

Demand and supply curves will intersect at the point called (Market equliprem price ) P
S1

S2
Pe Pe Pe D1

D2
Q3 Q4 Q2

Q1

Note: Any shifting for Supply curve or demand curve will be there is new equliprem price .

P
S1

S2
P e 40 $ Ceiling or Max. Price 10 $ D1

Q2

Q1

Q Shortage in supply Black Market Until the supply curve shift to right ( increase Q. Supply ) and the new Equliprem point will achieve.

Equliprem price Short Run This price it can be not the optimum price or best price . If we need to change price we have to shift the curve by reducing cost of production or reduce the demand by give substitute.

The government can Interfere in the market price for basic products by two tools:
1- Fixing ceiling price for short run only . 2- Increase supply by reducing Cost of production or change from labor intensive to technology Intensive.
D S1 S2 D S2 S1 Pe2 Pe1 Q2

Pe1
Pe2

Q1

Q2

Q2

Q1

Government can interfere to increase demand or reduce demand .

P
D1

D2 S

P
D2

D1 S

Pe2 Pe1

Pe1 Pe2

Q Q1 Q2

Q
Q2 Q1