Market Forces

What is a Market?
This refers to a situation where buyers and sellers communicate
for the purpose of exchanging goods and services;
What are the Elements of a Market?
● Buyer,
● Seller,
● Goods and Services
● Price.
Market Forces

The actions of buyers and sellers that cause the prices of

goods and services to change without being controlled by the
government. There are two market forces, namely:
1. Demand- The willingness and ability to purchase a
product in the market.
2. Supply- The willingness and ability of a supplier/ producer
to make products available to consumers.
Let’s Look at Demand in More Details
 Determinants of Demand
● The price of the goods itself
● Changes in population
● Changes in income
● Taste & fashions
● Seasonal factors
● The prices of other goods (substitutes and complements)
● Rates of interest on consumer credit
● Expectations of future price changes.
Relationship Between Price and Demand
From the scenario below, determine the relationship between price
and demand/ the Law of Demand.
Last year, whenever Pam went shopping, she would buy 6 tins of
sardines every two weeks. Since recently, the prices for a tin of
sardines rocketed, hence, she had to start buying three tins of sardines
instead of the six she normally buys every two weeks.
 The Law of Demand
If you said anything similar to ‘The law of demand is an
economic principle that states that consumer demand for a good
rises when prices fall while conversely, consumer demand falls
when prices rise,’ then you were correct!
 Demand Curve
With the information discovered how do you think the
demand curve would look?
Difference between Individual & Market Demand
 Movements in Demand
Movements along the demand curve are always due to changes in the price of the good. This is because
the demand curve connects only demand and price. When there is an increase in price, this causes a
contraction in demand resulting in a movement along the demand curve from point A to point C in the
diagram below (upward movement)

Additionally, an extension occurs when the price of a good decreases which also results in a movement
along the demand curve for example from point A to B in the diagram below. (Downward movement)
 Shifts in Demand
All non-price determinants of demand causes a shift in the demand curve. In other words, all the
determinants of demand, except price, causes a shift in the demand curve.

An outward shift/ shift to the right depicts an increase/ rise in demand (D1 to D2 in the picture below).
However, an inward shift/ shift to the left shows a fall/ decrease in demand (D1 to D3 in the picture
below).
 Determinants of Supply
1. The Price of the Good itself
2. The Price of the Factors of Production (The Cost of Production)
3. Technology
4. Taxes & Subsidies
5. Number of Sellers
6. Prices of Other goods
7. Weather
Relationship Between Price and Supply
 Supply Curve
With the information discovered how do you think the demand curve
would look?
 Difference between Individual & Market Supply

The market or industry supply curve is the aggregation of individual supply curves.
Output price increases induce increases in the quantity supplied or movements up
along the supply curve, all other things being equal (like input prices).
 Movement in Supply
All movements along the supply curve are always due to changes in the price of a
good because the supply curve relates to only supply and price. When the price of a
good increases, there is an extension in supply, conversely, when the price of a good
decreases there is a contraction.
 Shift in Supply
All non-price determinants of supply causes a shift in the supply curve. In other words, all the
determinants of demand, except price, causes a shift in the supply curve.

An outward shift/ shift to the right depicts a fall/ decrease in supply (S to S1 in the picture below).
However, an inward shift/ shift to the left shows an increase/ rise in Supply (S to S2 in the picture
below).
 Market Equilibrium
An equilibrium is the condition that exists when quantity supplied and quantity demanded are
equal. Only in equilibrium is quantity supplied equal to quantity demanded.
We can represent a market in equilibrium in a graph by showing the combined price and quantity
at which the supply and demand curves intersect. See diagram below.
 Market Equilibrium Cont’d
Equilibrium point – the point where the demand and supply curves intersect

Equilibrium price – price where quantity demanded is equal to the quantity supplied

Equilibrium quantities – consumer and supplier quantities are equal. No surplus, no shortage.
 Market Disequilibria
Market Disequilibrium occurs under two circumstances:

1. Where there is Excess Demand (or shortage, is the condition that exists when quantity
demanded exceeds quantity supplied at the current price.)
2. Where there is Excess Supply (or surplus, is the condition that exists when quantity supplied
exceeds quantity demanded at the current price.)
From the Schedule below plot the Demand and Supply
Curves
Activity
 How does Shifts Affect Equilibrium?
● An increase in demand (Outward shift) causes the equilibrium price as well as
quantity to rise.
● On the other hand, a decrease in demand (Inward Shift) causes the equilibrium
price and quantity to fall.
● An increase in supply (Outward shift) causes the equilibrium price to fall and
rise in quantity.
● On the other hand a decrease in supply (Inward shift) causes the equilibrium
price to rise and fall in quantity.
Outward Shift in Demand
Inward Shift in Demand
Outward Shift in Supply
Inward Shift in Supply