Week 2: Demand, Supply and Equilibrium

Week 2: Demand, Supply and Equilibrium

“Buying and Selling : The Equilibrium … Elasticity : A Measure of Responsiveness … Analyzing the mechanism of taxes … Buyers and Sellers Surplus … Consequences of Government … intervention in the market”
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Summaries

  • Week 2: Demand, Supply and Equilibrium > Buying and Selling : The Equilibrium > Overview
  • Week 2: Demand, Supply and Equilibrium > Buying and Selling : The Equilibrium > Relevant Markets

Week 2: Demand, Supply and Equilibrium > Buying and Selling : The Equilibrium > Overview

  • First of all, since you have already talked about demand and supply, in Week 2 we are going to put this sides together and talk about Market Equilibrium and then we will try and apply this concept to look at various business situations.
  • Then we will talk about how to measure welfare in market and will see how unfitted market provides us with best of all possible worlds.

Week 2: Demand, Supply and Equilibrium > Buying and Selling : The Equilibrium > Relevant Markets

  • Relevant markets: Demand and supply curves provide a powerful tool with which to analyze market conditions and possible changes in the business environment.
  • There are many types of milk – fresh milk, tetra pak milk, low-fat milk, homogenized milk, powdered milk, and so on.
  • Then there are products like sweets, chocolates, and ice cream, which also use milk in their production.
  • What is the relevant market for milk? Should we consider every possible type of milk and consider the entire country or possibly the whole world as the market? The answer depends on what questions you are trying to find answers to.
  • Suppose you are a small producer of milk with a few cows selling milk locally and you’re thinking about raising your prices.
  • Then your relevant market is the small area in which you sell fresh milk and along with other similar producers.
  • You may consider the effect of packaged milk on your pricing decisions but that would be about it.

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