Shifts of Demand

Market Adjustment to Change

Market systems are favored by Neoclassical economists for three primary reasons. First, agents only need information about their own objectives and alternatives. The markets provide information to agents that may be used to identify and evaluate alternative choices that might be used to achieve objectives. Second, each agent acting in a market has incentives to react to the information provided. Third, given the information and incentives, agents within markets can adjust to changes. The process of market adjustment can be visualized as changes in demand and/or supply.

The demand function was defined from two perspectives:

- A schedule of quantities that individuals were willing and able to buy at a schedule of prices during a given period, ceteris paribus.

- The maximum prices that individuals are willing and able to pay for a schedule of quantities or a good during a given time period, ceteris paribus.

The demand function is perceived as a negative or inverse relationship between price and the quantity of a good that will be bought. The relationship between price and quantity is shaped by other factors or variables. The demand function was expressed:

Qx = fx(Px, Pc, Ps, M, Preferences, Nbuyers,...)

Pc is the price of complimentary goods. Ps is the price of substitutes. M is income. Such proxies as gender, age, ethnicity, religion, etc represent preferences. A change in these related variable will result in a shift of the demand function or a change in demand.

Дата добавления: 2014-01-11