Chapter 2 Demand and Supply Analysis

Chapter 2

Demand and Supply Analysis

Outline

1.

Competitive Markets

¡ì

¡ì

2.

3.

4.

5.

Definition

Assumptions of the model

The Market Demand Curve

The Market Supply Curve

Competitive Market Equilibrium

Elasticity

2

Monthly Crude Oil Prices in US dollars

3

Oil Market

Why do oil price fluctuate?

Fall in Demand

1.

¡ì

¡ì

¡ì

Weak economic activity

Increased efficiency

Substitute toward other fuels

Geopolitical Reasons

2.

¡ì

¡ì

Middle East trying to fold market to keep prices low to

make it hard for substitutes

Wars in middle east

Increase Production in America

3.

¡ì

Decreased oil imports to become more ¡°energy

independent¡±

4

Competitive Markets

Definition: Markets were sellers and buyers

are small and numerous, so they take the

market price as given when they decide how

much to buy and sell.

5

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