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ECO1104 detailed notes for chapter 4-5

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J Ianweizhen

Chapter 4The Market Forces of Supply and DemandMarket and CompetitionA market is a group of buyers and sellers of a particular product o The type of market can be determined by the number of buyers and sellersA competitive market is one with many buyers and sellers each has a negligible effect on price o Leads to many competitors within the marketplaceIn a perfectly competitive market o All goods are exactly the same o Buyers and sellers are so numerous that no one can affect market priceeach is a price takerPrice is manipulated by the buyerIn the real world there is relatively few perfectly competitive markets Most goods come in lots of different varieties including icecream o There are many markets in which the number of firms is small enough that some of them have the ability to affect the market priceIn this chapter we assume markets are perfectly competitiveOligarchy few sellers who work together in a group o Price is relatively stableDemandThe quantity demanded of any good is the amount of the good that buyers are willing and able to purchaseLaw of demand the claim that the quantity demanded of a good falls when the price of the good rises other things equal o In the law of demand we must make a strong assumption that in order for all the things to be equal and work in linear fashion thus price will be only affected by buyers decision makingWhen price increase demand fallsWhen price decreases demand increases o It is important to understand that that other things may affect the rise in demand other than priceDemand comes from the behaviour of buyers The Demand ScheduleDemand schedule A table that shows the relationship between the price of a good and the quantity demanded o Ex Helens demand for lattes PriceQuantity of lattes of lattes demanded000 16 100 14 200 12300 10 400 8Notice that Helens preferences obey 500 6 the law of demand 600 4 Helens Demand ScheduleCurve PriceQuantityof lattes of lattes demanded 000 16 100 14 200 12 300 10 400 8 500 6 600 4At the beginning Price is an independent variable but later affected by pMarket Demand vs Individual DemandIt is possible to get market demand from the use of many buyers demand The quantity demanded in the market is the sum of the quantities demanded by all buyers at each priceSuppose Helen and Ken are the only two buyers in dthe Latte marketQquantity demandedQuantityxaxisPrice yaxis
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