Class Notes (1,100,000)
CA (650,000)
UTSG (50,000)
ECO (2,000)
ECO101H1 (700)
Lecture 11

ECO101H1 Lecture Notes - Lecture 11: Perfect Competition, Economic Equilibrium, Takers


Department
Economics
Course Code
ECO101H1
Professor
Jack Carr
Lecture
11

This preview shows pages 1-3. to view the full 9 pages of the document.
Relationship between Marginal Cost and Opportunity Cost
Marginal Cost (MC) = additional cost incurred if action is taken
Marginal Cost consists of opportunity costs.
MC if output of shirts increases by one
Example 1.
You hire a worker. You pay $2 for cloth and $10 to a sewer.
Therefore, MC = $12. The opportunity cost of $12 spent is $12.
Example 2.
You sew the shirt yourself. You pay $2 for cloth and $20 (opportunity cost of your time).
Therefore, MC = $22 (opportunity cost of $2 spent plus the opportunity cost of your time).

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

Chapter 4 – The Market Forces of Supply and Demand
Markets and Competition
What is a Market?
- Market
oA group of buyers and sellers of a particular good or service.
oThe buyers as a group determine the demand for the product.
oThe sellers as a group determine the supply of the product.
What is Competition?
- Competitive Market
oA market in which there are many buyers and many sellers so that each has a
negligible impact on the market price.
oMany buyers and sellers, each of whom has no influence on market price.
oEg. Coffee
- Perfectly Competitive
oMarkets must have:
The goods offered for sale are all exactly the same
The buyers and sellers are so numerous that no single buyer or seller has
any influence over the market price.
- Price takers
oBuyers and sellers in perfectly competitive markets that must accept the prices the
market determines.
- Monopoly
oMarkets that have only one seller, and this seller sets the price of goods/services.
Demand
The Demand Curve: The Relationship between Price and Quantity Demanded
- Quantity Demanded
oThe amount of a good that buyers are willing and able to purchase
oQuantity demanded falls as the price rises and rises as the price falls, therefore the
quantity demanded is negatively related to the price.
- Law of Demand
oThe claim that, other things equal, the quantity demanded of a good falls when the
price of the good rises
- Demand Schedule
oA table that shows the relationship between the price of a good and the quantity
demanded
- Demand Curve
oA graph of the relationship between the price of a good and the quantity
demanded

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

Market Demand versus Individual Demand
- Market Demand the sum of all the individual demands for a particular good/service
- To find total quantity demanded at any price, we add the individual quantities found on
the horizontal axis of the individual demand curves.
- Market demand curve shows how the total quantity demanded of a good varies as the
price of good varies, while all the other factors are held constant.
Shifts in the Demand Curve
- Increase in demand
oAny change that increases the quantity demanded at every price shifts the
demand curve to the right.
- Decrease in demand
oAny change that reduces the quantity demanded at every price shifts the demand
curve to the left.
- Law of Downward Sloping Demand
oOther things equal, the higher is the price of a good, the lower is the quantity
demanded.
Candy Bars
Price Quantity Demanded
5 0
4 3
3 6
2 9
You're Reading a Preview

Unlock to view full version