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Lecture 24

RSM100Y1 Lecture Notes - Lecture 24: Demand Curve, Planned Economy, Oligopoly

Rotman Commerce
Course Code
Michael Szlachta

of 4
Cqhapter 3
3.1 Microeconomics: The Forces of Supply and Demand
Demand the willingness and ability of buyers to purchase goods and services
Supply the willingness and ability of sellers to provide goods and services
at the heart of every business, is the exchange between buyer and seller
Microeconomics the study of small economic units, such as individual consumers, families
and resources.
Factors Driving Demand
for most of us, economics is a balance between what we want and what we can pay
we have to choose what goods to buy from the vast market
demand is driven by many factors
can be driven by price, taste, expectations, co-related goods and more
in general, as prices rise the demand goes down
in general, as prices drop, the demand goes up
two types of changes to the demand curve: movements along the curve and complete shifts
of the curve either to the right or left
Factors Driving Supply
Sellers want to charge the highest possible price for their products in order to attain the
biggest gains
Opposite of demand in relation to price
if prices rise, sellers want to sell more and the supply increases
if prices decrease, sellers want to sell less and the supply decreases
businesses need inputs to operate effectively
these inputs can be categorized into the 4 factors of production
- natural resources
- capital
- human resources
- entrepreneurship
change in cost or availability can shift the supply curve to the left or the right
How Supply and Demand Interact
Separate shifts of the demand curve and the supply curve can affect the price and quantity
available of a good
but in the real world, these changes happen all at once and are continently happening
many factors are at play in the real world
the intersection of the demand and supply curve is the equilibrium
the equilibrium price is the current market price for an item
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3.2 Macroeconomics: Issues For The Entire Economy
Macroeconomics is the study of a nations overall economic issues, such as how an economy
maintains and divides up resources and how a governments policies affect its citizens
standards of living
every country needs to decide how to best use its factors of productions
a governments police have a large effect on the economy of a country
in general, you can have three types of economies: private enterprise, planned and mixed
Capitalism: The Private Enterprise System and Competition
Private Enterprise=Capitalism=Market Economy
A PES rewards businesses for meeting the needs and demands of consumers
governments tend to take a hands-off position when it comes to controlling business
ownership, profits, and resource allocation
instead, competition manages economic life that leads to challenges and problems that
business people must solve to continue to succeed and grow
Four types of competition take place in an PES
- Pure competition
A market structure where large numbers of buyers and sellers exchange similar
products, and no single participant has a large influence on price
prices are set by supply and demand
firms can easily enter and leave markets as no single company controls the market
buyers see little difference between the goods offered by competitors
fishing and agriculture are examples
- Monopolistic
a market structure where large numbers of buyers and sellers exchange dissimilar
products so each participant has some control over price
sellers can showcase that their product is different from competing firms in terms of
price, quality and other features
firms can enter and leave the market quite easily
firms have control over the price of their own products
example of this market is pet food
- Oligopoly
a market situation where relatively few sellers compete and high start-up costs act as
barriers to keep out new competitors
huge start up costs tend to scare off any new competitors that thought about entering
limited number of sellers excursuses the control these firms have over prices
- Monopoly
a market situation where a single seller controls trade in a good or service, and buyers
can find no close substitutes
monopoly occurs when a firm has features so unique but vital for competition that any
would-be competitors are ruled out
because monopoly firms lack competition from other firms; monopolies are often
regulated by governments
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a regulated monopoly is a firm that is granted exclusive rights in a specific market by a
local, provincial, or federal government
Planned Economies: Socialism and Communism
planned economy is an economic system where business ownerships, profits, and resources
allocations are shaped and planned to meet government goals, not goals set by individual
socialism is an economic system where the government owns and operates the major
industries, such as communications
socialism believes that major industries are to important to be left in the publics and hands
they also believe that the government can do a better job at serving the publics interest
they allow private ownership in smaller industries like retail, restaurant and even some
Karl Marx believed that market economies gave to much control to private firms and business
and this lead to common workers being taken advantage of
Marx suggested an economic system called communism
communism is an economic system where all property is shared equally by the people in a
community under the direction of a strong central government
Marx believed that by getting rid of the private ownership of property and business would lead
to a classless society that would be good for everyone
Each person would contribute to the economic success of the country and resources would
be divided up equally
the central government owns the means of production and people would work for the state
level owned enterprises
the government controls what the people can buy because it controls all of the production
government owned monopolies often suffer from inefficiency
Mixed Market Economies
mixed market economy is an economy that draws from PES and planned economies to
varying degrees in different aspects
privatization is the conversion of government-owned and operated companies to privately
held businesses
3.3 Evaluating Economic Performance
an economic system should provide two important benefits: stable business environment and
sustainable growth
overall demand of goods should match overall supply of goods
and ideal economy is always changing because it is always growing
a growing economy allows for greater products, better services, increased job opportunities
and rising standard of living
a nations economy usually flows through several stages of business cycle: prosperity,
recession, depression and recovery
though Canada has not had a true economic depression since the 1930s
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