ECC1000 Study Guide - Quiz Guide: Ceteris Paribus, Monopolistic Competition, Demand Curve
ECC1000 Exam Notes
Main topics
• Competitive markets and applications
o Demand and supply model
o Elasticities and applications
o Efficiency and government policies (price control, tax)
o International trade – why, how and what protectionism does
• Market failure – externalities, public goods and common resources
• Behaviour of firms
o Costs of production
o Behaviour of firms in competitive markets
o Monopoly and monopolistic competition
o Oligopoly and game theory
Competitive markets and applications
Demand and supply model
Price vs other variables
• Determinants of demand
• Determinants of supply
• Changes in market equilibrium – Primary interest is how price and quantity change.
Demand curve – a group of the relationship between price and quantity demanded
• Law of demand – Slopes downwards because lower prices means a greater quantity demanded
• Quantity demanded – amount of a good that buyers are willing and able to purchase
• Demand schedule – a table that shows the relationship between the price of a good and the quantity demanded
Change in price of good = movement along demand/supply curve
Change in other factors = shift of demand/supply curve
Ceteris paribus – ‘other things being equal’, all variables other than the ones being studied are assumed to be constant
If unsure: Draw diagrams - Be clear when labelling the axes - Know what is a relevant good (grapes or wine?)
Normal good – good for which an increase in income leads to an increase in quantity demanded
Inferior good – a good for which an increase in income leads to a decrease in quantity demanded
Substitutes - Two goods for which a decrease in the price of one good leads to a decrease in the demand for the other good
Complements – two goods for which a decrease in the price of one good leads to an increase in the demand for the other
good
Variables that affect quantity demanded
A change in this variable
Price
Represents a movement along the demand curve
Income
Shifts the demand curve
Prices of related goods
Shifts the demand curve
Tastes
Shifts the demand curve
Expectations
Shifts the demand curve
Number of buyers
Shifts the demand curve
Document Summary
Competitive markets and applications: demand and supply model. International trade why, how and what protectionism does: market failure externalities, public goods and common resources. Behaviour of firms in competitive markets: monopoly and monopolistic competition, oligopoly and game theory. Changes in market equilibrium primary interest is how price and quantity change. Demand curve a group of the relationship between price and quantity demanded. Change in price of good = movement along demand/supply curve. Change in other factors = shift of demand/supply curve. Ceteris paribus other things being equal", all variables other than the ones being studied are assumed to be constant. If unsure: draw diagrams - be clear when labelling the axes - know what is a relevant good (grapes or wine?) Normal good good for which an increase in income leads to an increase in quantity demanded. Inferior good a good for which an increase in income leads to a decrease in quantity demanded.