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ECON 1000 Quiz: Micro4th ppt notes ch4
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Department
Economics
Course
ECON 1000
Professor
Avi Cohen
Semester
Fall

Description
▪ Markets and Competition ▪ A market is a group of buyers and sellers of a particular good or service. ▪ A competitive market is one in which there are so many buyers and so many sellers that each has a negligible impact on the market price. ▪ A perfectly competitive market: • all goods are exactly the same • buyers & sellers so numerous that no one can affect the market price – each is a “price taker” ▪ In this chapter, we assume markets are perfectly competitive. ▪ Demand ▪ Demand comes from the behaviour of buyers. ▪ The quantity demanded of any good is the amount of the good that buyers are willing and able to purchase. ▪ Law of demand: the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises. ▪ The Demand Schedule ▪ Demand schedule: A table that shows the relationship between the price of a good and the quantity demanded. ▪ Example: Helen’s demand for lattes. ▪ Helen’s Demand Schedule & Curve ▪ Market Demand versus Individual Demand ▪ The quantity demanded in the market is the sum of the quantities demanded by all buyers at each price. ▪ Suppose Helen and Ken are the only two buyers in the Latte market. (Q = quantity demanded) ▪ The Market Demand Curve for Lattes ▪ Demand Curve Shifters ▪ The demand curve shows how price affects quantity demanded, other things being equal. ▪ These “other things” are non-price determinants of demand (i.e., things that determine buyers’ demand for a good, other than the good’s price). ▪ Changes in them shift the D curve… ▪ Demand Curve Shifters: Number of Buyers ▪ An increase in the number of buyers causes an increase in quantity demanded at each price, which shifts the demand curve to the right. ▪ Demand Curve Shifters: Income ▪ Demand for a normal good is positively related to income. • An increase in income causes increase in quantity demanded at each price, shifting the D curve to the right. (Demand for an inferior good is negatively related to income. An increase in income shifts D curves for inferior goods to the left.) ▪ Demand Curve Shifters: Prices of Related Goods ▪ Two goods are substitutes if an increase in the price of one causes an increase in demand for the other. ▪ Example: pizza and hamburgers. An increase in the price of pizza increases demand for hamburgers, shifting the hamburger demand curve to the right. ▪ Other examples: Coke and Pepsi, laptops and desktop computers, compact discs and music downloads ▪ Demand Curve Shifters: Prices of Related Goods ▪ Two goods are complements if an increase in the price of one leads to a fall in demand for the other. ▪ Example: computers and software. If price of computers rises, people buy fewer computers, and therefore less software. Software demand curve shifts left. ▪ Other examples: college tuition and textbooks, bagels and cream cheese, eggs and bacon ▪ Demand Curve Shifters: Tastes ▪ Anything that causes a shift in tastes toward a good will increase demand for that good and shift its D curve to the right. ▪ Example: The Atkins diet became popular in the ’90s, caused an increase in demand for eggs, shifted the egg demand curve to the right. ▪ Demand Curve Shifters: Expectations ▪ Expectations affect consumers’ buying decisions. ▪ Examples: • If people expect their incomes to rise, their demand for meals at expensive restaurants may increase now. • If the economy turns bad and people worry about their future job security, demand for new autos may fall now. ▪ Summary: Variables That Affect Demand Variable A change in this variable… ▪ Demand curve A. The price of iPods falls B. The price of music downloads falls C. The price of compact discs falls ▪ A. price of iPods falls ▪ B. price of music downloads falls ▪ C. price of CDs falls ▪ Supply ▪ Supply comes from the behaviour of sellers. ▪ The quantity supplied of any good is the amount that sellers are willing to sell. ▪ Law of supply: the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises. ▪ The Supply Schedule ▪ Supply schedule: A table that shows the relationship between the price of a good and the quantity supplied. ▪ Example: Starbucks’ supply of lattes. ▪ Starbucks’ Supply Schedule & Curve ▪ Market Supply versus Individual Supply ▪ The quantity supplied in the market is the sum of the quantities supplied by all sellers at each price. s ▪ Suppose Starbucks and Jitters are the only two sellers in this market. (Q = quantity supplied) ▪ Supply Curve Shifters ▪ The supply curve shows how price affects quantity supplied, other things being equal. ▪ These
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