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Chapter 4

ECON 1000 Chapter Notes - Chapter 4: Demand Curve, Perfect Competition, Takers


Department
Economics
Course Code
ECON 1000
Professor
Troy Joseph
Chapter
4

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ECON 1000
CHAPTER 4: THE MARKET FORCES OF SUPPLY AND DEMAND
Market and Competition
The terms supply and demand refer to the behaviour of people as they interact with one
another in competitive markets.
What is a market?
A market is a group of buyers and seller of a particular good or service. The buyers as a group
determine the demand for the product, and the sellers as a group determine the supply of the
product.
Often markets are not very well organized.
What is competition?
Economists use the term competitive market to describe a market in which there are so many
buyers and so many seller that each has a negligible impact on the market price.
In this chapter, we assume that markets are perfectly competitive. To reach this highest form of
competition, a market must have 2 characteristics:
(1) The goods offered for sale are exactly the same, and
(2) The buyers and seller are so numerous that no single buyer or seller has any influence
over the market price
Because buyers and sellers in perfectly competitive markets must accept the price the market
determines, they are said to be price takers. At a market price, buyers can buy all they want,
and sellers can sell all they want.
Not all goods and services, however, are sold in perfectly competitive markets. Some markets
have only one seller, and this seller sets the price. Such a seller is called a monopoly.
The Demand curve: the relationship between price and quantity demanded
The quantity demanded of any good is the amount of the good that buyers are willing and able
to purchase. As we will see, many things determine the quantity demanded of any good, but in
our analysis of how markets work, one determinant plays a central rolethe price of the good.
Law of demand: other things equal, ehen the price of a good rises, the quantity demanded of
the good falls, and when the price falls, the quantity demanded rises.
Market demand versus individual demand
To analyze how markets work, we need to determine the market demand, which is the sum of
all the individual demands for a particular good or service.
The quantity demanded in a market is the sum of the quantities demanded by all the buyers at
each price. This the market demand curve is found by adding horizontally the individual
demand curves.
Shifts in the demand curve
Because the market demand curve holds other things constant, it need not be stable over time.
It sometimes happens to alter the quantity demanded at any given price, the demand curve
shifts. For example, if stats Canada said that ice cream improves life expectancy, there would be
a higher demand for ice cream regardless of price.
Many variables can shift the demand curve. Here are the most important:
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