Textbook Notes (362,883)
Commerce (1,633)
Rita Cossa (83)
Chapter 4

# Microeconomics - Chapter 4.docx

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School
McMaster University
Department
Commerce
Course
COMMERCE 1B03
Professor
Rita Cossa
Semester
Spring

Description
Microeconomics – Chapter 4 (Market Force for Supply & Demand) Market – Group of buyers/sellers at a particular moment (Not necessarily at the same place) Competitive Market – Many buyers/sellers, each with a negligible effect on price Perfect Competitive Market – All goods are considered the same - So many buyers and sellers that none of them effect the price (Price-takers) Quantity Demanded – Amount of goods that buyers are willing/able to purchase Law of Demand: When the price of a good rises, the quantity demanded falls (Other things equal) Demand Schedule – Table that shows the relationship between price of a good and quantity demanded - Demand curve is based off of this Market Demand – Sum of all individual demands - Demand curve shows how price affect quantity demanded (Other things equal) Demand Curve shifts: # of buyers – Increases quantity demanded, resulting in a shift to the right Normal Goods – Positively related to income (As income increases, good demand increases) - Ex. Fancy dinners Income changes – As income increases, demand increases resulting in shift to the right Inferior Goods – Negatively related to income (As income increases, good demand decreases) - Ex. Kraft Dinner packets Income changes – As income increases, demand decreases resulting in shift to the left Substitutes – When price of one good increases, demand for another good increases - Ex. If Coke raises their prices, demand for Pepsi would increase Compliments – When price of one good increases, demand for another good decreases - Ex. If computer prices rise, demand for hardware would decrease Tastes – As more people enjoy one type of good, demand for it increases resulting in shift to the right Expectations – Ex. If people are going to get laid off, demand for a luxury goes down, shift to the left Quantity Supplied – Amount that sellers and willing and able to sell Law of Supply: When the price of goods increases, the quantity supplied will increase (Other things equal) Supply Schedule – Table that shows the relationship between the price of a good and the quantity supplied - Supply curve based off of this Market Supply – Sum of all quantities supplied - Supply curve shows how price affects quantities supplied (Other things equal) Supply Curve Shifts: Input Prices – Fall in input prices makes production more profitable at output prices, S curve shifts right - Ex. Wages or Price of Raw Materials (Factors of Production) Technology – Determines how much input is required for the output - Ex. Cost-saving technological improvement results in
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