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Chapter 4

ECN 104 Chapter Notes - Chapter 4: Demand Curve, Perfect Competition, Inferior Good


Department
Economics
Course Code
ECN 104
Professor
Tsogbadral Galaabaatar
Chapter
4

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Chapter 4 – Market Forces of Supply and Demand
What is a market?
Market – are a group of buyers and sellers of a particular good or service
The buyers determine the demand of the product and sellers demand the
supply
Markets are usually less organized
Ex. People buying ice-cream don’t buy the ice cream at the same place
and time
And the sellers are in different place, different times and have different
products
What is Competition?
Competitive Market – is an markets in which there are many buyers and sellers so
that each has a negligible impact on the market place
Sellers have limited control over the price
Because they can’t sell for less or sell at a higher price
In this chapter we assume, markets are perfectly competitive
1) The goods are offered for sale at the same time
2) The buyers and sellers that no single buyers and seller has any
influence over the market price
The perfect competitive market is easy to analyze because everyone that is
participating the market takes the price as given
When the buyers and sellers in the market accept the price, they are known
as price takers
Monopoly Market – one seller and this sellers determines the price of the
product
DEMAND
The Demand Curve: The Relationship between Price and Quantity Demand
Quantity demanded – the amount of a good that buyers are willing and able to
purchase
Law of demand –claims that when the price of a good rises, the quantity
demanded of the good falls and when the price falls, the quantity demanded
rises
Demanded schedule – a table that shows the relationship between the price
of a good and the quantity demanded, as the price of the product rises and
falls
Demand curve – a graph of the relationship between the price of a good and
the quantity demanded
Market demand vs. Individual Demand
Market demand – is the sum of all the individual demands for the particular
good and service
We add the individual quantities found on the horizontal axis of the
individual demand curve, add the demand number, the price stays the
same
It shows how the total quantity demanded of a good varies as the price
of the good varies
Shifts in the Demand Curve
Any change that increase the quantity demanded at every price shift the
demand curve to the right and is called increase in demand
Any change that decrease the quantity demanded at every price shift the
demand curve to the left and is called decrease in demand
There are many variable that shift the demand curve
Income
Normal good – increase in income, lead to an increase in
demand
Inferior good – if the demand for a good rises when the income
falls
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