Key words Definitions
Market A group of buyers and sellers of a particular good or service.
Competitive one in which there are so many buyers and so many sellers that each
market has a negligible impact on the market price
Perfectly all goods are exactly the same, buyers & sellers so numerous that no
competitive one can affect the market price – each is a “price taker”
Monopoly Market with only one seller
Oligopoly Market with a few sellers
Monopolistic Market with a large number of sellers, each selling products that are
slightly different from competitors
• Quantity demanded: amount of a good that buyers are willing 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.
• Recognize difference between Quantity demanded vs DEMAND
o Quantity demanded is the amount you purchase, given the price
o Law of demand is the relationship between price and quantity demanded
(price goes up, quantity falls and vice versa; inverse/negative relationship)
• Demand schedule: A table that shows the relationship between the price of a good
and the quantity demanded.
• Demand curve shifters (PINTE)
o Number of buyers:
Increase in number of buyers increase in Q demand curve shifts to the right
Decrease in number of buyers decrease in Q demand curve shifts to the left
Normal goods: A good in which the increase in income leads to an increase
in demand; positively related (no effect on price).
www.notesolution.com Inferior goods: A good in which the increase in income leads to a decrease
in demand; negatively related (no effect on price).
o Price of related goods
Substitute: Situations where the increase in the price of one good leads to
an increase in demand of another.
Compliments: Situations where the increase in the price of one good leads
to the decrease in demand of another
o Taste: Anything that causes a shift in tastes toward a good will increase
demand for that good and shift its demand curve to the right.
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
• Quantity supplied: the amount of a good that sellers are willing to sell.
• Law of supply: the claim that, other things equal, quantity supplied of a good rises