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ECN 104 (387)
Chapter 4

Chapter 4

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ECN 104
Tsogbadral Galaabaatar

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  The impact of changes in wealth on both the amount and composition of that individuals come is called wealth effect ○ Prices of Related Goods  Substitutes – when a fall in the price of one good reduces the demand for another good  Complements - when a fall in the price of one good raises the demand for another good ○ Tastes  If you like a product, you would buy more of the product ○ Expectations  Your expectation about
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