Textbook Notes (368,439)
Canada (161,878)
Economics (923)
ECN 104 (387)
Chapter 4

ECN104- CHAPTER 4 Review.docx

10 Pages
48 Views
Unlock Document

Department
Economics
Course
ECN 104
Professor
Helene Moore
Semester
Fall

Description
CHAPTER 4 ­  THE MARKET FORCES OF SUPPLY  AND DEMAND   MARKETS AND COMPETITION  A market is a group of buyers and sellers of a particular product.  A competitive market is one with many buyers and sellers, each has a negligible effect on price.  In a perfectly competitive market: o All goods exactly the same o Buyers & sellers so numerous that no one can affect market price – each is a “price taker”  For now, we look at supply and demand in perfectly competitive markets, for two reasons: First, it’s easier to learn. Understanding perfectly competitive markets makes it a lot easier to learn the more realistic but complicated analysis of imperfectly competitive markets. Second, despite the lack of realism, the perfectly competitive model can teach us a LOT about how the world works DEMAND  comes from the behavior of buyers  The quantity demanded of any good is the amount of the good that buyers are willing and able to purchase. o it is a number – the amount buyers are willing to purchase  Law of demand: the claim that the quantity demanded of a good falls when the price of the good rises, other things equal o it is an amount of goods buy  Demand- is a law, relationship between price and quantity demanded  If you decrease the price, there's an increase in quality demanded  If you increase the price, there's an decrease in quality demanded ---negative/ inverse/ downward/ sloping relationship Quantity Price of lattes of lattesdemanded $0.00 16 1.00 14 2.00 12 3.00 10 4.00 8 5.00 6 6.00 4 THE DEMAND SCHEDULE  Demand schedule: a table that shows the relationship between the price of a good and the quantity demanded  Example: Helen’s demand for lattes.  Helen’s preferences obey the Law of Demand. MARKET DEMAND VS. INDIVIDUAL DEMAND  The quantity demanded in the market is the sum of the quantities demanded by all buyers at each price.  Suppose Helen and Ken are the only two buyers in the Latte market (Q = quantity demanded) MARKET DEMAND CURVE FOR LATTES  Movement along the curve o Only thing that can cause this a change in price o A change in price is a change along the curve and the change in quantity demanded  Everything else is held constant DEMAND CURVE SHIFTERS  ONLY A CHANGE IN PRICE CAN CAUSE A MOVEMENT ALONG THE DEMAND CURVE  Price is being held constant in this situation and cannot move  We are dealing with shifting in demand curve- change in DEMAND  The demand curve shows how price affects quantity demanded, other things being equal.  These “other things” are non-price determinants of demand (i.e., things that determine buyers’ demand for a good, other than the good’s price).  Changes in them shift the D curve… DEMAND CURVE SHIFTERS: # OF BUYERS  Increase in # of buyers increases quantity demanded at each price, shifts D curve to the right Suppose the number P of buyers increases. Tden, at each P, Q will increase  D1 – grey; D2 – red (by 5 in this example).  Increase in buyers shifted the curve to the right (grey to red)  Decrease in buyers will be a decrease in demand  This process is called CHANGE IN DEMAND – shifting the demand Q DEMAND CURVE SHIFTERS: INCOME  Demand for a normal good is positively related to income. • Increase in income causes increase in quantity demanded at each price, shifts D curve to the right. • Normal good – is a good that is positively related to income -things you like • If INCOME goes up, DEMAND goes up • If INCOME goes down, DEMAND goes down  (Demand for an inferior good is negatively related to income. An increase in income shifts D curves for inferior goods to the left.) • Inferior Good- negatively related to income • If INCOME goes up, DEMAND goes down • If INCOME goes down, DEMAND goes up DEMAND CURVE SHIFTERS: PRICES OF RELATED GOODS  Two goods are substitutes if an increase in the price of one causes an increase in demand for the other.  Example: pizza and hamburgers. An increase in the price of pizza increases demand for hamburgers, shifting hamburger demand curve to the right.  Other examples: Coke and Pepsi, laptops and desktop computers, CDs and music downloads  Two types of related goods – substitutes or compliments  A good is substitute if you never use them together (never eat pizza and hamburger)  Price of one goes up, demands for one goes up  Price of one goes down, demand for one goes down Example:  Price of pizza skyrockets, demand for hamburger goes up  Price of pizza decreases, demand for hamburger goes down  Two goods are complements if an increase in the price of one causes a fall in demand for the other. o goods that are used together (hockey stick and puck) o Relationship of one good to another good  Example: computers and software. If price of computers rises, people buy fewer computers, and therefore less software. Software demand curve shifts left.  Other examples: college tuition and textbooks, bagels and cream cheese DEMAND CURVE SHIFTERS: TASTERS  Anything that causes a shift in tastes toward a good will increase demand for that good and shift its D curve to the right.  Example: The Atkins diet became popular in the ’90s, caused an increase in demand for eggs, shifted the egg demand curve to the right. o If tastes goes up, demands go up o If tastes goes down, demands go down o Example: Eggs and cancer DEMAND CURVE SHIFTERS: EXPECTATIONS  Expectations affect consumers’ buying decisions. o what happens in the future – anything happen in future will affect the choice today  Examples: o Price of eggs in the future increases, demand of eggs in the future will increase o Price of eggs in the future decreases, demand of eggs in the future will decrease ( wait a week and save money) SUMMARY SUPPLY  The quantity supplied of any good is the amount that sellers are willing and able to sell. o physical number that you are willing to send to the market  Law of supply: the claim that the quantity supplied of a good rises when the price of the good rises, other things equal o upward sloping/positive/ direct relationship o If price goes up, quantity supply goes up o If price goes down, quantity supply goes down Price Quantity of lattes of lattessupplied $0.00 0 1.00 3 2.00 6 3.00 9 4.00 12 5.00 15 6.00 18 THE SUPPLY SCHEDULE  Supply schedule: A table that shows the relationship between the price of a good and the quantity supplied.  Example: Star
More Less

Related notes for ECN 104

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit