Microeconomics 200 - Thursday, July 18th notes
* Any economy is constrained in terms of the amount of limited resources available.
Market -Agroup of buyers and sellers with the potential to trade. (willing and able)
->Assumed that these individuals are voluntarily entering transactions
Common way to own physical capital - through investments (purchasing stocks & bonds).
-> Stock Markets = Capital Markets
Circular Flow Model - Shows how resources are facilitated throughout markets
Inner Loop (inputs)
* Individual households are owning all the resources (with exception of some by government)
-> Resources end up in resource markets
-> Resources end up on firms
Outer Loop (outputs)
Market Types (Product Markets, Resource Markets)
* Perfect Competition - “Competitive Market” All buyers and sellers have no influence over
price. (Every buyer and seller has to take the price given, e.x walking into theApple store).
-> Essentially, no bargaining/negotiating.
* Imperfect Competition - buyers and sellers can influence price.
-> Essentially, bargaining/negotiation is present. Demand (Buyers-Consumers)
* Quantity Demanded - The amount buyers will buy over a given period of time, given their
constraints. (You will buy different amounts of things that are priced different - basic premise)
* Law of Demand - As prices increase, quantity demanded decreases.
-> “all else equal” (ceteris paribus) assumed.
-> Under this condition, only price is changed, everything else is held constant (unchanged).
-> It’s done this way to determine causality.
Demand Curves - Shows the relationship between price and quantity demanded over a given
period of time, ceteris paribus.
Quantity Demanded gives you the individual points on the demand curve. (changes when prices
* Note: when price changes, you move along the demand curve (up or down).
-> If price decreases, then you move down the demand curve (increases Q-demanded)
-> If price increases, then you move up the demand curve (decrease Q-demanded)
Demand is the curve (the entire market for a product … changes when other things change).
Determinants of Demand
* Income (or wealth)
Normal Goods (an increase in income shifts demand curve to the right, or upwards)
Note: shifting the demand curve to the right increases demand (clothes, jewlery, electronics, organic food, maple syrup)
Inferior Goods (an increase in income shifts demand curve to the left)
Note: shifting the demand curve to the right (down) decreases demand
-> They’re not bad! They still make you better off.
(junk food, generic apparel)
When something other than price changes, we call it a shift in demand (as presented above).
Inflation - When prices increase steadily over a period of time.
* not a big deal if it’s expected and small.
Deflation - Prices keep dropping, so people hold off and stop buying (to eventually get the best
deal) - which leads to inventories not clearing out, firms then lay off workers - which is
ultimately bad for the economy.
* This is a big deal, a bigger deal than inflation as well. Related Goods
Substitute Goods - Agood that can be used in place of another good.
Compliment Good - Agood that is used together with some other good.
Let’s assume we have one goo