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ECON 201

Macroeconomics Chapter 4 The Market Forces of Supply and Demand  Markets and Competition  Market: a group of buyers and sellers of a particular good or service.  Buyers/sellers as a group determine the demand/supply of the product.  Competitive market: a market in which there are many buyers and sellers so that each has a negligible impact of the market price.  Each seller has limited control over the price because others are selling similar products.  Perfectly competitive ex. wheat • Goods offered for sale are exactly the same • Buyers and sellers are so numerous that no single buyer or seller has any influence over the market price. ♦ Price Takers  Monopoly ex. Cable • One seller that sets the price.  Demand  Quantity demanded: the amount of a good that buyers are willing and able to purchase.  Law of demand: the quantity demanded of a good falls when the price of the good rises, ceteris paribus.  Demand schedule: a table that shows the relationship between the price of a good and the quantity demanded.  Demand curve: graph of the relationship between the price of a good and the quantity demanded.  Market demand: sum of all the individual demands for a particular good or service.  Shifts of the demand curve occur from a change in the quantity demanded.  Increase/decrease in quantity demand---shift right/left of curve. • No change in price  Shifts!  Income • Normal goods: when the demand for a good falls when income rises. • Inferior goods: when the demand for a good rises when income falls.  Prices of Related Goods • Substitutes: two goods for which an increase in the price of one leads to an increase in the demand for the
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