MAE101 Lecture Notes - Lecture 4: Shortage, Snob, Economic Equilibrium

• School: Deakin University
• Department: Business and Law
• Course: MAE101
• Professor: Ratcliffe

Document Summary

A market = group of buyers and sellers of a particular product. Competitive market = one with many buyers and sellers, each having a negligible effect on price. Perfectly competitive market = all goods are exactly the same, and buyers and sellers are so numerous that no one can affect market price ea(cid:272)h is a (cid:858)pri(cid:272)e taker(cid:859). Demand: the quantity demanded of any good that buyers are willing and able to purchase. The quantity demanded of a good is the amount of the good that buyers are willing and able to purchase at a particular price. The quantity demanded of a good falls when the price of the good rises, and vice versa, all other things being equal. Reasons for the law of demand: substitution effect: increase in price means buyers will choose a cheaper alternative. Income effect: an increase in price decreases the purchasing power of your income, thus you (cid:272)a(cid:374)(cid:859)t (cid:271)uy as (cid:373)u(cid:272)h.