ECON 1B03 Lecture Notes - Lecture 2: Charity Shop, Market Power, Inferior Good

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21 May 2018

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Economics Chapter 2

Market Demand

Markets

- Market: a group of buyers and sellers of a particular good or service

- The terms supply and demand refer to the behavior of people as they interact with one another

in markets

- Market demand: refers to the sum of all individual demands for a particular good or service

- Market supply: sum of all individual supplies of a particular good or service

Market structures

- A Perfectly Competitive Market

o All goods are identical (homogeneous) no matter where you shop

o Firms can freely enter or exit the market (no special patents or license)

o Buyers and sellers are so numerous that no individual consumer or firm can influence

the market price- each is a price taker

Demand

- Quantity Demanded (Qd): the amount of a good or service that consumers are willing and able

to buy at a given price, P.

- When the price of a good decreases, you buy more of that good

- Price and Qd are negatively related

- Law of Demand: Other things being equal, when the price of a good rises, the quantity

demanded of that good falls

Other Determinants of Demand

Income

Normal good: when income increases, demand increases and vice versa (we like these goods)

Inferior good: when income increases, demand decreases and vice versa (ex. thrift store goods)

Prices of related goods

Substitutes: if the price of one good increases, the demand for the other good increases and vice versa

- Ex. chicken and turkey, pepsi and coke

Complements: when the price of a good goes up, the demand for the other good decreases

- Ex. if the price of gas goes up the demand for cars goes down

Tastes: you’ll buy ore of the thigs you like

Expectations: if you think the price will go up in the future, you’ll dead ore of the good today

Population: higher population means more consumers in general and higher demand

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Document Summary

Market: a group of buyers and sellers of a particular good or service. The terms supply and demand refer to the behavior of people as they interact with one another in markets. Market demand: refers to the sum of all individual demands for a particular good or service. Market supply: sum of all individual supplies of a particular good or service. Quantity demanded (qd): the amount of a good or service that consumers are willing and able to buy at a given price, p. When the price of a good decreases, you buy more of that good. Law of demand: other things being equal, when the price of a good rises, the quantity demanded of that good falls. Normal good: when income increases, demand increases and vice versa (we like these goods) Inferior good: when income increases, demand decreases and vice versa (ex. thrift store goods)

Related Questions

1. In a competitive market, the quantity of a product produced and the price of the product are determined by

a. buyers.

b. sellers.

c. both buyers and sellers.

d. None of the above is correct.

2. Which of the following statements is correct?

a. Buyers determine supply and sellers determine demand.

b. Buyers determine demand and sellers determine supply.

c. Buyers determine both demand and supply

d. Sellers determine both demand and supply

3. The demand for a good or service is determined by

a. those who buy the good or service

b. the government.

c. those who sell the good or service.

d. both those who buy and those who sell the good or service.

4. An increase in supply is represented by

a. a movement downward and to the left along a supply curve.

b. a movement upward and to the right along a supply curve.

c. a rightward shift of a supply curve.

d. a leftward shift of a supply curve

ceruleanseal203

The market demand curve

a. slopes upward.

b. is found by vertically adding the individual demand curves.

c. represents the sum of the quantities demanded by all the buyers at each price of the good.

d. represents the sum of the prices that all the buyers are willing to pay for a given quantity of the good.

When we move along a given demand curve,

all nonprice determinants of demand are held constant.

only price is held constant.

all determinants of quantity demanded are held constant.

d. income and price are held constant.

When the price of a good or service changes,

	a.	there is a movement along a given demand curve.
	b.	the demand curve shifts in the opposite direction.
	c.	the supply curve shifts in the opposite direction.
	d.	the demand curve shifts in the same direction.

7) Indicate whether each of the following statements is true or false, and explain why.

A. Producer surplus tends to fall as the supply curve becomes more elastic.

B. Consumer surplus tends to rise as demand becomes more elastic.

C. The market demand curve indicates the minimum price buyers are willing to pay at each level of production.

D. The market supply curve indicates the minimum price required by sellers as a group to bring forth production.

E. Consumer surplus is the amount that consumers are willing to pay for a given good or service above and beyond the amount actually paid.

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ECON 1B03 Lecture Notes - Lecture 2: Charity Shop, Market Power, Inferior Good

ECON 1B03 Full Course Notes

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