ECON1101 Chapter Notes - Chapter 2: Reservation Price, Perfect Competition, Marginal Utility
What is a market?
The market for a given good or service is the set of all the consumers and suppliers
who are willing to buy and sell that good or service at a given price.
Market equilibrium occurs when the price and the quantity sold of a given good is
stable. Or market equilibrium occurs when the equilibrium price is such that the
quantity that consumers want today is the same as the quantity that suppliers
want to sell.
What is a perfectly competitive market?
Consumers and suppliers are price-takers
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Homogenous goods
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No externality
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Goods and excludable and rival
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Full information
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Free entry and exit
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The Marginal benefit of producing a certain unit of a given good is the extra
benefit accrued by producing that unit. The marginal cost of producing a certain
unit of a given good is the extra cost of producing that unit.
The Cost-Benefit Principle states that an action should be taken if the marginal
benefit is greater than the marginal cost.
The economic surplus of a certain action is the difference between the marginal
benefit and the marginal cost of taking that action.
The quantity supplied by a supplier represents the quantity of a given good or
service that maximises the profit of the supplier.
The supply curve represents the relationship between the price of a good or
service and the quantity supplied of that good or service.
Law of supply:
The tendency for a producer to offer more of a certain good or service when the
price of that good or service increases.
Minimum about of money that the producer is willing to accept to supply the
marginal unit of the good -> producer reservation price.
Perfectly Competitive Markets/ Supply Curve for
an Individual
Sunday, 25 March 2018
6:41 pm
Document Summary
Perfectly competitive markets/ supply curve for an individual. The market for a given good or service is the set of all the consumers and suppliers who are willing to buy and sell that good or service at a given price. Market equilibrium occurs when the price and the quantity sold of a given good is stable. Or market equilibrium occurs when the equilibrium price is such that the quantity that consumers want today is the same as the quantity that suppliers want to sell. The marginal benefit of producing a certain unit of a given good is the extra benefit accrued by producing that unit. The marginal cost of producing a certain unit of a given good is the extra cost of producing that unit. The cost-benefit principle states that an action should be taken if the marginal benefit is greater than the marginal cost.
