ECO 1104 Chapter Notes - Chapter 4: Demand Curve, Takers, Heat Wave

26 views4 pages

coffeedeer675

4 Feb 2017

School

Department

Course

Professor

For unlimited access to Textbook Notes, a Class+ subscription is required.

ECO1104: Chapter 4 - The Market Forces of Supply and Demand

Markets and Competition

What is a Market?

● Buyers determine demand and sellers determine supply, as a group

● Markets take many forms, such as highly organized (Markets for agricultural commodities) or

less organized (Ex. Market for ice cream in a given town)

What is Competition?

● Price is determined by all buyers and sellers that interact in a marketplace (Ex. Ice cream market)

● Sellers have limited control over prices in markets due to the nature of competitive markets

● Perfectly Competitive Market:

1. Goods offered for sale are exactly the same

2. Buyers and sellers are so numerous that a single buyer/seller barely influences the market price

■ Price Takers → those who accept the price determined by the market

■ Ex) Wheat Market

● Opposite of a Perfectly Competitive Market results in Monopoly

○ Ex) When there is one seller in a market (TV services)

● Markets often fall between extremes of Perfect Competition and Monopoly

Demand

The Demand Curve: The Relationship between Price and Quantity Demanded

● Quantity Demanded → Mainly determined by the price of a good

● Quantity Demanded is Negatively Related to the price → Law of Demand

● Page 70 Figure 4.1

● Demand schedule is a chart that shows the relation between the price and consumer demand

Market Demand vs Individual Demand

● Market Demand → Sum of all individual consumer demands for a good or service

● Page 71 Figure 4.2

Shifts in the Demand Curve

● Demand curve assumes that factors that can influence a consumer’s decision is held constant

○ Ex) Discovery that proves that apples can stop cancer will substantially increase

demand

● Page 72 Figure 4.3

○ Causes of Increase in Demand (Shift Right):

■ Positive Discoveries

■ Increase in Income/Promotion

■ Decrease in the price of a good

■ Increase in preference for a good

■ Better future expectations

■ Increase in buyers

○ Causes of Decrease in Demand (Shift Left):

■ Negative Discoveries

■ Decrease in Income/Unemployment

■ Increase in a price of a good

find more resources at oneclass.com

Unlock document

This preview shows page 1 of the document.
Unlock all 4 pages and 3 million more documents.

Already have an account? Log in

3363410481 and 38221 others unlocked

ECO 1104 Full Course Notes

Verified Note

16 documents

Document Summary

Buyers determine demand and sellers determine supply, as a group. Markets take many forms, such as highly organized (markets for agricultural commodities) or less organized (ex. Market for ice cream in a given town) Price is determined by all buyers and sellers that interact in a marketplace (ex. Sellers have limited control over prices in markets due to the nature of competitive markets. Perfectly competitive market: goods offered for sale are exactly the same, buyers and sellers are so numerous that a single buyer/seller barely influences the market price. Price takers those who accept the price determined by the market. Opposite of a perfectly competitive market results in monopoly. Ex) when there is one seller in a market (tv services) Markets often fall between extremes of perfect competition and monopoly. The demand curve: the relationship between price and quantity demanded. Quantity demanded mainly determined by the price of a good.

Related Questions

1. Characteristics of competitive markets

The model of competitive markets relies on these three core assumptions:

1.	There must be many buyers and sellers a few players can't dominate the market.
2.	Firms must produce an identical product buyer must regard all sellers' products as equivalent.
3.	Firms and resources must be fully mobile, allowing for free entry into and exit from the industry.

The first two conditions imply that all consumers and firms are price takers. While the third is not necessary for price-taking behaviour, assume for this problem that a market cannot maintain competition in the long run without free entry.

Identify whether or not each of the following scenarios describes a competitive market, along with the correct explanation of why or why not.

Is the scenario	Competitive?
Dozens of companies produce plain white socks. Consumers regard plain white socks as identical and don't care who manufactures their socks.
In a major metropolitan area, one chain of coffee shops has gained a large market share because customers feel its coffee tastes better than that of its competitors.
Scholastik Inc. owns the U.S. copyright to a popular book series. It is the only company with the legal right to publish books in the series in the United States.
In a small town, there are two providers of broadband Internet access: a cable company and the phone company. The Internet access offered by both providers is of the same speed.

amberfly263

The demand for ice cream is given by Q D = 20 - 2P, measured in gallons of ice cream. The supply of ice cream is given by Q S = 4P - 10. Suppose that the government legislates a $1 tax on a gallon of ice cream, to be collected from the seller.

a) As a result of the tax, what is the price paid by buyers?

b) What is the price received by sellers?

Hint: You need to determine the consumer and producer burden of the tax. First, find the equilibrium price and quantity. Then, determine the elasticity of demand and supply. Then, use the share of the tax formula provided to you to determine the burdens. After, that you add the consumer burden to the equilibrium price to find the buyer price. Subtract the producer burden from equilibrium price to find seller price.

olivemoose752

1. Other things remaining the same, a left shift in the supply curve will lead to:

A. a decrease in the equilibrium price and the equilibrium quantity.

B. an increase in the equilibrium price and the equilibrium quantity.

C. an increase in the equilibrium price and a decrease in the equilibrium quantity.

D. a decrease in the equilibrium price and an increase in the equilibrium quantity.

2. Two goods are said to be complements when a fall in the price of one good:

A. leads to a fall in the price of the other good.

B. leads to a left shift in the demand for the other good.

C. leads to a right shift in the demand for the other good.

D. doesn't affect the demand for the other good.

3. In a competitive free market:

A. all exchanges take place involuntarily.

B. there is no provision for the protection of property rights.

C. there is only one seller and many buyers.

D. the government does not impose price controls.

4. Which of the following correctly explains the role of economic agents in a free market?

A. Economic agents allocate goods to those buyers who value the goods the most.

B. Economic agents allocate goods to those buyers who need the goods the most.

C. Economic agents set production quotas for sellers in the market.

D. Economic agents set prices according to the production cost of each good.

5. Which of the following was an effect of the price ceiling placed on gasoline in the U.S. in the 1970s?

A. Gas stations ran out of gas as the quantity of gas demanded exceeded the quantity supplied.

B. Car owners started buying luxury cars that were less fuel-efficient as the price of gas was very low.

C. Those who valued gas the most were able to buy gas under the price ceiling.

D. The inventory of unsold gas increased and gas stations incurred losses.

6. Willingness to accept is:

A. the highest price that a producer is willing to receive to sell an extra unit of a good.

B. always higher than the marginal cost of production.

C. always lower than the marginal cost of production.

D. the lowest price that a producer is willing to receive to sell an extra unit of a good.

7. Assume that the economy is in a recession and consumers are expecting a fall in their income levels. This will cause a(n):

A. right shift in the market demand for all goods.

B. left shift in the market demand for all goods.

C. increase in the total quantity demanded of all goods.

D. decrease in the total quantity demanded of all goods.

8. Which of the following factors is expected to cause the demand curve for coffee to shift to the right?

A. A higher personal tax on the income of all consumers

B. An increase in the supply of coffee due to better weather

C. A higher tax on the sale of tea, a substitute for coffee

D. A fall in the manufacturing cost of coffee

9. If the demand and supply curves for a commodity shift to the right and the shift in demand is greater than the shift in supply, then in comparison to the initial equilibrium, the new equilibrium will be characterized by:

A. the same price and quantity.

B. a lower price and quantity.

C. a higher price and a lower quantity.

D. a higher price and quantity.

10. Which of the following statements correctly describes a perfectly competitive market?

A. Haggling and bargaining are commonly observed in a perfectly competitive market.

B. Buyers in a perfectly competitive market pay different prices according to their individual demand.

C. In a perfectly competitive market, individual sellers and buyers can influence the market price.

D.All participants in a perfectly competitive market are price-takers.

viridianhare505

ECO 1104 Chapter Notes - Chapter 4: Demand Curve, Takers, Heat Wave

ECO 1104 Full Course Notes

Document Summary

Get access

Related textbook solutions

Principles of Economics

Principles of Macroeconomics

Principles of Microeconomics

Related Documents

ECO 1104 Lecture Notes - Lecture 6: Ice Cream Cone, Perfect Competition, Takers

ECO 1104 Lecture Notes - Lecture 4: Ink Cartridge, Complementary Good, Invisible Hand

ECO 1104 Lecture Notes - Lecture 4: Demand Curve, Perfect Competition, Inferior Good

Related Questions