Mankiw - Chapter_04 - Chapter 4 The Market Forces of Supply...

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Mankiw, Principles of Economics Prepared by Moon Young BAEK Yonsei University, Economics 1 Chapter 4 The Market Forces of Supply and Demand 4.1 Introduction z Supply and demand are the forces that make market economies work. They determine the quantity of each good produced and the price at which it is sold. z We will learn: ± How demand and supply determine prices in a market economy; ± How prices allocate the economy’s scare resources. 4.2 Markets and Competition 4.2.1 What is a market? z A market is a group of buyers and sellers of a particular good and service (Mankiw, p. 64) ± Highly organized markets with auctioneer: stock market (NYSE) ± Less organized markets with no auctioneer: usual markets (Note: A market is an abstract institution in which buyers and sellers interact with one another in order to trade a good or service, according to their own self-interest.) 4.2.2 What is competition? z Competitive market : a market in which there are many buyers and many sellers so that each has a negligible impact on the market price . z We assume that markets are perfectly competitive in this chapter. z Two characteristics of the perfectly competitive market: (1) All goods offered for sale are all exactly the same . (2) The buyers and sellers are said to be price takers (not price makers) z No single buyer or seller has any influence over the market price z At the market price, buyers can buy all they want, an seller can sell all they want
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Mankiw, Principles of Economics Prepared by Moon Young BAEK Yonsei University, Economics 2 4.3 Demand 4.3.1 The demand curve z Demand curve: the relationship between price and quantity demanded z The quantity demanded of any good is the amount of the good that buyers are willing and able to purchase. z We argue that for most goods in the economy, (1) The price of the good plays the most important role in determining the quantity demanded of the good. (2) The quantity demanded is negatively related to the price. z
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Mankiw - Chapter_04 - Chapter 4 The Market Forces of Supply...

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