CHAPTER 4-notes

CHAPTER 4-notes - CHAPTER 4 Markets and competition Market:...

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CHAPTER 4 Markets and competition - Market: A group of buyers and sellers of a particular good or service. - buyers determine demand and sellers determine supply What is a market? - EX. In the ice cream market, buyers determine prices and various selles try to appeal to the tastes of the various buyers. What is competition - Most markets in the economy are highly competitive - Competitive market: a market in which there are many buyers/ sellers so that each has a negligible impact on the market price - Perfectly competitive: (1) the goods in the market are exactly the same. (2) Buyers/ sellers are so numerous that no single Byr or Slr can influence the market price. Buyers in a PC market are said to be price takers. - Example of a PC market would be wheat. - Monopoly: Only one seller of a product, EX. local T.V cable provider. Demand The demand curve: the relationship between price and quantity demanded - Quantity demanded: the amount of a good that buyers are willing and able to purchase. - Price is one determinant when analyzing the quantity of a good demanded. - QofD is negatively related to the price. - Law of demand - other things equal, the quantity demanded of a good falls when the price rises. - Demand schedule – shows the relationship between P of a good and QD. Market demand VS. individual demand - Market demand – the sum of all individuals demand for a good/ service. Shifts in the demand cure - D curve shifts to right = increase vice versa. Determinants of demand - Income: If demand for good falls along with income, the good is a normal good . If the demand for the good rises when income falls, the good is an inferior good .
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- Price of related goods: When the price of a substitute (frozen yogurt) good falls, demand for ice cream falls. When the price of a complementary (hot fudge) good falls, demand for ice cream rises. - Tastes: People buy based on their tastes. - Expectations: Your expectations about the future may affect your demand today. EX. if you know your income is going to rise next month, you might be willing to pay more/ buy more today. - Number of Buyers. Supply The supply curve: the relationship between price and quantity supplied - The quantity supplied is the amount of a good that sellers are willing and able to sell. - Price and quantity supplied are positively related. - Law of Supply: other things equal, the quantity supplied of a good rises when the price of the good rises. Market supply VS. individual supply. - Market supply is the sum of the supplies of sellers - Increase in supply shifts curve left. Vice versa. Determinants in supply: - Input prices: inputs for ice cream include cream, sugar, machines etc. When the price of one of these inputs rises, supply falls. Supply of a good is negatively related to the price of the inputs. -
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This note was uploaded on 04/13/2010 for the course CA 1001 taught by Professor James during the Spring '06 term at Buffalo State.

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CHAPTER 4-notes - CHAPTER 4 Markets and competition Market:...

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