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Chapter 4 Lecture Outline - Economics 101H Vandan Desai...

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Economics 101H Vandan Desai P a g e | 1 Chapter 4: The Market Forces of Supply and Demand (Lecture Outline) -------------------------------------------------------------------------------------------------------------------------- I. Markets and Competition A. Market – a group of buyers and sellers of a particular good or service i. Highly organized like a stock market ii. Less organized like a market for ice cream B. Competitive market – a market in which there are many buyers and sellers so that each has a negligible impact on the market price C. A perfectly competitive market (Ex: agriculture markets) has two main characteristics: i. The goods offered for sale are all the same. ii. The buyers and sellers are so numerous that no one buyer or seller can influence the price. D. If a market is perfectly competitive, both buyers and sellers are said to be price takers because they cannot influence the price. E. Other types of markets: i. Monopoly – market has only one seller ii. Oligopoly – market has only a few sellers iii. Monopolistically competitive – market has many sellers but each product is slightly different so that each seller has some ability to set its own price II. Demand (captures the behavior of buyers) A. Quantity demanded – amount of a good that buyers are willing and able to purchase. i. Price of a good plays central role in determining quantity demanded of a good ii. An increase in the price of a good reduces the quantity demanded B. Law of demand – the negative relationship between the price of a good and the quantity demanded of a good C. Demand schedule – a table showing the relationship between the price of a good and the quantity demanded D. Demand curve – a graph of this relationship with the price on the vertical axis and the quantity demanded on the horizontal axis; downward sloping due to the law of demand E. Market demand
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