PAS 2201 - Chapter 3

• market

  • any place where goods are bought and sold
  • includes interaction of all buyers & sellers
  • exists wherever & whenever an exchange takes place
• barter

  • direct exchange of one good for another, without the use of money
  • limitation
  • nearly every market transaction involves an exchange of dollars for goods or resources
• market transaction requires 2 sides

  1. demand
  2. supply
• demand

  • ability & willingness to buy specific quantities of a good at alternative prices
• supply

  • ability & willingness to sell (produce) specific quantities of a good at alternative prices in a given time period
• every market transaction involves an exchange

  • involves both demand & supply
• demand

  • only exists if someone is both willing and able to pay for a good
  • how much someone is willing to pay for something is determined by income & opportunity cost
  • expression of buyers' willingness to buy is NOT a statement of actual purchases
• demand curve


  • curve describing the quantities of a good a consumer is willing & able to buy at alternative prices in a given time period
  • downward slope
  • drop in price creates increase in quantity demanded
  • when price increases, quantity demanded decreases
• shifts in demand curve

  • what would happen if something other than the price of the good changes?
  • i.e. rise in income will cause demand curve to shift to the right (outward)
  • what would happen if something other than the price of the good changes?
  • i.e. report stating chicken contamination will cause the demand curve to shift left (inward)
• factors that cause shifts in demand

  • tastes (desires for this and other goods)
  • income (of the consumers)
  • other goods (their availability & price)
  • expectations (for income, prices, tastes)
  • number of buyers
• movement along the demand curve

  • change in price will affect the demand within/along the curve
• shifts in demand curve

  • changes in the economy (other than the price) that affects what/how much people will buy is represented by a shift in the demand curve
• price ceiling

  • upper limit (max price) imposed on the price of a good or service

  
  

  price ceiling have 3 predictable effects

  • increase quantity demanded
  • decrease quantity supplied
  • create a market shortage
• price floor

  • lower limit (minimum price) imposed on the price of a good or service

  price floors have 3 predictable effects

  • increase quantity supplied
  • decrease quantity demanded
  • create a market surplus