Econ

• Market


  Any arrangement that allows buyers and sellers to come together and make an exchange
• Competitive markets

  • Buyers and sellers are price takers
  • There are many buyers and sellers
  • Goods are homogeneous
  • There is perfect information
  • There is free entry and exit
• Demand


  The quantity of a good or service that consumers are willing and able to buy at different prices during a given time period
• Supply


  The quantity of a good or service that producers are willing and able to sell at different prices during a given time period
• Increase in demand


  Shifts the demand curve to the right
• Increase in supply

  Shifts the supply curve to the right

  
• Equilibrium price and quantity

  Determined by the intersection of the demand and supply curves

  
• In a competitive market, buyers and sellers are price takers
• In a competitive market, there are many buyers and sellers
• In a competitive market, goods are homogeneous
• In a competitive market, there is perfect information
• In a competitive market, there is free entry and exit
• Economic decision-makers


  Interact in markets and respond to prices
• Important questions are: What are the benefits and disadvantages of government intervention in markets? What policies are appropriate for achieving greater efficiency, and what policies for achieving greater equity? Are efficiency and equity conflicting objectives as some economists believe? Are there certain conditions under which efficiency and equity are consistent and complement each other? Are there policies that can be used to promote both?
• Competitive markets


  A market where the price of a good, service, or factor of production is determined through the interactions of many small buyers and sellers, so that no one can influence the price
• Demand


  The quantity of a good that buyers (consumers) are willing and able to buy at various prices over a time period, ceteris paribus
• Law of demand


  There is a negative causal relationship between price (P) and quantity (Q) of a good demanded: the higher the price, the lower the quantity demanded; the lower the price, the greater the quantity demanded
• Individual demand


  The demand of a single buyer
• Market demand


  The demands of all the buyers in a market, found by adding up all the individual demands for each price
• Consumers derive benefits from buying/consuming goods and services. The additional benefits derived from buying/consuming one more unit of a good are called marginal benefits (MB). As we buy more and more units of a good, the marginal benefits we enjoy decrease
• As price (P) increases


  Quantity (Q) demanded decreases, and vice versa

  
• Movement along a demand curve


  Change in quantity demanded due to a change in the price of the good

  
• Shift of a demand curve


  Change in demand due to a change in any of the non-price determinants of demand
• Non-price determinants of demand

  • Changes in tastes and preferences
  • Changes in income
  • Changes in the number of buyers (demographic changes)
  • Changes in prices of related goods
• Normal good


  Demand for the good increases as consumer income increases
• Inferior good


  Demand for the good decreases as consumer income increases
• Substitute goods


  Goods that satisfy a similar need
• Complement goods


  Goods that are used together
• Supply


  The quantity of a good that sellers (firms) are willing and able to produce and sell at various prices over a time period, ceteris paribus
• Law of supply


  There is a positive causal relationship between price (P) and quantity (Q) of a good supplied: the higher the price, the higher the quantity supplied; the lower the price, the lower the quantity supplied

  
• The price at which the firm sells its good determines the revenue of the firm (the money it receives from its sales). As the price of a good increases, the firm receives more revenue, production of the good becomes more profitable, therefore it is in firms' interests to increase the quantity they produce
• Individual supply


  The supply of a single seller (firm)
• Market supply


  The supplies of all the sellers in a market, found by adding up all the individual supplies for each price
• Movement along a supply curve


  Change in quantity supplied due to a change in the price of the good

  
• Shift of a supply curve

  Change in supply due to a change in any of the non-price determinants of supply

  
• Non-price determinants of supply

  • Changes in costs of production (factor prices)
  • Changes in an indirect tax
  • Changes in the number of firms in the market
  • Technological changes
  • Changes in expectations
  • Changes in prices of related goods

  
• Joint supply


  When two or more goods are derived from a single product, it is not possible to produce more of one without producing more of the other
• Competitive supply


  When two goods use the same resources, it is not possible to produce more of one without producing less of the other
• Market equilibrium


  A position of balance between demand and supply, where quantity demanded is equal to quantity supplied

  
• In a free, competitive market, where there is no interference with the forces of supply and demand, price (P) and quantity (Q) will always settle at their equilibrium values