Intro to Macroeconomics Week 2 notes Chapter 4
Intro to Macroeconomics Week 2 notes Chapter 4 22260
University of Memphis
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This 4 page Class Notes was uploaded by Bradley Notetaker on Tuesday January 26, 2016. The Class Notes belongs to 22260 at University of Memphis taught by Speer in Winter 2016. Since its upload, it has received 14 views. For similar materials see Intro to Macroeconomics in Economcs at University of Memphis.
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Date Created: 01/26/16
Chapter 4 12616 Week #2 Markets Market Price: The price which buyers and sellers conduct transactions Competitive Markets Perfectly Competitive Market: All sellers sell an identical good or service Every buyer pays and every seller charges same price No buyer or seller is big enough to influence the market price Quantity Demanded The amount of a good that buyers are willing to purchase @ a given price Demand Schedule A table that shows the quantity demanded @ different prices, holding all else equal Demand Curve (described as “downward sloping” as prices go down quantity goes up) Plots the quantity demanded @ different prices Law of Demand Holding everything else equal (“Ceteris Paribus”:all or other things being equal), a decrease in prices means quantity demanded will go up (vice versa). o In other words, demand curves slope Why does demand slope down? 1) People have different “willingness to pay” for things 2) Diminishing marginal benefits As you buy/consume something, the less extra benefit you get Market Demand Curve The sum of the individual demand curves of all potential buyers o Market demand curve plots relationship between total quantity demand and market price Demand curve shifts to the left: o Decrease in Demand Demand curve shifts to the right: o Increase in Demand Shifts of the Demand Curve Occurs when one of the following changes: 1) Tastes and preferences 2) Income and Wealth Normal good: Income goes up , demand increases Ex. You earn more income, so you buy more and better clothes Inferior good: when income goes up, demand decreases Ex. You earn more income, so you buy less Ramen Noodles 3) Prices of related goods (substitutes/complements) Ex. Hot dogs can substitute hamburgers. Fries can complement a hamburger 4) Number and scale of buyers 5) Buyer’s expectations about the future When the price of a good changes, we moveALONG the demand curve. When something else changes, for instance your income, wSHIFT the demand curve. Supply Curve (upward sloping) Quantity supplied The amount of a good that sellers are willing to sell at a given price Supply Schedule A table that reports the quantity demanded at different prices Supply Curve Plots the quantity supplied 12816 Chapter 4 Cont. Market Supply Curve Plots relationship between the total quantity supplied Shifts of Supply Curve Occurs when one of the following changes: 1) Input prices… if input goes up, decrease in supply (vice versa) Something a firm uses to produce its product (“output”) 2) Technology 3) # and scale of sellers 4) Seller’s expectations of the future Competitive Equilibrium Point at which the market comes to an agreement about what the price will be (competitive equilibrium price) and how much will be exchanged (competitive equilibrium quantity) at that price. Quantity demanded = Quantity supplied Equilibrium price or Market – clearing price Equilibrium is where there is no SHORTAGE or SURPLUS. The number of buyers equals thee amount supplied. Surplus Amount supplied is more than the amount demanded Shortage Amount demanded is higher than the amount supplied As quantity goes up, price may or may not go up. May go down As demand goes up and supplied goes down, the price goes up and quantity may or may not go down. As demand goes down and supplied goes down, then quantity goes down and price may or may not go up. Price floor Illegal to charge a price below the set price set by gov. Ex. Minimum wage
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