Macroeconomics Chapter 4 Notes
Macroeconomics Chapter 4 Notes EC 111
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This 4 page Class Notes was uploaded by Carter Cox on Tuesday February 2, 2016. The Class Notes belongs to EC 111 at University of Alabama - Tuscaloosa taught by Zirlott in Spring 2015. Since its upload, it has received 56 views. For similar materials see Principles of Macroeconomics in Economcs at University of Alabama - Tuscaloosa.
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Date Created: 02/02/16
Macroeconomics Chapter 4 Notes Markets and Competition Market: is a group of buyers and sellers of a particular product Competitive Market: has many buyers and sellers, each has a negligible effect on price - Can’t argue over price and can’t negotiate Market Types include: - Perfect competition - Monopoly - Monopolistic competition Demand Quantity Demanded (QD) - is the amount of the good that buyers are willing and able to purchase at a specific price - Specific amount at a specific price Demand curve- is a set of various quantities demanded at corresponding prices. It is also the curve itself Law of Demand- the claim that the quantity demanded of good falls when the price of the good rises - Inverse The Demand Schedule This is a table that shows the relationship between the price of a good and the quantity demanded Price of Lattes Quantity of Lattes Demanded $0.00 16 $1.00 14 $2.00 12 $3.00 10 Then you plot the points on a graph and it will make a demand curve Market Demand VS. Individual Demand - The quantity demanded in the market is the sum of the quantities demanded by all buyers at each price Demand Curve Shifters - It shows how price affects quantity demanded. - A change in the price of the good changes quantity demanded and results in a movement along the demand curve - “other things” are non- price determinants of demand which determines a buyers demand for a good Demand Curve Shifters: Number of Buyers - Increase in the number of buyers increase quantity demanded at each price shifts the demand curve to the right - Right = increase in demand - Left = decrease in demand Demand Curve Shifter: Income - Demand for a normal good is positively related to income o Increase in income cause increase in quantity demanded at each price - Demand for an inferior good is negatively related to income Demand Curve Shifters: Prices of Related Goods - Two goods are substitutes if an increase in the price of one cause an increase in demand of the other - If two goods are complements if an increase in the price of one causes a fall in demand for the other Demand Curve Shifters: Tastes - Anything that causes a shift in the taste toward a good will increase demand for that good and shift its demand curve to the right Ex: Atkins diet became popular in the 90s caused an increase in demand for eggs. Demand Curve Shifters: Expectations - This affects consumer buying decisions Supply Quantity Supplied – the amount that sellers are willing and able to sell at a specific price Supply curve- is a set of various quantities supplied at corresponding prices Law of Supply- the claim that the quantity supplied of a good rises when the price of the good rises The supply schedule - Table that shows relationship between the price of good and the quantity supplied - Table is the same as demand schedule Market SUPPLY - Quantity supplied in the market is the sum of the quantities by all sellers at each price Supply Curve Shifters Input Prices - Wages, prices of raw materials - Fall in input prices makes production more profitable at each output price Technology - Determines how much inputs are required to produce a unit of output Number of Seller - Increase in number of sellers increases the quantity supplied at each price Expectations - Ex: events in Middle East lead to expectations of higher oil prices Equilibrium: the price that equates quantity supplied with quantity demanded - QD=QS Equilibrium Quantity- the quantity supplied and quantity demanded at the equilibrium price Surplus: above the equilibrium - When quantity supplied is greater than quantity demanded Shortage- below equilibrium - When quantity demanded is greater than quantity supplied Three Steps to Analyzing Changes in Equilibrium 1. Decide whether event shifts Supply ir demand or both 2. Decide in which direction curve shifts 3. Use supply demand diagram to see how the shift changes equilibrium P and Q Terms of Shift Vs. Movement along Curve - Change in supply- shift in the S curve o Occurs when a non price determinant of supply changes - Change in the quantity supplied – movement along a fixed S curve o Occurs when price changes - Change in demand – a shift in the D curve o Occurs when a non price determinant of demand changes - Change in the quantity demanded- movement along a fixed D curve o Occurs when price changes
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