Microeconomics, Chapter 3
Microeconomics, Chapter 3 Econ 2106
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This 4 page Class Notes was uploaded by Daria Trikolenko on Monday September 5, 2016. The Class Notes belongs to Econ 2106 at Georgia State University taught by Carycruz Bueno in Fall 2016. Since its upload, it has received 20 views.
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Date Created: 09/05/16
Chapter 3. The market at work. Supply and Demand Invisible hand- process in which motivated consumer must decide how to use their money to select the goods that they need or want the most. Competitive markets- many buyers and sellers, each has a small impact on the market price and output. The buyers create the demand for the product, while the seller produce the supply. Highly competitive market- similar goods and many participants, price and quantity determined by the market. Imperfect market- buyer or seller has an influence on the market price. Monopoly- a single company supplies the entire market for a particular good or service. What determine Demand? Exists when an individual or a group wants something badly enough to pay or trade for it. Quantity will depend on the price. Quantity demanded- the amount of a good or service purchased at the current price. Law of demand-inverse relationship between the price and the quantity demanded. Demand curve- a graph of the relationship between prices in demand schedule and quantity demanded at those price. Market demanded- sum of all the individual quantity demanded by each buyer in a market at each price. !!! A price change causes a movement along a given demand curve, but it cannot cause a shift. Shift of the demand curve: -Changes in income: consumer can buy more of a normal good with rise of income. An inferior good is purchased out of necessity rather than choice, Income goes up -> consumer buy less of inferior goods. -The price of Related goods: Certain goods directly influence the demand for other goods. Compliments-two goods that used together. Substitutes- are two goods that used to replace each other. -Change in tastes and preferences -Expectations regarding the future prices: an expectation of lower price in future will decease current demand. -Number of buyers: More individual buyers enter the market will increase the demand. What determines supply? !!! The price level and quantity supplied are positively related. Quantity supplied- the amount of good or service that producers are willing and able to sell at the current price. When price increases, producers often respond by offering more for sale. Law of supply direct relationship between price and quantity supplied; as price rise, the quantity supplied goes up as well. The supply curve Price (per pound) Pound supplied (per month) $20 800 $10 400 $2.5 100 Market supply- sum of the quantities supplied by each seller in the market at each price. Shifts in the supply Curve –when price changes, the quantity supplied changes along the existing supply curve. Example: Decrease: destroyed coffee crop lead to less production of coffee Increase: better way to brew a coffee. A price change causes a movement along the supply curve, not a shift in the curve. Shift of the supply curve: -The cost of inputs: resources used in the production process (workers, equipment, raw materials) Price of input change-> the seller’s profit margin change -Change in technology or the production process: Improvement enables a producer to increase output with the same recourses or to produce a given level of output with fewer resources. -Taxes and subsidies: Taxes- an added cost of doing business (makes the firm less profitable) Make firm less willing to supply the product, shift to the left. Subsidies- payment made by the government to encourage the consumption or production of a good/ service. Shift to the right -The number of firms in the industry: each additional firm that enters the market increases the available supply of the good (shift to the right) ; number of firm decreases (shift to the left) -Price expectations: expectations of a higher price for a product may wish to delay sales until a time when it will bring a higher price. Supply, Demand, and Equilibrium Equilibrium- point where the demand and supply curves intersect. (perfectly balanced) Equilibrium price – quantity supplied equals the quantity demanded. Market-clearing price- only price at which no surplus or shortage exists. Equilibrium quantity- quantity supplied equals quantity demanded. !!! Law of Supply and Demand: market prices adjust to bring the quantity supplied and quantity demanded into balance. Shortage and Surpluses Shortage- when there is more demand for a product than sellers are willing to supply. (Quantity supplied less than quantity demanded). Surpluses- excess supply, occurs whenever the quantity supplied is greater than the quantity demanded.
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