Markets and Competitions
Markets and Competition * A market is a group of buyers and sellers of a particular product. * A competitive market is one with many buyers and sellers, each has a negligible effect on price. * In a perfectly competitive market: * All goods exactly the same * Buyers & sellers so numerous that no one can affect market price – each is a “price taker” * In this chapter, we assume markets are perfectly competitive.
DEMAND
* The quantity demanded of any good is the amount of the good that buyers are willing and able to purchase. * Law of demand: the claim that the quantity demanded of a good falls when the price of the good rises, other things equal * Demand schedule: a table that shows the relationship between the price of a good and the quantity demanded * Example:
Helen’s demand for lattes. Price of lattes | Quantity of lattes demanded | $0.00 | 16 | 1.00 | 14 | 2.00 | 12 | 3.00 | 10 | 4.00 | 8 | 5.00 | 6 | 6.00 | 4 |
Market Demand versus Individual Demand * The quantity demanded in the market is the sum of the quantities demanded by all buyers at each price. * Suppose Helen and Ken are the only two buyers in the Latte market. (Qd = quantity demanded)
Demand Curve Shifters * The demand curve shows how price affects quantity demanded, other things being equal. * These “other things” are non-price determinants of demand (i.e., things that determine buyers’ demand for a good, other than the good’s price). * Changes in them shift the D curve… 1. # of Buyers * Increase in # of buyers increases quantity demanded at each price, shifts D curve to the right. 2. Income * Demand for a normal good is positively related to income. * Increase in income causes increase in quantity demanded at each price, shifts D curve to the right. * (Demand for an inferior good is negatively related to income. An increase in income shifts D
DEMAND
* The quantity demanded of any good is the amount of the good that buyers are willing and able to purchase. * Law of demand: the claim that the quantity demanded of a good falls when the price of the good rises, other things equal * Demand schedule: a table that shows the relationship between the price of a good and the quantity demanded * Example:
Helen’s demand for lattes. Price of lattes | Quantity of lattes demanded | $0.00 | 16 | 1.00 | 14 | 2.00 | 12 | 3.00 | 10 | 4.00 | 8 | 5.00 | 6 | 6.00 | 4 |
Market Demand versus Individual Demand * The quantity demanded in the market is the sum of the quantities demanded by all buyers at each price. * Suppose Helen and Ken are the only two buyers in the Latte market. (Qd = quantity demanded)
Demand Curve Shifters * The demand curve shows how price affects quantity demanded, other things being equal. * These “other things” are non-price determinants of demand (i.e., things that determine buyers’ demand for a good, other than the good’s price). * Changes in them shift the D curve… 1. # of Buyers * Increase in # of buyers increases quantity demanded at each price, shifts D curve to the right. 2. Income * Demand for a normal good is positively related to income. * Increase in income causes increase in quantity demanded at each price, shifts D curve to the right. * (Demand for an inferior good is negatively related to income. An increase in income shifts D