IB Microeconomics notes
Chapter 2. Demand and Supply
Markets
A market is where buyers and sellers come together to carry out an economic transaction.
Markets may be physical places where goods or services are exchanged for money, but there are other ways that economic transactions may be made, such as online markets.
Product markets: the place where goods and services are bought and sold
Factor markets (labor market): the place where the factors of production are bought and sold.
Financial markets (e.g. foreign exchange market): the place where international currencies are traded
Stock markets: the shares in companies are bought and sold.
Demand
Demand is the quantity of a goods or services that consumers are willing an able to purchase at a given price in a given time period.
It is not enough for consumers to be willing to purchase a good or service; they must also be able to purchase it.
The law of demand
As the price of a product falls, the quantity demanded of the product will usually increase, ceteris paribus.
Ceteris paribus is an assumption that means “all other things being equal.”
Demand curve
The phrase “change in the quantity demanded” is important, since it differentiates a change in price from the effect of a change in any of the other determinants of demand.
The increase in demand is for two reasons:
1. Income effect: when the price of a product falls, then people will have an increase in their “real income”, which reflects the amount that their incomes will buy. With this increase in real income, the people will be likely to buy more of the product.
2. Substitution effect: when the price of a product falls, then the product will be relatively more attractive to people than other products, whose prices have stayed unchanged, and so it is likely that consumers will purchase more of the product, substituting it for products that were previously purchased.
The non-price determinants of demand
There are a number of factors that determine
Markets
A market is where buyers and sellers come together to carry out an economic transaction.
Markets may be physical places where goods or services are exchanged for money, but there are other ways that economic transactions may be made, such as online markets.
Product markets: the place where goods and services are bought and sold
Factor markets (labor market): the place where the factors of production are bought and sold.
Financial markets (e.g. foreign exchange market): the place where international currencies are traded
Stock markets: the shares in companies are bought and sold.
Demand
Demand is the quantity of a goods or services that consumers are willing an able to purchase at a given price in a given time period.
It is not enough for consumers to be willing to purchase a good or service; they must also be able to purchase it.
The law of demand
As the price of a product falls, the quantity demanded of the product will usually increase, ceteris paribus.
Ceteris paribus is an assumption that means “all other things being equal.”
Demand curve
The phrase “change in the quantity demanded” is important, since it differentiates a change in price from the effect of a change in any of the other determinants of demand.
The increase in demand is for two reasons:
1. Income effect: when the price of a product falls, then people will have an increase in their “real income”, which reflects the amount that their incomes will buy. With this increase in real income, the people will be likely to buy more of the product.
2. Substitution effect: when the price of a product falls, then the product will be relatively more attractive to people than other products, whose prices have stayed unchanged, and so it is likely that consumers will purchase more of the product, substituting it for products that were previously purchased.
The non-price determinants of demand
There are a number of factors that determine