economics notes
ECONOMICS NOTES r #1: MICROECONOMICS LECTURE 1: SUPPLY AND DEMAND -
S&D: how buyers and sellers behave and interact with one another in competitive markets How interactions between buyers and sellers determine quantity of goods and services produced, and prices at which they’re sold
Markets and competition -
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Market: group of buyers and sellers of a good or service; whenever a group of B&S interact to trade a G/S, you have a market Competitive markets have many buyers and sellers that each have a negligible impact on the market price The smaller the ability to affect the marketplace, the more competitive the market Perfectly competitive (PC): highest form of competition o Goods offered for sale are all homogenous o Buyers and sellers are so numerous that none can influence the price Price takers: B&S accept given market prices How competitive are real world markets? o Monopoly: markets with only one seller o Price setter: seller sets the price
Demand Quantity demand: amount of goods that buyers are willing & able to purchase - Willing: buyer wants the amount - Able: buyer has enough income to buy desired amount Price plays a central role - If price of product rises, you would buy less or find an alternative - As demand falls when prices rise, quantity demanded is negatively related to the price - “Law of demand” - Other things equal (ceteris paribus): holding constant all other factors that may affect quantity demanded What factors affect demand? - Income: r/ship between income and demand depends on the type of goods o Normal good: increase in income = increase in demand o Inferior good: increase in income = decrease in demand - Price of related goods o When the price of a good falls, you will buy more of that product o Substitutes: pairs of goods are used in place of each other – fall in P of one good reduces the D for the other o Complements: pairs of goods that are used together – when fall of price of one good raises the demand of another good - Tastes: if you like something, you buy more - Expectations o Future income o Future price of good - Number of buyers: market demand positively depends on number of buyers
Two ways to represent relationship between price and quantity demanded Demand schedule
Demand curve
Market demand VS individual demand -
Market demand: sum of all individual demands for a particular good or service Individual demand curves are summed horizontally to obtain the market demand curve
Movement along the demand curve
Shifts in the demand curve -
D curve shows how quantity demanded varies with the price of the good Change in one or more “factors” generate a shift in the D curve, either to the left or right In this case, we say there’s a change in demand
Change in quantity VS change in demand
Supply -
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Behaviour of producers/sellers Quantity supplied: amount of good that sellers are willing and able to sell o Willing: want to sell amount o Able: amount feasible w/ given resources Law of supply: ceteris paribus, quantity supplied of a good rise when the price rises
Two ways to represent relationship between price and quantity supplied Supply schedule
Supply curve
Market supply VS individual supply -
Market supply: sum of all individual supplies for a particular good or service Individual supply curves are summed horizontally to obtain the market supply curve
Market supply
Movement along the supply curve
Shifts in the supply curve -
S curves show how the quantity supplied of a good varies with the price of a good Change in one or more other factors generate a shift in the supply curve, either left or right We say there’s a change in supply
What other factors can affect supply? - Input prices: quantity supplied is negatively related to price of inputs used to make the goods - Technology: improvement in production technology increases productivities - Expectations: if suppliers expect the price to rise, they will more likely store some goods and supply less to the market - Number of sellers: market supply positively depends on number of sellers
S&D: how buyers and sellers behave and interact with one another in competitive markets How interactions between buyers and sellers determine quantity of goods and services produced, and prices at which they’re sold
Markets and competition -
-
Market: group of buyers and sellers of a good or service; whenever a group of B&S interact to trade a G/S, you have a market Competitive markets have many buyers and sellers that each have a negligible impact on the market price The smaller the ability to affect the marketplace, the more competitive the market Perfectly competitive (PC): highest form of competition o Goods offered for sale are all homogenous o Buyers and sellers are so numerous that none can influence the price Price takers: B&S accept given market prices How competitive are real world markets? o Monopoly: markets with only one seller o Price setter: seller sets the price
Demand Quantity demand: amount of goods that buyers are willing & able to purchase - Willing: buyer wants the amount - Able: buyer has enough income to buy desired amount Price plays a central role - If price of product rises, you would buy less or find an alternative - As demand falls when prices rise, quantity demanded is negatively related to the price - “Law of demand” - Other things equal (ceteris paribus): holding constant all other factors that may affect quantity demanded What factors affect demand? - Income: r/ship between income and demand depends on the type of goods o Normal good: increase in income = increase in demand o Inferior good: increase in income = decrease in demand - Price of related goods o When the price of a good falls, you will buy more of that product o Substitutes: pairs of goods are used in place of each other – fall in P of one good reduces the D for the other o Complements: pairs of goods that are used together – when fall of price of one good raises the demand of another good - Tastes: if you like something, you buy more - Expectations o Future income o Future price of good - Number of buyers: market demand positively depends on number of buyers
Two ways to represent relationship between price and quantity demanded Demand schedule
Demand curve
Market demand VS individual demand -
Market demand: sum of all individual demands for a particular good or service Individual demand curves are summed horizontally to obtain the market demand curve
Movement along the demand curve
Shifts in the demand curve -
D curve shows how quantity demanded varies with the price of the good Change in one or more “factors” generate a shift in the D curve, either to the left or right In this case, we say there’s a change in demand
Change in quantity VS change in demand
Supply -
-
Behaviour of producers/sellers Quantity supplied: amount of good that sellers are willing and able to sell o Willing: want to sell amount o Able: amount feasible w/ given resources Law of supply: ceteris paribus, quantity supplied of a good rise when the price rises
Two ways to represent relationship between price and quantity supplied Supply schedule
Supply curve
Market supply VS individual supply -
Market supply: sum of all individual supplies for a particular good or service Individual supply curves are summed horizontally to obtain the market supply curve
Market supply
Movement along the supply curve
Shifts in the supply curve -
S curves show how the quantity supplied of a good varies with the price of a good Change in one or more other factors generate a shift in the supply curve, either left or right We say there’s a change in supply
What other factors can affect supply? - Input prices: quantity supplied is negatively related to price of inputs used to make the goods - Technology: improvement in production technology increases productivities - Expectations: if suppliers expect the price to rise, they will more likely store some goods and supply less to the market - Number of sellers: market supply positively depends on number of sellers
