ECON 205 1st Edition Lecture 1Outline of Current Lecture II. The Market is made of buyers and sellersIII. Supply + Demand cause changes in price and quantityCurrent LectureMarkets & Competition- Markets are usually competitiveo We assume all markets are perfectly competitiveo All participants are “price takers”o No one person affects the overall marketDemand- Price determines demand- Law of Demand- all else equal, quantity demand decreases when price increases- Measure demand with a demand scheduleo Demand schedule is the price vs. demand curveMarket Demand vs. Individual Demand- Market demand is the sum of quantities demanded by all buyers at each priceDemand Shifters- Curve shows how price affects quantity demanded- Non-price determiners of demand will shift curve- Factors of non-price determiners are…o Income Demand of normal good is positively related to income Demand for inferior good is negatively related to incomeo Price of related goods Increase in the price of one substitute good (goods that are the same as the original good in function and quality) will increase the demand for theoriginal good Increase in the price of a complement good (goods that enhance the function or quality of the original good) will decrease the demand for the original goodo Tastes Purely set by the ebb and flow of trendso Expectations What we think will happen next year affects decisions today i.e. if you predict a product to become more expensive later, buy more nowo Size of the market The number of buyers will shift the demand curveSupply- Quantity of goods produced- Law of supply- all else equal, supply increases as price
View Full Document
Unlocking...