Econ 202 1st Edition Lecture 5 Outline of Last Lecture I Interdependence vs Trade II Absolute Advantage III Comparative Advantage Outline of Current Lecture Current Lecture I Market Places where consumers and traders get together to exchange goods and services a Has three different markets i A perfectly competitive market has a lot of suppliers 1 Buyers and sellers are Price Takers accept the price that is determined by the market a There are so many buyers and so many sellers no one buyer or seller can affect the market price i Ex You go to Pizza Hut and the large pizza is 15 you will not negotiate you either buy or find another seller ii So in conclusion so many sellers that prices are not controlled by one seller 2 Homogeneous product a Suppliers provide the same thing 3 Free entry and exit a No barriers to entering i Ex Opening a restaurant not as many barriers as opening a TV Station 4 Perfect information a The parties of a transaction have ALL the information pertinent to the transaction i Ex Knowing what is in your hot dog pizza ii Not a good example of this is used cars the sellers knows more than the buyer 5 Zero Transaction costs a Transaction costs the cost of undertaking a transaction i Should not cost anything 6 1 5 are assumptions about how a perfect competitive market is supposed to look like so it is not accurate it is just a model ii Monopoly has 1 supplier 1 One seller price maker 2 Has market power a Ex Apple Inc they are the only people who produce that brand so they have power over its price II iii Oligopoly has 2 or a few suppliers 1 2 or a few firms so they still have a little more power a Ex Airlines route between a pair of cities San Francisco and New York Demand and Supply Factors that affect demand and how a Demand Households as consumers i The example that we will use is slices of pizza ii Factors that affect an individual s demand for slices of pizza 1 Price of a slice of Pizza a Law of Demand as prices of a good increase quantity of the good decrease b Prices of pizza increase the quantity and demand for the pizza decrease 2 Prices of other goods a Prices of substitute decreases Demand for pizza decreases i Substitute other goods that you might buy instead of a pizza slice ex Burrito b Prices of complement decreases Demand for pizza increases i Complement a good that you would take with the pizza a product that effect one another ex gas and cars 3 Income a Normal Good When income increase Demand for pizza slices increases b Infrior Good When income increase Demand for pizza slices decreases 4 Tastes Preferences These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute