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NDSU ECON 202 - Competitive Market

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Econ 202 1st Edition Lecture 14Outline of Last Lecture I. ModelsII. Comparative advantage Outline of Current Lecture I. What a competitive market is and how it is described by the supply and demand modelII. What the demand curve and supply curve areIII. The difference between movements along a curve and shifts of a curveIV. How the supply and demand curves determine a market’s equilibrium price and equilibriumquantityV. In the case of a shortage or surplus, how price moves the market back to equilibriumCurrent Lecture- A competitive market has many buyers and sellers of the same good or service, none of whom can influence the price.- The supply and demand model is a model of how a competitive market behaves.- Demand represents the behavior of buyers.o A demand curve shows the quantityo Demanded at various prices.o The quantity demanded: the quantity that buyers are willing (and able) to purchase at a particular price.***a “change in demand” does NOT equal a “change in quantity demanded”The Law of demand: a higher price for a good or service leads people to demand a smaller quantity.Understanding Shifts of the Demand CurveImportant demand shifters: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.1. Changes in the prices of related goods or services2. Changes in income3. Changes in tastes4. Changes in expectations5. Changes in the number of consumersChanges in Price of Related Goods: Substitutes- Two goods are substitutes if a decrease in the price of one leads to a decrease in demand for the other (or vice versa).- What happens to the demand for travel in Hawaii if the (perceived) safety cost of traveling to Mexico increases?Changes in Price of Related Goods: Complements- Two goods are complements if a decrease in the price of one good leads to an increase in the demand for the other (or vice versa).- Consumers often have to buy goods together.- An increase in price of gasoline will decrease the demand for SUVs.Changes in Income- The effect of changes in income on demand depends on the nature of the good in question.o A normal good: Demand increases when income increases (and vice versa).o An inferior good: Demand decreases when income increases (and vice versa).Change in taste- Taste in preferences are subjective and vary among consumers-Seasonal changes or fads have a predictable effects on demand.- What happens to demand for boots in October?Change in expectation- If consumers have a choice about the timing of a purchase, they buy according to expectations.-Buyers adjust current spending in anticipation of the direction of future prices in order toobtain the lowest possible price.o If prices for Xbox 360 consoles are expected to drop right before Christmas, what will happen to sales during November?Change in number of customers- As the population of an economy changes, the number of buyers of a particular good also changes (thereby changing its demand).o What happens to the demand for diapers in Russia as birth rates drop?SupplySupply represents the behavior of sellers.A supply curve shows the quantity supplied at various prices.The quantity supplied is the quantity that producers are willing and able to sell at a particular price.Understanding Shifts of the Supply CurveImportant supply shifters include changes in:1. input prices.2. the prices of related goods or services.3. technology.4. expectations.5. the number of


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NDSU ECON 202 - Competitive Market

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