1 Introduction to Macroeconomics I 19 9 13 Definition and types of Markets As long as producers interact with consumers for a product it is a market regardless of legality or anything else On the basis of type markets may be 1 Product markets 2 Resource markets where normal people go for commodities where companies go for services On the basis of concentration markets may be where there are greater number of buyers and sellers For 1 Concentrated markets example monopolistic market and perfect competition example oligopoly monopoly and monopsony market 2 Un concentrated markets where there are fewer number of buyers and sellers For Demand Coke To understand the law of demand let us take into consideration the following table Price per unit 0 25 0 50 1 00 2 00 Quantity Demanded 21 17 14 7 Hence we can see that ceteris paribus as the price of a commodity goes up the quantity demanded of it goes down This is termed as the Law of Demand Demand Curve 2 Change in Quantity Demanded and Change in Demand 2 Change in Demand 1 Change in Quantity Demanded Is when there is a change in demand due to the change in price Hence there is a movement along the demand curve factor other than price Hence there is a shift along the demand curve When there is an increase in demand the curve shifts to the right When there is a decrease in demand the curve shifts to the left Is when there is a change in demand due to a change in any other Shift in Demand Curve Types of goods There are two types of goods example cars homes etc Inferior goods example barley ramen noodles etc 1 Normal goods the demand of which increases as the income of a person increases For 2 the demand of which decreases as the income of a person increases For Determinants of Demand Income effect normal vs inferior goods Sum total of financial and real assets Substitution effect Substitutes vs Complementary Income 1 2 Wealth 3 Tastes and Preferences 4 Prices of related goods 5 Expectations 6 Population More than just prices can be income environment etc Note Consumer durables are luxuries which when the economy crashes the demand of it goes down the most and when it recovers the demand of it goes up the most 3 Supply is defined as the quantity of goods that the producers are willing to sell at a certain point of time at a certain point facing certain constraints Supply Determinants of Supply 1 Prices of inputs 2 Technology 3 Price profitability of alternate goods markets 4 Number of firms 5 Expectations 6 Weather and other natural events Law of Supply The law of supply states ceteris paribus as the price of a commodity goes up the quantity supplied of the commodity goes up This is because as the prices go up so do the profits considering there is no change in the input prices and hence more is supplied Supply Curve Change in Quantity Supplied and Change in Supply 2 Change in supply 1 Change in quantity supplied when the supply is affected due to the change in price of a commodity This causes a movement along the curve determinant of supply other than price This causes a shift in the curve An increase in supply causes a rightward shift of the curve and a decrease in supply causes a leftward shift of the curve when the supply is affected due to the change in any other 4 Shift in Supply Curve Unit Cost Unit cost refers to how much it costs a producer to produce 1 unity of a product Unit Cost Total Cost Output Technically a technological change increases the total cost but it increases the output by a greater percentage Hence the unit cost ultimately goes down For example computers are more expensive than books But the output by using computers will increase by a greater margin Hence overall the unit cost will decrease