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Competitive markets: demand and supply (Market efficiency (consumer…
Competitive markets: demand and supply
Demand
non-price determinants of demand (causes of demand curve shifts)
changes in tastes and preferences
changes in income
changes in the number of buyers (demographic changes)
changes in prices of related goods
substitutes: P of A increases, D for B increases
complements: P of A increases, D for B decreases
Supply
non-price determinants of supply (causes of supply curve shifts)
Changes in costs of production (factor prices): labor, land, capital , entrepreneurship
Changes in the number of firms in the market
technological changes
changes in an indirect tax
changes in a subsidy
changes in expectations
changes in prices of related goods
joint supply
: when two or more goods are derived from a single product, it is impossible to produce more of one without producing more of the other
Q of A increases, S of B increases as well
competitive supply
: when two goods use the same resources, it is impossible to produce more of one without producing less of the other
Q of A increases, S of B decreases
Market equilibrium
excess demand=shortage
excess supply=surplus
the role of price mechanism
PPC model: scarcity, choice and opportunity cost
Price as a signal and incentive in resource allocation
Market efficiency
consumer surplus
producer surplus
social surplus
marginal benefit
marginal cost