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Part ll-The role of market - Coggle Diagram
Part ll-The role of market
What are the fundamentals of markets
Market economy-resources are allocated among households and firms with little or no government interference.
A firm's degree of control over the market price is the distinguishing feature between
Competitive Markets
and
Imperfect Markets.
A competitive market exists when there are so many buyers and sellers that each has only a small (negligible) impact on the market price and output.
An imperfect market is one in which either the buyer or the seller can influence the market price.
Market power is a firm's ability to influence the price of a good or service by exercising control over its demand,supply, or both.
A monopoly exists when a single company supplies the entire market for a particular good or service.
Demand:
Each good or service has its own special characteristics that determine the quantity people are willing and able to consume. One is the price of the good or service itself.Other independent variables that are important determinants of demand include consumer preferences,prices of related goods and services, income, demographic characteristic such as population size, and buyer expectations.
The change between Price and the quantity of demand: Given the values of all the over variables that affect demand, a higher price tend to reduce the quantity people demand, and a lower price tends to increase it.
Definitions
The quantity demanded of a good or service
--refers to the quantity buyers are willing and able to buy at particular price during a particular period, all other things unchanged.
A demand schedule:
refers to a table that shows the quantities of a good or service demanded at different prices during a particular period,all other things unchanged.
Demand curve:
The information given in a demand schedule can be presented with a demand curve, which is a graphical representation of a demand schedule.
A movement along a demand curve that results from a change in price is called a change in quantity demanded.
The law of demand
is called a law because the results of countless studies are consistent with it. In general, we expect the law of demand to hold.Given the values of other variables that influence demand, a higher price reduces the quantity demanded. A lower price increases the quantity demanded.Demand curves, in short, slope downward.
The result will be a shift in the entire demand curve rather than a movement along the demand curve. A shift in a demand curve is called a change in demand.
A variable that can change the quantity of a good or service demanded at each price is called a demand shifter.
It is crucial to distinguish between a change in quantity demanded, which is a movement along the demand curve caused by a change in price , and a change in demand, which implies a shift of the demand curve itself. A change in demand is caused by a change in a demand shifter. An increase in demand is a shift of the demand curve to the right. A decrease in demand is a shift in the demand curve to the left. This drawing of a demand curve highlights the difference.
Other variables that can shift the curve
(1)
Preferences
---Example: reduced demand for cigarettes caused by concern about the effect of smoking on health.
(2)
Prices of related goods and services
complements:
In general, if a reduction in the price of one good increases the demand for another, the two goods are called complements.
If a reduction in the price of one good reduces the demand for another, the two goods are called
substitutes.
(4) Demographic characteristics
(3)
Income:
As incomes rise, people increase their consumption of many goods and services, and as incomes fall, their consumption of these goods and services falls.
Normal good:
A good for which demand increases when income increases is called a normal good.
Inferior good:
A good for which demand decreases when income increases is called an inferior good.
(5)Buyer Expectations
---Example-the expectation of newer TV technologies, such as high-definition TV, could slow down sales of regular TVs.
Supply: Price is one factor; ceteris paribus, a higher price is likely to induce sellers to offer a greater quantity of good or service. Production cost is another determinant of supply. Variables that affect production cost include the prices of factors used to produce the good or service, returns from alternative activities, technology, the expectations of sellers and natural events such as weather changes.
The quantity of supplied of a good or service is the quantity sellers are willing to sell at a particular price during a particular period, all other things unchanged.
A supply schedule-
a table that shows quantities supplied at different prices during a particular period, all other things unchanged.
The supply curve
is a graphical representation of a supply schedule. It shows the relationship between price and quantity supplied during a particular period, all other things unchanged.
A variable that can change the quantity of a good or service supplied at each price is called a supply shifer. Supply shifters include (1) prices of factors of production, (2) returns from alternative activities (3) techonology (4) seller expectations (5) natural events and (6) the number of sellers.
Prices of factors of production
A change in the price of labor or some other factor of production will change the cost of producing any given quantity of the good or service.
Technology
Seller expectations
All supply curves are based in part on seller expectations about future market conditions. Many decisions about production and selling are typically made along before a product is ready for sale. Those decisions necessarily depend on expectations. changes in seller expectations can have important effects on price and productions.
Returns from alternative activities
To produce one good or service means forgoing the production of another. The concept of opportunity cost in economics suggests that the value of the activity forgone is the opportunity cost of the activity chosen; this cost should affect supply.
Natural Events
The Number of sellers
Demand, Supply, and Equilibrium
The Determination of price and quantity
By putting the demand and supply curve together, we should be able to find a price at which the quantity buyers are willing and able to purchase equals the quantity sellers will offer for sale.
Equilibrium: The equilibrium price in any market is the price at which quantity demanded equals quantity supplied.
Surpluses:
More generally, a surplus is the amount by which the quantity supplied exceeds the quantity demanded at the current price. There is , of course, no surplus at the equilibrium price; a surplus occurs only if the current price exceeds the equilibrium price.
Shortages:
A shortage is the amount by which the quantity demanded exceeds the quantity supplied at the current price.
In the face of a shortage, sellers are likely to begin to raise their prices. As the price rises, there will be an increase in the quantity supplied( but not a change in supply) and a reduction in the quantity demanded (but not a change in demand) until the equilibrium price is achieved.
Shifts in Demand and Supply:
A change in one of the variables(shifters) held constant in any model of demand and supply will create a change in demand or supply. A shifter in a demand or supply curve changes the equilibrium price and equilibrium quantity for a good or service.
An increase in Demand
A decrease in Demand
An Increase in Supply
An Decrease in Supply
Simultaneous Shifts:
However, in practice, several events may occur at around the same time that cause both the demand and supply curves to shift. To figure out what happens to equilibrium price and equilibrium quantity, we must know not only in which direction the demand and supply curves have shifted but also the relative amount by which each curve shifts. Of course, the demand and supply curves could shift in the same direction or in opposite directions, depending on the specific events causing them to shift.
The supply curve shifts farther to the left than does the demand curve, the equilibrium prices rises.
Bothe curves shifts same amount, the equilibrium stays same.
The demand curve shifts farther to the left than does the supply curve, so equilibrium price falls.
