1 2.1 Markets of markets with relevant local, national and international examples M&B 41 Market: Institution or mechanism that brings together the buyers ( demanders ) and sellers ( suppliers ) of particular goods, services or resources. Examples: gas station, ebay, Powell s, farmers market, NYSE Brief descriptions of perfect competition, monopoly and oligopoly as different types of market structures, and monopolistic competition, using the characteristics of the number of buyers and sellers, type of product and barriers to entry. Importance of price as a signal and as an incentive in terms of resource allocation
2 Demand of demand M&B 41 Schedule or a curve that shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices during a specified period of time. Demand is what people are willing and ABLE to buy if people are willing but UNABLE, it does not show up on the demand schedule Law of demand with diagrammatic analysis M&B 41 All else equal, as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls. Negative or inverse relationship between price and quantity demanded Diminishing marginal utility: Each successive unit of a product is consumed leads to less and less satisfaction (benefit / utility) / Example: The first Big Mac is awesome. The second Big Mac is great. The fifth Big Mac makes me want to puke. / Marginal means extra / With each additional unit, I get less and less extra (marginal) benefit.
3 Determinants of demand M&B 43 1) Consumer Tastes / preferences 2) Number of consumers in the market (population) 3) Consumers incomes 4) Prices of related goods 5) Consumer expectations about future prices and incomes A change in one or more determinants of demand will SHIFT the demand curve Increase in demand is shown as a shift to the right Decrease in demand is shown as a shift to the left Fundamental distinction between a movement along a demand curve and a shift of the demand curve Supply of supply Law of supply with diagrammatic analysis Determinants of supply Effects of taxes and subsidies on supply Fundamental distinction between a movement
4 along a supply curve and a shift of the supply curve Interaction of demand and supply Equilibrium market clearing price and quantity Diagrammatic analysis of changes in demand and supply to show the adjustment to a new equilibrium Price controls Maximum price: causes and consequences Minimum price: causes and consequences Price support/buffer stock schemes Commodity agreements 2.2 Elasticities Price elasticity of demand (PED)
5 Possible range of values Diagrams illustrating the range of values of elasticity Varying elasticity along a straight-line D curve Determinants of price elasticity of demand Cross-elasticity of demand Significance of sign with respect to complements and substitutes Income elasticity of demand
6 Normal goods Inferior goods Price elasticity of supply Possible range of values Diagrams illustrating the range of values of elasticity Determinants of price elasticity of supply Applications of concepts of elasticity PED and business decisions: the effety of price changes on total revenue PED and taxation Cross-elasticity of demand: relevance for firms