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Macro Notes eco
University of Alabama at Birmingham
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CH 4
- Markets and competition
In a perfectly competitive market, all producers sell identical goods or services. Additionally, there are many buyers and sellers. Because of these two characteristics, both buyers and sellers in perfectly competitive markets are price takers.
True or False The market for wheat does not exhibit the two primary characteristics that define perfectly competitive markets.
Demand Schedule: A table showing the relationship between the price of a good and the amount that buyers are willing and able to purchase at various prices
Demand Curve: A graphical object showing the relationship between the price of a good and the amount of the good that buyers are willing and able to purchase at various prices
Law of Demand: The claim that, with other things being equal, the quantity demanded of a good fall when the price of that good rises.
Quantity Demanded: The amount of a good that buyers are willing and able to purchase at a given price.
Price Paolo’s Quantity Sharon’s Quantity
10 32 64
20 24 48
30 16 32
40 8 24
50 0 16
To get market demand price add Paolo and Sharon Price goes on y axis.
Event
A change in the expectations of Shift consumers about prices
An increase in income of consumers Shift
A decrease in the price of peanut butter Movement Along
Supply Curve: A graphical object showing the relationship between the price of a good and the amount that sellers are willing and able to supply at various prices.
Quantity Supplied: The amount of a good that sellers are willing and able to supply at a given price
Supply Schedule: A table showing the relationship between the price of a good and the amount of it that sellers are willing and able to supply at various prices
Law of Supply: The claim that, other things being equal, the quantity supplied of a good increase when the price of that good rises
Because you understand the law of supply, you can deduce that the correct graphical representation of the supply for CDs must be S1. Moreover, you know that at a price of $ 10 per CD, the quantity supplied is five million CDs.
Price Quantity Demanded Quantity Supplied
4 2 , 000 200
8 1 , 600 600
12 1 , 200 800
16 800 1 , 200
20 400 1 , 800
Suppose the market for cars is unregulated. That is, car prices are free to adjust based on the forces of supply and demand.
If a shortage exists in the car market, then the current price must be lower than the equilibrium price. For the market to reach equilibrium, you would expect buyers to offer higher prices.
Consider the market for pens. Suppose that the number of students with an allergy to pencil erasers increases, causing more students to switch from pencils to pens in school. Moreover, the price of plastic, an important input in pen production, has dropped considerably.
The following graph shows the market for cars in 2008. Between 2008 and 2009 , the equilibrium price of cars remained constant, but the equilibrium quantity of cars decreased. From this, you can conclude that between 2008 and 2009 , the supply of cars decreased and the demand for cars decreased.
Macro Notes eco
University: University of Alabama at Birmingham
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