MARKETS AND COMPETITION

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "MARKETS AND COMPETITION"

Transcription

1 In this chapter, look for the answers to these questions: What factors affect buyers demand for goods? What factors affect sellers supply of goods? How do supply and demand determine the price of a good and the quantity sold? How do changes in the factors that affect demand or supply affect the market price and quantity of a good? How do markets allocate resources? MARKETS AND COMETITION and demand are the two words that economists use most often. and demand are the forces that make market economies work. Modern microeconomics is about supply, demand, and market equilibrium. What Is a Market? A market is a group of buyers and sellers of a particular good or service. The terms supply and demand refer to the behavior of people... as they interact with one another in markets. Buyers determine demand. Sellers determine supply. A competitive market is a market in which there are many buyers and sellers so that each has a negligible impact on the market price. What Is Competition? Competition: erfect and Otherwise erfect Competition roducts are the same Numerous buyers and sellers so that each has no influence over price Buyers and Sellers are price takers Monopoly One seller, and seller controls price Oligopoly Few sellers Not always aggressive competition Monopolistic Competition Many sellers Slightly differentiated products Each seller may set price for its own product DEMAND uantity demanded is the amount of a good that buyers are willing and able to purchase. Law of The law of demand states that, other things equal, the quantity demanded of a good falls when the price of the good rises. 1

2 The Curve: The Relationship between rice and uantity ed Schedule The demand schedule is a table that shows the relationship between the price of the good and the quantity demanded. The Curve: The Relationship between rice and uantity ed Curve The demand curve is a graph of the relationship between the price of a good and the quantity demanded. Figure 1 Catherine s Schedule and Curve 1. A decrease in price... $ Market versus Individual Market demand refers to the sum of all individual demands for a particular good or service. Graphically, individual demand curves are summed horizontally to obtain the market demand curve s increases quantity of cones demanded. The market demand curve is the horizontal sum of the individual demand curves! Ice- Cream When the price is $2., When the price is $2., Catherine will demand Nicholas 4 will demand 3 ice-cream cones. ice-cream cones. Catherine s + Nicholas s = Market Ice- Cream Ice- Cream The market demand at $2. will be 7 ice-cream cones. Shifts in the Curve Change in uantity ed Movement along the demand curve. Caused by a change in the price of the product s s s When the price is $1., When the price is $1., Catherine will demand 8 Nicholas will demand 5 ice-cream cones. ice-cream cones. 13 The market demand at $1., will be 13 icecream cones. 2

3 Changes in uantity ed Ice- Cream s $ B A tax on sellers of icecream cones raises the price of ice-cream cones and results in a movement along the demand curve. 8 A D s Shifts in the Curve Change in A shift in the demand curve, either to the left or right. Caused by any change that alters the quantity demanded at every price. Consumer income rices of related goods Tastes Expectations Number of buyers Figure 3 Shifts in the Curve Increase in demand Decrease in demand curve, D 3 curve, curve, D 2 s Shifts in the Curve Consumer Income As income increases the demand for a normal good will increase. As income increases the demand for an inferior good will decrease. Consumer Income Normal Good Consumer Income Inferior Good Ice- Cream $ Increase in demand An increase in income... D 2 s Ice- Cream $ Decrease in demand An increase in income... D s 3

4 Shifts in the Curve rices of Related Goods When a fall in the price of one good reduces the demand for another good, the two goods are called substitutes. When a fall in the price of one good increases the demand for another good, the two goods are called complements. Table 1 Variables That Influence Buyers SULY uantity supplied is the amount of a good that sellers are willing and able to sell. Law of The law of supply states that, other things equal, the quantity supplied of a good rises when the price of the good rises. The Curve: The Relationship between rice and uantity Supplied Schedule The supply schedule is a table that shows the relationship between the price of the good and the quantity supplied. The Curve: The Relationship between rice and uantity Supplied Curve The supply curve is the graph of the relationship between the price of a good and the quantity supplied. Figure 5 Ben s Schedule and Curve $3. 1. An increase in price s increases quantity of cones supplied. 4

5 Market versus Individual Market supply refers to the sum of all individual supplies for all sellers of a particular good or service. Graphically, individual supply curves are summed horizontally to obtain the market supply curve. Shifts in the Curve Change in uantity Supplied Movement along the supply curve. Caused by a change in anything that alters the quantity supplied at each price. Change in uantity Supplied Shifts in the Curve Ice- Cream $3. 1. A C 1 5 S A rise in the price of ice cream cones results in a movement along the supply curve. s Change in A shift in the supply curve, either to the left or right. Caused by a change in a determinant other than price. Input prices Technology Expectations Number of sellers Figure 7 Shifts in the Curve curve, S 3 Decrease in supply curve, curve, S 2 Table 2: Variables That Influence Sellers Increase in supply s 5

6 SULY AND DEMAND TOGETHER Equilibrium refers to a situation in which the price has reached the level where quantity supplied equals quantity demanded. SULY AND DEMAND TOGETHER Equilibrium rice The price that balances quantity supplied and quantity demanded. On a graph, it is the price at which the supply and demand curves intersect. Equilibrium uantity The quantity supplied and the quantity demanded at the equilibrium price. On a graph it is the quantity at which the supply and demand curves intersect. SULY AND DEMAND TOGETHER Schedule Schedule Figure 8 The Equilibrium of and $2. Equilibrium price Equilibrium At $2., the quantity demanded is equal to the quantity supplied! Equilibrium quantity s Equilibrium Figure 9 Markets Not in Equilibrium Surplus When price > equilibrium price, then quantity supplied > quantity demanded. There is excess supply or a surplus. Suppliers will lower the price to increase sales, thereby moving toward equilibrium. $ (a) Excess Surplus 4 uantity demanded 7 1 uantity supplied s 6

7 Equilibrium Figure 9 Markets Not in Equilibrium Shortage When price < equilibrium price, then quantity demanded > the quantity supplied. There is excess demand or a shortage. Suppliers will raise the price due to too many buyers chasing too few goods, thereby moving toward equilibrium. $ (b) Excess Shortage uantity uantity supplied demanded s Equilibrium Law of supply and demand The claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance. Table 3: Three Steps for Analyzing Changes in Equilibrium Figure 1 How an Increase in Affects the Equilibrium $ resulting in a higher price Hot weather increases the demand for ice cream... Initial equilibrium New equilibrium and a higher s quantity sold. D D Three Steps to Analyzing Changes in Equilibrium Shifts in Curves versus Movements along Curves A shift in the supply curve is called a change in supply. A movement along a fixed supply curve is called a change in quantity supplied. A shift in the demand curve is called a change in demand. A movement along a fixed demand curve is called a change in quantity demanded. 7

8 Figure 11 How a Decrease in Affects the Equilibrium EXAMLE: The Market for Hybrid Cars S 2 1. An increase in the price of sugar reduces the supply of ice cream... price of hybrid cars $ New equilibrium Initial equilibrium resulting in a higher price of ice cream and a lower s quantity sold. quantity of hybrid cars EXAMLE 1: Event to be analyzed: Increase in price of gas (change in price of a complement) A Change in D 2 EXAMLE 1: A Change in STE: D curve shifts because price of gas affects demand for hybrids. S curve does not shift, because price of gas does not affect cost of producing hybrids. STE 2: D shifts right because high gas price makes hybrids more attractive relative to other cars. STE 3: The shift causes an increase in price and quantity of hybrid cars. EXAMLE 1: A Change in EXAMLE 2: A Change in Notice: When rises, producers supply a larger quantity of hybrids, even though the S curve has not shifted. Always be careful to distinguish b/w a shift in a curve and a movement along the curve D 2 EVENT: New technology reduces cost of producing hybrid cars. 2 S

9 EXAMLE 2: A Change in STE: S curve shifts because event affects cost of production. D curve does not shift, because production technology is not one of the factors that affect demand. STE 2: S shifts right because event reduces cost, makes production more profitable at any given price. STE 3: The shift causes price to fall and quantity to rise. EXAMLE 3: EVENTS: price of gas rises AND new technology A Change in Both and 2 reduces production costs 1 S 2 2 D 2 EXAMLE 3: A Change in Both and STE: Both curves shift. STE 2: Both shift to the right. STE 3: rises, but effect on is ambiguous: If demand increases more than supply, rises. But if supply increases more than demand, falls. Changes in supply and demand Use the three-step method to analyze the effects of each event on the equilibrium price and quantity of music downloads. Event A: A fall in the price of compact discs Event B: Sellers of music downloads negotiate a reduction in the royalties they must pay for each song they sell. Event C: Events A and B both occur. 51 A. fall in price of CDs The market for music downloads B. fall in cost of royalties The market for music downloads STES 1. D curve shifts 2. D shifts left 2 STES 1. S curve shifts (royalties are part of sellers costs) 2. S shifts right 2 S 2 3. and both fall. 2 1 D 2 3. falls, rises

10 C. fall in price of CDs AND fall in cost of royalties Table 4: What Happens to rice and uantity When or Shifts? STES 1. Both curves shift (see parts A & B). 2. D shifts left, S shifts right. 3. unambiguously falls. Effect on is ambiguous: The fall in demand reduces, the increase in supply increases. 54 1

SUPPLY AND DEMAND : HOW MARKETS WORK

SUPPLY AND DEMAND : HOW MARKETS WORK SUPPLY AND DEMAND : HOW MARKETS WORK Chapter 4 : The Market Forces of and and demand are the two words that economists use most often. and demand are the forces that make market economies work. Modern

More information

1. Supply and demand are the most important concepts in economics.

1. Supply and demand are the most important concepts in economics. Page 1 1. Supply and demand are the most important concepts in economics. 2. Markets and Competition a. Market is a group of buyers and sellers of a particular good or service. P. 66. b. These individuals

More information

Principles of Economics

Principles of Economics Lecture - SS 2015 Prof. Dr. K.J. Bernhard Neumärker Matthew Bonick Principles of Economics 4th Class: Supply and Demand. 1 Today s Concepts Market Forces Types of Markets Law of Demand Law of Supply Market

More information

Demand and Supply. Chapter Distinguish between quantity demanded and demand and explain what determines demand.

Demand and Supply. Chapter Distinguish between quantity demanded and demand and explain what determines demand. 1 CHAPTER CHECKLIST Demand and Supply Chapter 4 1. Distinguish between quantity demanded and demand and explain what determines demand. 2. Distinguish between quantity supplied and supply and explain what

More information

Supply and Demand. A market is a group of buyers and sellers of a particular good or service.

Supply and Demand. A market is a group of buyers and sellers of a particular good or service. Supply and Demand A market is a group of buyers and sellers of a particular good or service. The definition of the good is a matter of judgement: Should different locations entail different goods (and

More information

4 THE MARKET FORCES OF SUPPLY AND DEMAND

4 THE MARKET FORCES OF SUPPLY AND DEMAND 4 THE MARKET FORCES OF SUPPLY AND DEMAND IN THIS CHAPTER YOU WILL Learn what a competitive market is Examine what determines the demand for a good in a competitive market Chapter Overview Examine what

More information

THE MARKET FORCES OF SUPPLY AND DEMAND IN THIS CHAPTER YOU WILL...

THE MARKET FORCES OF SUPPLY AND DEMAND IN THIS CHAPTER YOU WILL... IN THIS CHAPTER YOU WILL... Learn the nature of a competitive market Examine what determines the demand for a good in a competitive market THE MARKET FORCES OF SUPPLY AND DEMAND Examine what determines

More information

Chapter 4 The Market Forces of Supply and Demand

Chapter 4 The Market Forces of Supply and Demand Chapter 4 The Market Forces of Supply and Demand Review Questions What characteristics or requirements must be met for a market to be considered as each of the following? 1. perfectly competitive 2. a

More information

LECTURE 3: SUPPLY AND DEMAND

LECTURE 3: SUPPLY AND DEMAND Lecture 3 A G S M 2004 Page 1 LECTURE 3: SUPPLY AND DEMAND Today s Topics 1 Markets and competition 2 Demand: determinants, ceteris paribus, individual choice, schedule and curve, individual and market,

More information

Microeconomics Topic 3: Understand how various factors shift supply or demand and understand the consequences for equilibrium price and quantity.

Microeconomics Topic 3: Understand how various factors shift supply or demand and understand the consequences for equilibrium price and quantity. Microeconomics Topic 3: Understand how various factors shift supply or demand and understand the consequences for equilibrium price and quantity. Reference: Gregory Mankiw s rinciples of Microeconomics,

More information

How Does A Perfectly Competitive Market Reach Long Run Equilibrium?

How Does A Perfectly Competitive Market Reach Long Run Equilibrium? How Does A erfectly Competitive Market Reach Long Run Equilibrium? Side-by-side graph for perfectly completive industry and firm. Is the firm making a profit or a loss? Why? S $15 $15 MR=D AVC D 5000 Industry

More information

MARKET DEMAND &SUPPLY DEMAND

MARKET DEMAND &SUPPLY DEMAND MARKET Market is a place where consumers meet sellers and the trading takes place. The consumers buy products at certain price, so money is exchanged for goods and services. We distinguish types of market

More information

Economics 103h Fall 2012: Part 1 of review questions for final exam

Economics 103h Fall 2012: Part 1 of review questions for final exam Economics 103h Fall 2012: Part 1 of review questions for final exam This is the first set of review questions. The short answer/graphing go through to the end of monopolistic competition. The multiple

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Chapter 11 Perfect Competition - Sample Questions MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Perfect competition is an industry with A) a

More information

6. Cameras and film are: A) substitute goods. B) complementary goods. C) independent goods. D) inferior goods.

6. Cameras and film are: A) substitute goods. B) complementary goods. C) independent goods. D) inferior goods. 1. The law of demand states that: A) price and quantity demanded are inversely related. B) the larger the number of buyers in a market, the lower will be product price. C) price and quantity demanded are

More information

The Demand Curve. Supply and Demand. Shifts in Demand. The Law of Demand. Lecture 3 outline (note, this is Chapter 4 in the text).

The Demand Curve. Supply and Demand. Shifts in Demand. The Law of Demand. Lecture 3 outline (note, this is Chapter 4 in the text). upply and emand Lecture 3 outline (note, this is Chapter 4 in the text). The demand d curve The supply curve Factors causing shifts of the demand curve and shifts of the supply curve. Market equilibrium

More information

Notes on Chapter 3 DEMAND AND SUPPLY

Notes on Chapter 3 DEMAND AND SUPPLY Notes on Chapter 3 DEMAND AND SUPPLY PRICES IN THE MARKET This chapter explains how prices are determined and how markets guide and coordinate choices. A market is a network or an arrangement that enables

More information

LECTURE NOTES ON MACROECONOMIC PRINCIPLES

LECTURE NOTES ON MACROECONOMIC PRINCIPLES LECTURE NOTES ON MACROECONOMIC PRINCIPLES Peter Ireland Department of Economics Boston College peter.ireland@bc.edu http://www2.bc.edu/peter-ireland/ec132.html Copyright (c) 2013 by Peter Ireland. Redistribution

More information

Boğaziçi University Department of Economics Spring 2016 EC 102 PRINCIPLES of MACROECONOMICS Problem Set 2 Answer Key

Boğaziçi University Department of Economics Spring 2016 EC 102 PRINCIPLES of MACROECONOMICS Problem Set 2 Answer Key Boğaziçi University Department of Economics Spring 2016 EC 102 PRINCIPLES of MACROECONOMICS Problem Set 2 Answer Key 1. Assume Leo buys coffee beans in a competitive market. It follows that a. Leo has

More information

Pre Test Chapter 3. 8.. DVD players and DVDs are: A. complementary goods. B. substitute goods. C. independent goods. D. inferior goods.

Pre Test Chapter 3. 8.. DVD players and DVDs are: A. complementary goods. B. substitute goods. C. independent goods. D. inferior goods. 1. Graphically, the market demand curve is: A. steeper than any individual demand curve that is part of it. B. greater than the sum of the individual demand curves. C. the horizontal sum of individual

More information

Monopolistic Competition

Monopolistic Competition Introduction to Microeconomics Monopolistic Competition Introduction In this document we refer to imperfect competition as monopolistic competition. Monopolistic competition is described as the situation

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. MBA 640, Survey of Microeconomics Fall 2006, Final Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The "law of demand" states that, other

More information

Managerial Economics Prof. Trupti Mishra S.J.M School of Management Indian Institute of Technology, Bombay. Lecture 9 Theory of Demand (Contd.

Managerial Economics Prof. Trupti Mishra S.J.M School of Management Indian Institute of Technology, Bombay. Lecture 9 Theory of Demand (Contd. Managerial Economics Prof. Trupti Mishra S.J.M School of Management Indian Institute of Technology, Bombay Lecture 9 Theory of Demand (Contd.) Welcome to the second session of module two; module two talks

More information

The Basics of Supply and Demand

The Basics of Supply and Demand 1 Demand and Supply Curves 1 14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen September 7, 2007 Lecture 2 The Basics of Supply and Demand BUYERS = DEMAND MARKET EQUILIBRIUM SELLERS = SUPPLY

More information

BASIC MARKET ELEMENTS. Supply Demand Price Competition

BASIC MARKET ELEMENTS. Supply Demand Price Competition BASIC MARKET ELEMENTS Supply Demand Price Competition Supply Supply is the quantity of goods that firms are willing to produce and sale with respect to the market price when all other conditions (like

More information

Deamnd and Supply Analysis

Deamnd and Supply Analysis Deamnd and Supply Analysis Chiu Yu Ko November 1, 2009 Abstract This discussion note intended to use rice-uantity diagram to illustrate the concepts of demand and supply basic analysis. In particular,

More information

GEORGIA PERFORMANCE STANDARDS Microeconomics

GEORGIA PERFORMANCE STANDARDS Microeconomics GEORGIA PERFORMANCE STANDARDS Microeconomics GEORGIA PERFORMANCE STANDARDS INTERNATIONAL ECONOMICS Microeconomic Concepts SSEMI1 The student will describe how households, businesses, and governments are

More information

Unit 2. Supply and demand

Unit 2. Supply and demand Unit 2. upply and demand Learning objectives to analyse the determinants of supply and demand and the ways in which changes in these determinants affect equilibrium price and output; in particular, to

More information

Chapter 3 Key for homework questions

Chapter 3 Key for homework questions Chapter 3 Key for homework questions 3. (Key Question) What effect will each of the following have on the demand for small automobiles such as the Mini Cooper and Smart car? a. Small automobiles become

More information

Demand. See the Practical #4A Help Sheet for instructions and examples on graphing a demand schedule.

Demand. See the Practical #4A Help Sheet for instructions and examples on graphing a demand schedule. Demand Definition of Demand: Demand is a relation that shows the quantities that buyers are willing and able to purchase at alternative prices during a given time period, all other things remaining the

More information

Microeconomics Instructor Miller Practice Problems Monopolistic Competition

Microeconomics Instructor Miller Practice Problems Monopolistic Competition Microeconomics Instructor Miller Practice Problems Monopolistic Competition 1. A monopolistically competitive market is described as one in which there are A) a few firms producing an identical product.

More information

Student Name: Date: Teacher Name: Heather Creamer. Score:

Student Name: Date: Teacher Name: Heather Creamer. Score: Economics EOC Quiz Answer Key Microeconomic Concepts - (SSEMI1) Flow Of Goods, (SSEMI2) Law Of Demand, (SSEMI3) Economic Behavior, (SSEMI4) Organization And Role Of Business Student Name: Teacher Name:

More information

AP MICRO Week 3 Practice Quiz: G J, 9 17

AP MICRO Week 3 Practice Quiz: G J, 9 17 1 1. If the cost of producing automobiles increases, the price, equilibrium quantity and consumer surplus will most likely change in which of the following ways? Price Quantity Consumer Surplus (A) Increase

More information

Bertrand with complements

Bertrand with complements Microeconomics, 2 nd Edition David Besanko and Ron Braeutigam Chapter 13: Market Structure and Competition Prepared by Katharine Rockett Dieter Balkenborg Todd Kaplan Miguel Fonseca Bertrand with complements

More information

Determination of Price and Quantity Determinants of supply and demand. Supply and Demand. ECO 120: Global Macroeconomics

Determination of Price and Quantity Determinants of supply and demand. Supply and Demand. ECO 120: Global Macroeconomics Goals Goals 1/ 17 Specific Goals Learn what demand is and what influences demand. Learn what supply is and what influences supply. Learn how prices and quantities are determined by supply and demand. Use

More information

Chapter 9 examines firms under severe competition while chapter 11 illustrates monopoly firms that face no competition.

Chapter 9 examines firms under severe competition while chapter 11 illustrates monopoly firms that face no competition. The Firm and the Industry under erfect Competition The decisions of firms depend on consumer demand and production costs. Yet, they also depend on the behavior, the number, and the size of other firms

More information

BPE_MIC1 Microeconomics 1 Fall Semester 2011

BPE_MIC1 Microeconomics 1 Fall Semester 2011 Masaryk University - Brno Department of Economics Faculty of Economics and Administration BPE_MIC1 Microeconomics 1 Fall Semester 2011 Final Exam - 12.12.2011, 9:00-10:30 a.m. Test A Guidelines and Rules:

More information

BPE_MIC1 Microeconomics 1 Fall Semester 2011

BPE_MIC1 Microeconomics 1 Fall Semester 2011 Masaryk University - Brno Department of Economics Faculty of Economics and Administration BPE_MIC1 Microeconomics 1 Fall Semester 2011 Final Exam - 12.12.2011, 9:00-10:30 a.m. Test B Guidelines and Rules:

More information

Graph 1: Market equilibrium

Graph 1: Market equilibrium ISSN 1314-74, Volume 9, 015 CONSUMER AND PRODUCER SURPLUS CHANGES AFTER TAXATION Fran Galetic Faculty of Economics and Business Zagreb, University of Zagreb, J.F. Kennedy square 6, 10000 Zagreb, Croatia

More information

Supply and Demand CHAPTER 4. Thomas Carlyle. Teach a parrot the terms supply and demand and you ve got an economist. Supply and Demand 4

Supply and Demand CHAPTER 4. Thomas Carlyle. Teach a parrot the terms supply and demand and you ve got an economist. Supply and Demand 4 CHAPTER 4 Supply and Demand Teach a parrot the terms supply and demand and you ve got an economist. Thomas Carlyle McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved.

More information

11 PERFECT COMPETITION. Chapter. Competition

11 PERFECT COMPETITION. Chapter. Competition Chapter 11 PERFECT COMPETITION Competition Topic: Perfect Competition 1) Perfect competition is an industry with A) a few firms producing identical goods B) a few firms producing goods that differ somewhat

More information

LECTURE #13: MICROECONOMICS CHAPTER 15

LECTURE #13: MICROECONOMICS CHAPTER 15 LECTURE #13: MICROECONOMICS CHAPTER 15 I. WHY MONOPOLIES ARISE A. Competitive firms are price takers; a Monopoly firm is a price maker B. Monopoly: a firm that is the sole seller of a product without close

More information

Demand, Supply, Equilibrium

Demand, Supply, Equilibrium Demand, Supply, Equilibrium Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. 1. Which of the following would NOT be a determinant of demand?

More information

DO NOT WRITE ON THIS PAPER 1) A

DO NOT WRITE ON THIS PAPER 1) A 1) A market: A) reflects upsloping demand and downsloping supply curves. B) entails the exchange of goods, but not services. C) is an institution that brings together buyers and sellers. D) always requires

More information

Monopolistic Competition

Monopolistic Competition In this chapter, look for the answers to these questions: How is similar to perfect? How is it similar to monopoly? How do ally competitive firms choose price and? Do they earn economic profit? In what

More information

PROBLEM SET#3 PART I: MULTIPLE CHOICE

PROBLEM SET#3 PART I: MULTIPLE CHOICE 1 PROBLEM SET#3 PART I: MULTIPLE CHOICE 1. In general, elasticity is a measure of a. the extent to which advances in technology are adopted by producers. b. the extent to which a market is competitive.

More information

The price mechanism. Chapter. Syllabus Content. B - The market system and the competitive process 40 %

The price mechanism. Chapter. Syllabus Content. B - The market system and the competitive process 40 % Chapter 2 The price mechanism Syllabus Content B - The market system and the competitive process 40 % The price mechanism: the demand and supply model and its applications. Page 1 2.1 A market Buyers and

More information

Demand, Supply, and Market Equilibrium

Demand, Supply, and Market Equilibrium Chapter Summary 4 Demand, Supply, and Market Equilibrium In this chapter, we ve seen how demand and supply determine prices. We also learned how to predict the effects of changes in demand or supply on

More information

test 2 Version #1 Student:

test 2 Version #1 Student: test 2 Version #1 Student: 1. Consider the supply and demand curves depicted in the diagram above. If the government imposed a price ceiling of $10, then sellers will be willing to sell: A. 24 units B.

More information

1. Explain the law of demand. Why does a demand curve slope downward? How is a market demand curve derived from individual demand curves?

1. Explain the law of demand. Why does a demand curve slope downward? How is a market demand curve derived from individual demand curves? Chapter 03 Demand, Supply, and Market Equilibrium Questions 1. Explain the law of demand. Why does a demand curve slope downward? How is a market demand curve derived from individual demand curves? LO1

More information

- usually downward-sloping: As price increases, buyers are willing to buy less of the good.

- usually downward-sloping: As price increases, buyers are willing to buy less of the good. 1. The supply and demand model - graphs drawn with price on the vertical axis and quantity on the horizontal axis - one graph for each good. a. The demand curve for good A - shows the amount of good A

More information

Market Definition, Elasticities and Surpluses

Market Definition, Elasticities and Surpluses Sloan School of Management 15.010/15.011 Massachusetts Institute of Technology rofessors Berndt, Chapman, Doyle, and Stoker RECITATION NOTES #1 Market Definition, Elasticities and Surpluses Friday - September

More information

Basic Microeconomics. P related = the price or prices of relevant related goods. The goods considered are compliments and substitutes of good X.

Basic Microeconomics. P related = the price or prices of relevant related goods. The goods considered are compliments and substitutes of good X. Basic Microeconomics Demand is a term that represents models that eplain how a set of variables influence buyer or consumer behavior. There are two ways to perceive demand: 1) Demand is a schedule of quantities

More information

ECON 202: Principles of Microeconomics. Chapter 11 Firms in Perfectly Competitive Markets

ECON 202: Principles of Microeconomics. Chapter 11 Firms in Perfectly Competitive Markets ECON 202: Principles of Microeconomics Chapter 11 Firms in Perfectly Competitive Markets Firms in Perfectly Competitive Markets 1. Market Structures. 2. Perfectly Competitive Markets. 3. Maximizing Profit

More information

BUSINESS ECONOMICS CEC & 761

BUSINESS ECONOMICS CEC & 761 BUSINESS ECONOMICS CEC2 532-751 & 761 PRACTICE MICROECONOMICS MULTIPLE CHOICE QUESTIONS Warning: These questions have been posted to give you an opportunity to practice with the multiple choice format

More information

2007 Thomson South-Western

2007 Thomson South-Western Monopoly While a competitive firm is a price taker, a monopoly firm is a price maker. A firm is considered a monopoly if... it is the sole seller of its product. its product does not have close substitutes.

More information

Chapter 6. Non-competitive Markets 6.1 SIMPLE MONOPOLY IN THE COMMODITY MARKET

Chapter 6. Non-competitive Markets 6.1 SIMPLE MONOPOLY IN THE COMMODITY MARKET Chapter 6 We recall that perfect competition was theorised as a market structure where both consumers and firms were price takers. The behaviour of the firm in such circumstances was described in the Chapter

More information

Perfect Competition. Chapter 12

Perfect Competition. Chapter 12 CHAPTER CHECKLIST Perfect Competition Chapter 12 1. Explain a perfectly competitive firm s profit maximizing choices and derive its supply curve. 2. Explain how output, price, and profit are determined

More information

Intermediate Microeconomics. Chapter 13 Monopoly

Intermediate Microeconomics. Chapter 13 Monopoly Intermediate Microeconomics Chapter 13 Monopoly Non-competitive market Price maker = economic decision maker that recognizes that its quantity choice has an influence on the price at which it buys or sells

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. MBA 640 Survey of Microeconomics Fall 2006, Quiz 6 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A monopoly is best defined as a firm that

More information

Labelling Graph Axis Correctly

Labelling Graph Axis Correctly Labelling Graph Axis Correctly The Industry Price S D The Firm Quantity MC AC AR=MR Output Perfect Competition All of the units are sold at the same price because no single buyer or seller is large enough

More information

AGEC 105. Fall 2012 Capps. Test #2. (70 questions)

AGEC 105. Fall 2012 Capps. Test #2. (70 questions) AGEC 105 Fall 2012 Capps (70 questions) lease put the following pieces of information on your scantron: a) Name b) UIN # c) ign the Aggie pledge on the back of your scantron. On my honor, as an Aggie,

More information

Week Twenty-Eight: Supply and Demand

Week Twenty-Eight: Supply and Demand Weekly Focus: Analysis Weekly Skill: Applying Information Lesson Summary: This week students will be introduced to the economic concepts of supply and demand. Students will then enact these principles

More information

Unit Perfect Competition Unit Overview

Unit Perfect Competition Unit Overview Unit 2.3.2 - erfect competition Assumptions of the model Demand curve facing the industry and the firm in perfect competition rofit-maximizing level of output and price in the short-run and long-run The

More information

A. a change in demand. B. a change in quantity demanded. C. a change in quantity supplied. D. unit elasticity. E. a change in average variable cost.

A. a change in demand. B. a change in quantity demanded. C. a change in quantity supplied. D. unit elasticity. E. a change in average variable cost. 1. The supply of gasoline changes, causing the price of gasoline to change. The resulting movement from one point to another along the demand curve for gasoline is called A. a change in demand. B. a change

More information

Prof. Dr. Thomas Straubhaar. Wintersemester 2009/10 VORLESUNG. -VWL 1 - (Principles of Economics)

Prof. Dr. Thomas Straubhaar. Wintersemester 2009/10 VORLESUNG. -VWL 1 - (Principles of Economics) Universität Hamburg Prof. Dr. Thomas Straubhaar Wintersemester 009/0 VORLESUNG (-0.90) 0 90) Einführung in die Volkswirtschaftslehre -VWL - (Princiles of Economics) MODUL : Demand Alle Zuschauer der. Bundesliga

More information

Multiple Choice (Exercises)

Multiple Choice (Exercises) Multiple Choice (Exercises) 1. Which of the following demonstrates the law of demand? a. After Jon got a raise at work, he bought more pretzels at $1.50 per pretzel than he did before his raise. b. Melissa

More information

Consumer and Producer Surplus. Consumer and Producer Surplus. Consumer Surplus. Consumer Surplus. Consumer Surplus Individual consumer surplus

Consumer and Producer Surplus. Consumer and Producer Surplus. Consumer Surplus. Consumer Surplus. Consumer Surplus Individual consumer surplus Consumer and Consumer and February 6, 2007 Reading: Chapter 6 Introduction Consumer surplus Producer surplus Efficiency and the gains from trade s 2 Introduction Connections to: Opportunity costs to consumers

More information

Why produce more when prices rise?

Why produce more when prices rise? Supply Supply Curve a function that shows the quantity supplied at different prices. Quantity Supplied the amount of a good that sellers are willing and able to sell at a particular price. Producer Surplus

More information

JANUARY EXAMINATIONS 2006

JANUARY EXAMINATIONS 2006 No. of Pages: (A) 10 No. of Questions: 29 EC1000A ' JANUARY EXAMINATIONS 2006 Subject Title of Paper ECONOMICS EC1000 MICROECONOMICS Time Allowed Two Hours (2 Hours) Instructions to candidates This paper

More information

AP Microeconomics Chapter 3 Outline

AP Microeconomics Chapter 3 Outline I. Learning Objectives In this chapter students should learn: A. What demand is and how it can change. B. What supply is and how it can change. C. How supply and demand interact to determine market equilibrium.

More information

17. Suppose demand is given by Q d = 400 15P + I, where Q d is quantity demanded, P is. I = 100, equilibrium quantity is A) 15 B) 20 C) 25 D) 30

17. Suppose demand is given by Q d = 400 15P + I, where Q d is quantity demanded, P is. I = 100, equilibrium quantity is A) 15 B) 20 C) 25 D) 30 Ch. 2 1. A relationship that shows the quantity of goods that consumers are willing to buy at different prices is the A) elasticity B) market demand curve C) market supply curve D) market equilibrium 2.

More information

Demand, Supply and Elasticity

Demand, Supply and Elasticity Demand, Supply and Elasticity CHAPTER 2 OUTLINE 2.1 Demand and Supply Definitions, Determinants and Disturbances 2.2 The Market Mechanism 2.3 Changes in Market Equilibrium 2.4 Elasticities of Supply and

More information

Online Review Copy. AP Micro Chapter 8 Test. Multiple Choice Identify the choice that best completes the statement or answers the question.

Online Review Copy. AP Micro Chapter 8 Test. Multiple Choice Identify the choice that best completes the statement or answers the question. AP Micro Chapter 8 Test Multiple Choice Identify the choice that best completes the statement or answers the question. 1. There would be some control over price within rather narrow limits in which market

More information

Learning Objectives. Chapter 6. Market Structures. Market Structures (cont.) The Two Extremes: Perfect Competition and Pure Monopoly

Learning Objectives. Chapter 6. Market Structures. Market Structures (cont.) The Two Extremes: Perfect Competition and Pure Monopoly Chapter 6 The Two Extremes: Perfect Competition and Pure Monopoly Learning Objectives List the four characteristics of a perfectly competitive market. Describe how a perfect competitor makes the decision

More information

ECON 103, ANSWERS TO HOME WORK ASSIGNMENTS

ECON 103, ANSWERS TO HOME WORK ASSIGNMENTS ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS Due the Week of May 19 Chapter 2 WRITE [8] With current technology, suppose a firm is producing 400 loaves of banana bread daily. Also, assume that the

More information

DEMAND AND SUPPLY. Chapter. Markets and Prices. Demand. C) the price of a hot dog minus the price of a hamburger.

DEMAND AND SUPPLY. Chapter. Markets and Prices. Demand. C) the price of a hot dog minus the price of a hamburger. Chapter 3 DEMAND AND SUPPLY Markets and Prices Topic: Price and Opportunity Cost 1) A relative price is A) the slope of the demand curve B) the difference between one price and another C) the slope of

More information

2013 Pearson. Why did GM fail?

2013 Pearson. Why did GM fail? Why did GM fail? Perfect Competition 15 When you have completed your study of this chapter, you will be able to CHAPTER CHECKLIST 1 Explain a perfectly competitive firm s profit-maximizing choices and

More information

AGEC 105 Spring 2016 Homework 7. 1. Consider a monopolist that faces the demand curve given in the following table.

AGEC 105 Spring 2016 Homework 7. 1. Consider a monopolist that faces the demand curve given in the following table. AGEC 105 Spring 2016 Homework 7 1. Consider a monopolist that faces the demand curve given in the following table. a. Fill in the table by calculating total revenue and marginal revenue at each price.

More information

2. State whether the following statements are true or false, and explain why.

2. State whether the following statements are true or false, and explain why. 1 Chapter 9 Problems 2. State whether the following statements are true or false, and explain why. a. In a perfectly competitive industry the industry demand curve is horizontal, whereas for a monopoly

More information

Monopoly. Problem 1 (APT 93, P3) Sample answer:

Monopoly. Problem 1 (APT 93, P3) Sample answer: Monopoly Problem 1 (APT 93, P3) A single airline provides service from City A to City B. a) Explain how the airline will determine the number of passengers it will carry and the price it will charge. b)

More information

UNIT 6 cont PRICING UNDER DIFFERENT MARKET STRUCTURES. Monopolistic Competition

UNIT 6 cont PRICING UNDER DIFFERENT MARKET STRUCTURES. Monopolistic Competition UNIT 6 cont PRICING UNDER DIFFERENT MARKET STRUCTURES Monopolistic Competition Market Structure Perfect Competition Pure Monopoly Monopolistic Competition Oligopoly Duopoly Monopoly The further right on

More information

Reading Essentials and Study Guide

Reading Essentials and Study Guide Lesson 2 The Effects of Prices ESSENTIAL QUESTION What factors affect prices? Reading HELP DESK Academic Vocabulary voluntary done or brought about by free choice Content Vocabulary economic model simplified

More information

UNIT 6. Pricing under different market structures. Perfect Competition

UNIT 6. Pricing under different market structures. Perfect Competition UNIT 6 ricing under different market structures erfect Competition Market Structure erfect Competition ure Monopoly Monopolistic Competition Oligopoly Duopoly Monopoly The further right on the scale, the

More information

ECON 103, ANSWERS TO HOME WORK ASSIGNMENTS. Product Price

ECON 103, ANSWERS TO HOME WORK ASSIGNMENTS. Product Price ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS Due the Week of June 16 Chapter 7 WRITE [3]: Use the following demand schedule to determine total and marginal revenues for each possible level of sales:

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Exam Four - Sample Questions Chapters 12-14 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) What is the difference between perfect competition

More information

Review for the Midterm Exam.

Review for the Midterm Exam. Review for the Midterm Exam. 1. Chapter 1 The principles of decision making are: o People face tradeoffs. o The cost of any action is measured in terms of foregone opportunities. o Rational people make

More information

Principles of Economics: Micro: Exam #2: Chapters 1-10 Page 1 of 9

Principles of Economics: Micro: Exam #2: Chapters 1-10 Page 1 of 9 Principles of Economics: Micro: Exam #2: Chapters 1-10 Page 1 of 9 print name on the line above as your signature INSTRUCTIONS: 1. This Exam #2 must be completed within the allocated time (i.e., between

More information

Describe the characteristics of different market structures: perfect competition, monopolistic competition, oligopoly, and pure monopoly

Describe the characteristics of different market structures: perfect competition, monopolistic competition, oligopoly, and pure monopoly www.edupristine.com Describe the characteristics of different market structures: perfect competition, monopolistic competition, oligopoly, and pure monopoly Prerequisite Characteristics of different market

More information

Practice Questions Week 2 Day 1 Multiple Choice

Practice Questions Week 2 Day 1 Multiple Choice Practice Questions Week 2 Day 1 Multiple Choice 1. When individuals come together to buy and sell goods and services, they form a(n) a. economy b. market c. production possibilities frontier d. supply

More information

Elasticity and Its Application

Elasticity and Its Application Elasticity and Its Application Chapter 5 All rights reserved. Copyright 2001 by Harcourt, Inc. Requests for permission to make copies of any part of the work should be mailed to: Permissions Department,

More information

Chapter 3 Answers to End-of-Chapter Questions:

Chapter 3 Answers to End-of-Chapter Questions: Chapter 3 Answers to End-of-Chapter Questions: 3-1 Explain the law of demand. Why does a demand curve slope downward? What are the determinants of demand? What happens to the demand curve when each of

More information

Multiple Choice Questions for Self Study. (GZ der VWL / Introduction to Economics)

Multiple Choice Questions for Self Study. (GZ der VWL / Introduction to Economics) Multiple Choice Questions for Self Study (GZ der VWL / Introduction to Economics) ao. Prof. Dr. B. Yurtoglu) Economic Models 1) The purpose of making assumptions in economic model building is to (a) force

More information

The formula to measure the rice elastici coefficient is Percentage change in quantity demanded E= Percentage change in price

The formula to measure the rice elastici coefficient is Percentage change in quantity demanded E= Percentage change in price a CHAPTER 6: ELASTICITY, CONSUMER SURPLUS, AND PRODUCER SURPLUS Introduction Consumer responses to changes in prices, incomes, and prices of related products can be explained by the concept of elasticity.

More information

Chapter 02 Supply and Demand

Chapter 02 Supply and Demand Chapter 02 Supply and Demand Multiple Choice Questions 1. The mechanism by which buyers and sellers negotiate an exchange is called a/an a. Equilibrium b. Model C. Market d. Meeting 2. The supply and demand

More information

Perfect Competition. Chapter 7 Section Main Menu

Perfect Competition. Chapter 7 Section Main Menu Perfect Competition What conditions must exist for perfect competition? What are barriers to entry and how do they affect the marketplace? What are prices and output like in a perfectly competitive market?

More information

Test Yourself: Market Structures

Test Yourself: Market Structures Test Yourself: Market Structures To determine whether any industry is workably competitive, therefore, simply have a good graduate student write his dissertation on the industry and render a verdict. It

More information

AP Microeconomics Chapter 12 Outline

AP Microeconomics Chapter 12 Outline I. Learning Objectives In this chapter students will learn: A. The significance of resource pricing. B. How the marginal revenue productivity of a resource relates to a firm s demand for that resource.

More information

SUPPLY. Chapter. Key Concepts. Demand Curves

SUPPLY. Chapter. Key Concepts. Demand Curves Chapter 3 DEMAND AND SUPPLY Key Concepts FIGURE 3.1 Demand Curves Markets and Prices A competitive market is one that has so many buyers and sellers so that no single buyer or seller can influence the

More information