Demand

Monopolistic Competition

  • Characteristics of monopolistic competition:

    • Many sellers operating in the market.

    • Slight variations in products offered.

    • Prices vary only slightly.

    • Low barriers to entry for new firms.

  • Examples:

    • Cafes selling similar coffee and breakfast items, typically priced around $9.

    • Hairdressing salons with comparable services.

Perfect Competition

  • Characteristics of perfect competition:

    • Extremely high number of sellers, potentially millions.

    • Homogeneous products with no significant differences.

    • No price variation; products sold at the same price.

    • No barriers to entry or exit.

  • Example:

    • Wheat market, where individual farmers have no power to set prices and must accept them as given.

  • Concept of "Price Takers":

    • Individual sellers cannot influence market prices and must take the market price as it is.

Importance of Competition

  • Prices and market mechanisms:

    • Competition is necessary for price mechanisms to operate effectively.

    • Interaction between buyers and sellers determines price levels.

  • Concept of Consumer Sovereignty:

    • Consumers drive demand through their purchasing decisions.

    • "Dollar votes" show consumer preferences and influence production levels.

  • Changing demands over time:

    • Shift from physical media (DVDs, Blu Rays) to online content reflects changing consumer preferences.

Demand

  • Demand defined:

    • Quantity demanded of a good or service is how much consumers are willing and able to purchase at a specific price at a given time.

    • Distinction between demand and mere wants.

    • Technical definition: Quantity demanded is specific to price and time conditions.

  • Law of Demand:

    • As price increases for a product the quantity demanded of the product decreases (ceteris paribus).

  • Effects influencing demand:

    • Income Effect: Higher prices reduce purchasing power, leading to lower quantity demanded.

    • Substitution Effect: If the price of a product rises, consumers may opt for a substitute product.

  • Exceptions to the Law of Demand:

    • Demand can be inelastic (not sensitive to price changes) such as with necessities like petrol.

Demand Elasticity

  • Definition:

    • Elasticity refers to how quantity demanded responds to price changes.

  • Inelastic Demand:

    • Products like petrol remain in demand regardless of price increases due to their necessity and lack of substitutes.

  • Demand Curve Graphing:

    • Price represented on the Y-axis and quantity on the X-axis in a demand schedule.

    • Example of pizza market: Quantities of pizzas listed at different prices (e.g., 10,000 at $12, varying up to 80,000).
      ## Graphing Demand and Supply

  • Proper labeling:

    • Always label axes correctly to avoid losing marks in examinations.

    • Ensure space is kept appropriately for clear representation

    • Price= Y axis

    • Quantify demanded =