ECON - U2: Microeconomics

Demand, Supply, and Market Equilibrium

  • How things work for an entire market

  • Demand: peoples desire to certain quantities of products at different prices

    • market demand: group of people in a specific location, overall demand at price levels

    • individual demand

  • Market:

Demand

Demand Schedule

  • lower prices = more people want something

    • higher prices = less people want it

  • lists various quantities of items with following quantity demanded per day

  • demand curve is usually at a down slope

Law of Demand

  • as the price goes up, the quantity demanded goes down

    • inverse relationship: as the the price goes down, the quantity goes up

    • do not move together (one goes up, one goes down) - in opposite directions

  • utility: amount of joy an individual gets from a purchase

  • law of diminishing marginal utility: each additional unit of a product bought decreases the happiness/utility you receive.

    • ex.) first milkshake = very happy, ninth milkshake = not as happy

    • goes the same with income, more money, not as happy

Changes in Demand

  • things that cause the curve to shift

  • when people don’t buy the item at any price, uninterested

  • if all prices/demand increases, curve shifts to the RIGHT

    • increase of demand

  • if all prices/demand decreases, curve shifts LEFT

    • decrease of demand

6 things that makes demand to change

  1. individuals make more money/are all losing money

    • changing income of consumers

  2. change in population

  3. change in attitude, taste of consumers

    • trends

      • more trendy = shift right

      • less trendy = shift left

  4. change in consumers expectations

  5. change and availability and prices of substitute goods

    • substitute good - products that are very similar to each other/competition

  6. change in availability and prices of complementary good

    • complementary good - goods that are used together, and are often paired/bought together

Elasticity of Demand

  • measures the response of when the price changes, the quantity of demand is changing

  • demand elastic = demand curve is more horizontal

    • when price changes the demand a lot

    • ex.) non essential things, things with lots of substitutes and food

  • demand inelastic = demand curve more vertical

    • change of price has very little affect on demand

    • if the price changes, people are still gonna buy it

    • groceries, needs, essential goods

  • gas is not included

Supply

  • supply: ability and willingness or suppliers to make things available for sale at a sept price

    • higher price = more profit

    • jobs

    • opposite of demand

  • law of supply: price goes up, quantity supply goes up -

    • price goes down, supply goes down

    • move at the same time, complementary

    • upslope

  • supply schedule

changes in supply are based off of costs (cost to make it)

  • costs to make product goes up, supply decreases, and the curve moves left

  • costs to make a product goes down, supply increases, and the curve moves right

  • things that impact

    1. changes of cost of resources

    2. changes in productivity

    3. new technology (more productivity)

    4. changes in govt. policy

      • more govt. regulation - shift left

      • increases costs

      • less regulation - decreases costs

    5. changes in taxes and subsidies

      • subsidy = paying someone to do something

Elasticity

  • how much change and effect from changing price

  • supply elastic = more change and goods as price changes

    • goods that are inexpensive to produce more

  • supply inelastic = no change from price change

    • more production to make that product is expensive

Supply and Demand together

  • supply and demand work together to figure what the price of a good should be

  • interaction of supply and demand curve =

    • equilibrium point

    • ideal price to set at

  • above the equilibrium point = surplus

    • S > D

    • Price is set too high

  • price below equilibrium point = shortage

    • D < S

    • Price is set to low

Price Controls

  • situations where govt. stops from getting to equilibrium, since ti can reach an unfair point

  • price ceiling = max price that can be charged for a product

    • below equilibrium point

    • can’t go above ceiling

    • creates a shortage

    • ex.) cheaper govt. related apartments at a high demand, not enough for everyone = shortage

  • price floor = min price that is charged for a product

    • opposite of price ceiling

    • above equilibrium point

    • ex.) minimum wage = cannot make less than that

    • makes a surplus

Unit 2 Part B

  • Sole proprietorship = business owned/operated by one person

    • + get all money, low taxes

    • - unlimited liability (LLC, responsible for all problems business has), reliant on one person,

  • partnership = two or more people

    • + losses are shared, easier to borrow money, each owner can bring their own skills and talents (back/front house)

    • - profits are shared, unlimited liability, committed partners

    • limited partnership = unequal partners

      • general partner that makes decisions

      • limited partner gives cash, no opinions

  • corporations = owns by many people, but treated as one person

    • owned by stockholders

    • + can make money by doing nothing, limited liability, stockholders are not liable for bad things

    • - stockholders have little to no say in how businesses run, double taxation

  • aksd jsa-

  • lucrative = makes most money

  • market power = ability of one company to influence the entire market price

competition (in a perf world)

Competition

perfect competition = many buyers and sellers of an IDENTICAL product

  • real world = kind of different

  • perfect knowledge about products

  • no market power for every company since products are copies

  • non existent

monopolistic competition (not monopoly) = companies that sell SIMILAR goods but not identical products

  • different products

  • ex.) fast food restaurants

  • some market power

  • ads = promotes brand loyalty and is very affective

    • differentiate products

    • increase for demand and increases market power

OLIgopoly = dominated by a few firms

  • collection of companies that are most popular in the market

  • significant entry and exit barriers

    • hard to start brand in shoe company because of how popular the brands are

  • companies has lots of market power

    • can hike up prices and people will still buy them

  • collusion = multiple companies working together to raise their prices (illegal

    • forms cartels

Monopoly = only one firms that dominates market completely

  • no substitutes for product

  • One company has significant market power

  • people will stop buying it if priced way to much

  • illegal

  • legal = natural monopoly

    • water and electricity

    • heavily regulated

    • usually for needed items and amenities

  • merger = combination of business that is legal AS LONG as no monopoly is formed

    • vertical merger = diff levels of production together, chain of production, '

    • horizontal merger = alike companies for efficiency