COMM 220 MIDTERM Review 2025(Analysis of Markets)
Concordia University
COMM 220 MIDTERM NOTES: CH 1-5
CHAPTER 1
Microeconomics: deals with the behavior of individual economic units (consumers, workers,
investors, owners of land, business firms). Explains how and why these units make economic
decisions
● Is about limits (limited income, budgets, etc)
● Ways to make most of these limits; allocation of scarce resources
Themes of microeconomics
1. Trade-offs: that consumers, workers and firms face and how these trade-offs are best
made
a. Consumers: have limited incomes that can be spent on wide variety of goods
and services
i. Consumer theory: describes how consumers, based on preferences,
maximize their well-being by trading off the purchase of more of some
goods for the purchase of less of others
b. Workers: face constraints and trade-offs too: 1) deciding whether and when to
enter workforce & 2) choice of employment
c. Firms: trade-offs in terms of the kinds of products that they can produce and
resources available to produce them
2. Prices and markets: role of prices
3. Theories and models: concerned with explanation of observed phenomena
4. Positive vs. normative analysis:
a. Positive: statements that describe relationships of cause and effect
b. Normative: analysis examining questions of what ought to be. Often
supplemented by value judgements
Macroeconomics: aggregate economic quantities, such as level and growth rate of national
output, interest rates, unemployment and inflation. Involves the analysis of markets
Market: the collection of buyers and sellers that, through their actual or potential interactions,
determine the price of a product or set of products
● Market definition: determination of the buyers, sellers and range of products that
should be included in a particular market. Important for 2 reasons:
○ Company must understand who its actual/potential competitors are for
products it sells or might sell in future
○ For public policy decisions
● Arbitrage: practice of buying at a low price at one location and selling at a higher
price in another
, ● Market price: price prevailing in a competitive market
● Extent of a market: boundaries of a market, both geographical and in terms of range
of products produced and sold within it
Competitive vs. non-competitive markets:
1. Perfectly competitive market: market with many buyers and sellers, so that no single
buyer or seller has a significant impact on price
2. Non-competitive markets: individual firms can jointly affect the price (oil market)
Real vs nominal price:
● Real: price of a good relative to aggregate measure of prices & is adjusted for
inflation (also known as constant-dollar price)
● Nominal: absolute price of good & is unadjusted for inflation
● Consumer price index (CPI): measure of the aggregate price level
● Produce price index (PPI): measure of the aggregate price level of intermediate
products and wholesale goods
Example: find the real 2015 price of butter in terms of 1970 dollars knowing that
● CPI 1970 = 38.8
● CPI 2015 = 237.0
● Nominal price 2015 = $3.48
CP I 1970 38.8
CPI 2015
x price 2015 = 237.0
x3.48 = $0.57
Percentage change in real price:
real price in 2015 − real price in 1970 1.34−2.05
real price in 1970
= 2.05
=− 0.34 = − 34%
CHAPTER 2
Supply and demand:
Supply curve: relationship between the quantity of a good that producers are willing to sell
and price of the good
● supply curve : QS = QS (P )
● The higher the price, the more firms are able and willing to produce and sell
● Other variables that affect supply:
○ Production costs, wages, interest charges, costs of raw materials
, Demand curve: shows how much of a good consumers are willing to buy as the price/unit
changes
● demand curve : QD = QD (P )
● Other variables that affect demand curve: income
Substitutes and complementary goods:
● Substitutes: 2 goods for which an increase in the price of one leads to an increase in
the quantity demanded of the other
● Complements: two goods for which an increase in the price of one leads to a decrease
in the quantity demanded of the other
Normal vs. inferior goods:
● Normal: positive relationship with income; as income increases, so does demand for
normal good
● Inferior: demand declines as level of income increases
The market mechanism:
Equilibrium: price that equates the quantity supplied to the quantity demanded
Market mechanism: tendency in a free market for price to change until the market clears
Surplus: situation in which the quantity supplied exceeds the quantity demanded
Shortage: situation in which the quantity demanded exceeds the quantity supplied
Elasticities of supply and demand:
Elasticity: percentage change in one variable resulting from a 1-percent increase in another
Price elasticity of demand: % change in quantity demanded of a good resulting from a
1- percent increase in its price.
● Usually a negative value → e.g.: -2, we say that elasticity is 2 in magnitude
● Price elastic: when price elasticity is greater than 1 in magnitude
● Price inelastic: when price elasticity is less than 1 in magnitude
(%ΔQ) ΔQ/Q P ΔQ
price elasticity of demand : EP = (%ΔP )
= ΔP /P
= QΔP
Linear demand curve: demand curve that is a straight line
linear demand curve : Q = a − bP
Concordia University
COMM 220 MIDTERM NOTES: CH 1-5
CHAPTER 1
Microeconomics: deals with the behavior of individual economic units (consumers, workers,
investors, owners of land, business firms). Explains how and why these units make economic
decisions
● Is about limits (limited income, budgets, etc)
● Ways to make most of these limits; allocation of scarce resources
Themes of microeconomics
1. Trade-offs: that consumers, workers and firms face and how these trade-offs are best
made
a. Consumers: have limited incomes that can be spent on wide variety of goods
and services
i. Consumer theory: describes how consumers, based on preferences,
maximize their well-being by trading off the purchase of more of some
goods for the purchase of less of others
b. Workers: face constraints and trade-offs too: 1) deciding whether and when to
enter workforce & 2) choice of employment
c. Firms: trade-offs in terms of the kinds of products that they can produce and
resources available to produce them
2. Prices and markets: role of prices
3. Theories and models: concerned with explanation of observed phenomena
4. Positive vs. normative analysis:
a. Positive: statements that describe relationships of cause and effect
b. Normative: analysis examining questions of what ought to be. Often
supplemented by value judgements
Macroeconomics: aggregate economic quantities, such as level and growth rate of national
output, interest rates, unemployment and inflation. Involves the analysis of markets
Market: the collection of buyers and sellers that, through their actual or potential interactions,
determine the price of a product or set of products
● Market definition: determination of the buyers, sellers and range of products that
should be included in a particular market. Important for 2 reasons:
○ Company must understand who its actual/potential competitors are for
products it sells or might sell in future
○ For public policy decisions
● Arbitrage: practice of buying at a low price at one location and selling at a higher
price in another
, ● Market price: price prevailing in a competitive market
● Extent of a market: boundaries of a market, both geographical and in terms of range
of products produced and sold within it
Competitive vs. non-competitive markets:
1. Perfectly competitive market: market with many buyers and sellers, so that no single
buyer or seller has a significant impact on price
2. Non-competitive markets: individual firms can jointly affect the price (oil market)
Real vs nominal price:
● Real: price of a good relative to aggregate measure of prices & is adjusted for
inflation (also known as constant-dollar price)
● Nominal: absolute price of good & is unadjusted for inflation
● Consumer price index (CPI): measure of the aggregate price level
● Produce price index (PPI): measure of the aggregate price level of intermediate
products and wholesale goods
Example: find the real 2015 price of butter in terms of 1970 dollars knowing that
● CPI 1970 = 38.8
● CPI 2015 = 237.0
● Nominal price 2015 = $3.48
CP I 1970 38.8
CPI 2015
x price 2015 = 237.0
x3.48 = $0.57
Percentage change in real price:
real price in 2015 − real price in 1970 1.34−2.05
real price in 1970
= 2.05
=− 0.34 = − 34%
CHAPTER 2
Supply and demand:
Supply curve: relationship between the quantity of a good that producers are willing to sell
and price of the good
● supply curve : QS = QS (P )
● The higher the price, the more firms are able and willing to produce and sell
● Other variables that affect supply:
○ Production costs, wages, interest charges, costs of raw materials
, Demand curve: shows how much of a good consumers are willing to buy as the price/unit
changes
● demand curve : QD = QD (P )
● Other variables that affect demand curve: income
Substitutes and complementary goods:
● Substitutes: 2 goods for which an increase in the price of one leads to an increase in
the quantity demanded of the other
● Complements: two goods for which an increase in the price of one leads to a decrease
in the quantity demanded of the other
Normal vs. inferior goods:
● Normal: positive relationship with income; as income increases, so does demand for
normal good
● Inferior: demand declines as level of income increases
The market mechanism:
Equilibrium: price that equates the quantity supplied to the quantity demanded
Market mechanism: tendency in a free market for price to change until the market clears
Surplus: situation in which the quantity supplied exceeds the quantity demanded
Shortage: situation in which the quantity demanded exceeds the quantity supplied
Elasticities of supply and demand:
Elasticity: percentage change in one variable resulting from a 1-percent increase in another
Price elasticity of demand: % change in quantity demanded of a good resulting from a
1- percent increase in its price.
● Usually a negative value → e.g.: -2, we say that elasticity is 2 in magnitude
● Price elastic: when price elasticity is greater than 1 in magnitude
● Price inelastic: when price elasticity is less than 1 in magnitude
(%ΔQ) ΔQ/Q P ΔQ
price elasticity of demand : EP = (%ΔP )
= ΔP /P
= QΔP
Linear demand curve: demand curve that is a straight line
linear demand curve : Q = a − bP
