Summary of chapter 3 of the book Economics. Written by N. Gregory Mankiw and Mark P. Taylor, 3rd edition. Written for IBMS students of Avans or for the course Economics. ISBN 9781408093795.
College aantekeningen Inleiding Tot De Micro-economie (000059) Economics, ISBN: 9781408093795
Readings (Chapter 1-9, 14 of Mankiw and Taylor book) for Principles of Economics Midterm
Samenvatting H4 micro-economie
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Avans Hogeschool (Avans)
Bedrijfseconomie / Finance & control
Economics
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Economics Chapter 3 summary
‘The market forces of supply and demand’
Markets and competition
A market – is a group of buyers and sellers of a particular good or service.
• Buyers determine demand.
• Sellers determine supply.
Competitive market – a market in which there are many buyers and sellers so that each has a
negligible impact on the market price.
Price takers – buyers and sellers who have no influence on market prices
- Monopoly – one firm dominates the market (sets the price)
for example: local water company
-Oligopoly – has a few sellers that do not always compete aggressively
for example: steel, retailing (supermarkets), banking, telecommunications
- Monopolistically competitive – many sellers but each offers a slightly different product.
for example: magazines
- Perfect competition – many firms, freedom of entry, homogeneous product, normal profit.
for example: agricultural markets
Demand
Quantity demanded – the amount of a good that buyers are willing and able to purchase at different
prices.
Law of demand – other things equal (ceteris paribus), the quantity demanded of a good falls when
the price of the good rises.
Demand schedule – a table that shows the relationship between the price of a good and the quantity
demanded.
Demand curve – a graph of the relationship between the price of a good and the quantity
demanded.
When we need to determine the market demand -> the sum of all the individual demands for a
particular good or service.
Shifts Versus Movements Along the Demand Curve
Assume the price of milk falls. (= movement along the curve)
• More will be demanded because of the income and substitution effects.
• The income effect: Consumers can now afford to buy more with their income.
• The substitution effect: Consumers will choose to substitute the more expensive drinks with the
now cheaper milk.
Shifts caused by factors other than price:
• Consumer income • Expectations of consumers
• Prices of related goods (substitutes and complements) • Number of buyers (population)
• Tastes and fashions
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