Lec 3. Lecture notes for microeconomics

MICROECONOMICS WEEK 3

Market and Competition

• Market: a group of buyers and sellers of a particular good or service.

Ex car market, motorbike market, comestic market,…

• Buyer determine the demand of product - Sellerd determine the supply of the product - Market take many forms:

+ Highly organized: market for wholesale agricultural commodities. buyers and sellers meet at a specific time and place, where an auctioneer helps set prices and arrange sales.

+ Less organized, more often consider the market for ice cream in a particular town. Buyers of ice cream do not meet together at any one time.

• Competition market: a market in which there are many buyers and many sellers so that each has a negligible impact on the market price
• Each seller has limited control over the price bcs other sellers are offering similar product
• A seller has little reasons to charge less than the going price
• Assumption: markets are perfectly competitive
• 2 must characteristics of a competitive market
• In that market, both buyer n seller must accept the price that market determine  Said to be price taker
• Not all goods are sold in perfectly competitive markets

+ some mar have only 1 seller. This seller sets the prices , called a monopoly

+other fall between

Demand: Behavior of buyers

o Demand curve: the relationship between price n quantity demanded

• Quantity demaned: the amount of the good that buyers are willing and able to purchase.

Ex : Price ice cream rose to 2$/scoop -> get expensive -> buy less or buy sth similar instead / get cheap -> buy more

• Law of demand : the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises
• Demand Curve ( đường cầầu ): the claim that, other things equal, 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 thequantity demanded

Market demand vs Individual demand

• Market demand: sum of the quantities demanded by all the buyers at each price.

Shifts in the Demand Curve

• If sth happens to alter the quantity demanded at any given price, the demand curve shifts

• If the Demands for a good falls when income falls,, the goods is called normal good.
• If the demand for a good rises when the income falls , the good is called inferior good.

EX: bus rides, instant noodle,..

Normal good: a good for which, other things equal, an increase in income leads to an increase in demand

Inferior good: a good for which, other things equal, an increase in income leads to a decrease in demand o Price of related goods

• Ice cream n frozen yogurt are bnoth cold, sweet n creamy desserts. Thus, satosfy similar desires. Suppose price of frozen yogurt falls, the quantity demanded of frozen yogurt increases. ( according to the Law of Demand )
• What happen to demand of ice cream then ?  buy less ice cream bcs they satisfy similar dessires  Ice crea n yogurt are substitutes

 When a fallin’ the price of 1 good reduces the demand for anmother good, the 2 goods are called substitutes.

 Substitutes are oftem offer pair of goods that are used in place of each other

Ex: hotdog n hamburger, sweater n sweatshirt,…

• Now suppose that the price of hot fudge falls. According to the law of demand, you will buy more hot fudge. Yet in this case, you will buy more ice cream as well because ice cream and hot fudge are often used together. When a fall in the price of one good raises the demand for another good, the two goods are called complements.
  • Taste
• This is the most obvious determinant of ur demand
• Economists don’t try to explain pple’s tatse , but do examine what happens when atste change o Expectations
• Ur expectations about the futute may affctves ur demand for a good/ service today

+ expect higher income save less n spend more

+ expect prices fall  less willing to buy at today’s price

• • Number of buyers
• Market demand depends on the number of these buyers

Supply

• • The supply curve: the relationshp between price & quantity supplied
• The quantity supplied of any good or service is the amount that sellers are willing and able to sell
• law of supply: the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises
• supply curve: a graph of the relationship between the price of a good and the quantity supplied

;;ơ

• Marker Supply: Sum of the supplies of all sellers

Shifts in the Supply Curve

• Because the market supply curve holds other things constant, the curve shifts when one of the factors changes. For example, suppose the price of sugar falls. Sugar is an input into producing ice cream, so the fall in the price of sugar makes selling ice cream more profitable. This raises the supply of ice cream: At any given price, sellers are now willing to produce a larger quantity. The supply curve for ice cream shifts to the right.
• Variables that can shifts the supply curve:

+ Input price

+ Technology

+ Expectation

+ Number of sellers

Supply and Demand together

• Equilibrium
  • Equilibrium: a situation in which the market price has reached the level at which quantity supplied equals quantity demanded
  • At euilibrium price, auantity of the good that buyers are willing n able to buy = quantity that sellers are willing n able to sell
  • also called market -clearing price

• • Shortage: a situation in which quantity demanded is greater than quantity supplied
  • Surplus: a situation in which quantity supplied is greater than quantity demanded

Law of supply and demand: The price of any good adjusts to bring the quantity supplied n the quantity demanded for that good int balance.

• Three steps to analyze Changes in

Equilibrium

Ex

:

The allocation of beachfront

land. Bcs the amount of this land

is limited, not everyone can

enjoy the luxury of living by the

beach. Who get this resource ?

(

The answer is whoever is willing

n able to pay the price. The price

of beachfront landadjust until the

quantity of land demanded

exactly balances the quantity

supplied )

SHIFTS VS MOVEMENT

o

Movement

-

A movement along the

demand curve will

occur when:

+ price of good changes, and quantity demanded changes

In accordance to the original demand relationship

• In other words, a movemment occurs when a change in the quantity demanded is caused only by a change in price, and vice versa.

o Shift

• A shift in demand or supply curve occurs when a good ‘s quantity demanded or supplied changes even though price remains the same.

Ex: ar the same price of $2 for a bottle of beer, consumers are willing to buy a higher quantity

• Shifts in the demand curve

+ imply that the original demand relationship has changed

• Shift in the supply curve imply that the original supply curve has changed , meaning that Supplu curve shifts when the quantity upplies is effected by a factor other than price
• A shift in the supply curve occur if for ex natural disasters

BÀI TẬP : 1 ,9 ( page 86)