Lecture 03 # Demand & Supply Analysis Flashcards
One-Shot Revision
What is Market?
The market refers to the interaction between buyers and sellers where goods, services, or resources are exchanged.
Classification of Market?
Market can be classified on the basis of,
1. Area/Location.
2. Time.
3. Nature Of Business.
4. Regulations.
5. Volume Of Business.
6. Competition.
The most important type of market that we discuss in this chapter is?
The most important type of market is Competition-wise such as:
1. Perfect
2. Monopoly
3. Oligopoly
4. Monopolistic
5. Duopoly
Describe Perfect Competition in market.
- Perfect Competition: This is when there are many buyers and sellers offering identical products.
Example: Fruits and vegetables at a farmer’s market.
Describe Monopoly Competition in market.
- Monopoly: In a monopoly, there is only one seller in the market, with no close substitutes.
Example: Local utility company (K.E) that provides electricity.
Describe Oligopoly Competition in market.
- Oligopoly: In an oligopoly, a few large sellers dominate the market.
Example: Smartphone industry, where a few major companies compete for customers.
Describe Monopolistic Competition in market.
- Monopolistic Competition: This is when there are many sellers offering similar but slightly differentiated products.
Example: Fast-food industry, with different chains offering similar types of food.
Describe Duopoly Competition in market.
Duopoly Competition: A market with two firms where each firm’s actions impact the other’s market outcomes.
Example: Coke and Pepsi in the soft drink industry,
What is Demand?
Demand: A schedule or curve showing the quantities consumers are willing to buy at various prices, like how many pizzas people will purchase at different prices each week.
Describe Market Demand Curve.
Market Demand is the total quantity of a good or service all consumers in the economy are willing to buy at a given price. It is the sum of all individual demands.
Describe Individual / Consumer Demand Curve.
Individual demand for a good or service is the quantity that the consumer in the market is willing to demand per time period at a given price.
When expansion takes place by changes in quantity demanded?
In demand curve, when there is a downward movement occurs, expansion takes place, this expansion is called “Change in Quantity Demanded”.
When expansion takes place by shift in demand?
When rightward shift in demand curve occurs, expansion also takes place, but this is called “Shift in Demand Curve”.
When contraction takes place by changes in quantity demanded?
In demand curve, when there is an upward movement occurs, contraction takes place, this contraction is called “Change in Quantity Demanded”
When contraction takes place by shift in demand?
When leftward shift in demand curve occurs, contraction also takes place, but this is called “Shift in Demand Curve”.
Factors Affecting Demand / Determinants of Demand?
- Taste & Preference
- Income of Buyer
- Price of Own Good
- Population
- Expectations of Future Prices
- Related Good’s Price
- Season / Weather
- Income Distribution
- Gender
- Age
Note:
Demand is affected by TIPPERSIGA
What is Law of Demand?
Law of Demand: As price rises, quantity demanded falls, and as price falls, quantity demanded rises, assuming other factors remain constant.
The relationship between price and quantity demanded is?
Inverse or negative.
Why There Is Inverse Relation Between Price & Quantity Demanded?
- The law of demand is consistent with common sense.
- Due to the Substitution effect.
- Due to the Income effect.
- Due to the Law of Diminishing Marginal Utility.
- Due to the Law of Equi-Marginal Utility.
- Due to the Number of Consumer.
- Purchasing Power Effect.
Exceptions To The Law Of Demand?
- Conspicuous Goods (Status Symbol)
- Conspicuous Necessities (Luxury Necessities)
- Giffen Goods (Luxury Goods)
- Future Expectations About Price
- Essential Necessities (Life Saving Drugs)
- Speculative Goods (Investment Goods like 7. Gold, Bonds, Shares, Debentures)
- Taste and Fashion.
- New Substitute Discovered.
- Price Of The Substitute.
- Climate or Weather Condition.
- Change In Population.
- Inferior / Superior Goods.
Assumptions of Law of Demand?
Assumptions of Law of Demand:
- Ceteris Paribus: All other factors remain constant.
- Rational Behavior: Consumers seek to maximize satisfaction.
- Diminishing Marginal Utility: Satisfaction decreases with more consumption.
- No Income Effect: Income changes don’t affect consumption.
- No Substitution Effect: No close substitutes available.
What is Supply?
Supply: A schedule or curve showing the quantities producers are willing to sell at various prices, like how many smartphones Apple will offer at different prices.
Market Supply vs. Individual Supply:?
Market supply is derived from individual supply in exactly the same way that market demand is derived by individual demand.
It is the sum of quantities supplied by all producers at each price, created by horizontally adding individual supply curves.
When expansion takes place by changes in quantity supplied?
In supply curve, when there is an upward movement occurs, expansion takes place, this expansion is called “Change in Quantity Supplied”.
