7YFWXMXYXIW EVI TVSHYGXW XLEX EVI EPQSWX XLI WEQI WYGL EW GSOI MRGVIEWI MR TVMGI MR SRI GEYWIW MRGVIEWI

MR HIQERH MR XLI SXLIV

TITWM

4IVJIGX WYFWXMXYXIW LEZI XLI WEQI IZIV]XLMRK MRGPYHMRK QEVOIXMRK

ECON 1BB3 Introduction to Macroeconomics

Markets
market = group of buyers and sellers there are 4 types of market structure: 1. perfect competition: equal number of buyers and sellers. They have equal market power and price will reflect value of community. Rare in real life. 7XSGO QEVOIX# 2. monopoly: one seller and many buyers. Seller has the max market power. Typically monopoly is regulated by govt. &Y]IVW [MPPMRK XS TE] MW QSWX TS[IVJYP JEGXSV WS XLI] XV] XS MRGVIEWI HIQERH 3. oligopoly: two(or more) sellers and many more buyers. The commodities provided are the same (ex-oil companies) 8LI] XV] XS GSQTEVI [MXL SXLIV GSQTERMIW I K 1SFMPI TLSRI GSQTERMIW 4. monopolistic competition: many sellers, and each seller produces different varieties or the same commodity

Demand

-RJIVMSV KSSHW XLMRKW ]SY FY] WMRGI ]SY GER X EJJSVH FIXXIV UYEPMX] YRXMP ]SYV MRGSQI MRGVIEWIW

Quantity Demanded (Qd): the amount of a good that buyers are willing & able to purchase the variables that influence how much buyers want to buy are: 2SX WYTTP] 1. price: P goes up, Qd goes down [inverse relationship] 2. income: Y goes up, Qd goes up [normal:direct] Y goes up, Qd goes down [inferior: inverse] 3. price of other goods tea and coffee
substitutes and complements

4. tastes I K WGMIRXMJMG HMWGSZIVMIW EFSYX FIRIJMXW SJ TVSHYGX 5. expectations future prices or future income VIEP IWXEXI

'SQTPIQIRXW TVSHYGXW YWIH XSKIXLIV HIGVIEWI HIQERH JSV FSXL WMQYPXERISYWP]

Demand
Law of Demand: other things equal (ceteris paribus), the quantity demanded of a good falls as the price of the good rises 4VMGI GER QEOI GIVXEMR XLMRKW WIIQ FIXXIV UYEPMX]
7S QYGL JSV FIMRK GEPPIH E PE[

demand schedule P .05 .10 .15 .20 .25 Q 1000 800 600 400 200

demand curve

 market demand: the sum of individual demands

,SVM^SRXEPP] EHHMRK

P + Q

P = Q

 shifts in demand (change in demand) are caused by a change in anything other than price movement along the demand curve (change in quantity demanded) is caused by a change in price if quantity increases, demand shifts OUT M I VMKLX if quantity decreases, demand shifts IN

P
% & ( ( (

% XS & MRGVIEWI MR 5H -RGVIEWI MR HIQERH (IGVIEWI MR HIQERH

ECON 1BB3 Introduction to Macroeconomics

Supply
Quantity Supplied (Qs): the amount of a good that sellers are willing and able to sell the variables that influence how much sellers want to sell are: 1. price 2. input prices [LIR MRTYX TVMGIW VMWI JMVQW [ERX XS WIPP PIWW 3. technology EP[E]W QSZIW JSV[EVH HIGVIEWIW TVSHYGXMSR GSWXW 4. expectations VIKEVHMRK GLERKMRK MRTYX TVMGIW EJJIGXW EQSYRX TVSHYGIH

Supply

LEW 238,-2+ XS HS [MXL HIQERH

Law of Supply: other things equal (ceteris paribus), the quantity supplied of a good rises as the price of the good rises supply schedule P .05 .10 .15 .20 .25 Q 400 500 600 700 800
JSV ,& TIRGMPW

supply curve

XSS PE^] XS TYX MR

 market supply: the sum of individual supply curves

P + Q

P = Q

 shifts in supply (change in supply) are caused by a change in anything other than price movement along the supply curve (change in quantity supplied) is caused by a change in price if supply increases, the curve shifts OUT if supply decreases, the curve shifts IN

P
WYTTP] HIGVIEWI % &

7 % XS & MRGVIEWI MR 5YERXMX] 7YTTPMIH

WYTTP] MRGVIEWI 8LI GLERKI MR IQTPS]IIW [EKIW MW E GLERKI MR MRTYX GSWXW

-RGVIEWI MR 5YERXMX] (IQERHIH

ECON 1BB3 Introduction to Macroeconomics

Equilibrium LXXTW

[[[ ]SYXYFI GSQ [EXGL#Z! 24^0&7&^4-

equilibrium price: the price for which Qs = Qd equilibrium quantity: the quantity that corresponds to equilibrium price

4 5 HIWGVMFIW XLI IUYMPMFVMYQ TSMRX

( 5

 If Qs > Qd there is a surplus P

4Bb

I\GIWW WYTTP]

D Q Stocks build up and firms decrease price until equilibrium is restored

;LIR XLI] VIEGL XLMW

 If Qs < Qd there is a shortage P S

4Bb

D Q People line up, firms increase price and sell more until equilibrium is restored

Three-step program for analyzing 'SQTEVEXMZI WXEXMGW changes in equilibrium GSQTEVMRK FIJSVI ERH EJXIV
5H ERH 5W EVI FSXL JPS[ ZEVMEFPIW

1. Decide whether the event shifts the supply or demand curve (or perhaps both) VEVIP] [MPP FSXL GYVZIW WLMJX WMQYPXERISYWP] 2. Decide in which direction the curve shifts 3. Use the supply-and-demand diagram to see how the shift changes the equilibrium price and quantity
6IGEPP 7XSGO ZEVMEFPI WRETWLSX *PS[ ZEVMEFPI [MXL VIWTIGX XS XMQI

We will use this program for several examples in the market for HB pencils.

Examples
1. consumer income
RSXI TIRGMPW EVI RSVQEP -RGSQI GLERKIW HIQERH HIQERH [MPP MRGVIEWI

P
4 4 4 5 4 5

D
5 5

Examples
2. there is an in use of MC type tests
GLERKI MR TISTPI W XEWXIW MRGVIEWI MR HIQERH 8LMRO WLMJX MR SRI GYVZI ERH QSZIQIRX EPSRK XLI SXLIV

P
4 4 4 5 5

D
5

Examples
3. in the price of graphite
(IGVIEWI WYTTP]

P
4 4 5 4 5

D
5

Examples
4. in the price of ink pens
HIQERH HIGVIEWI WMRGI TIRW ERH TIRGMPW EVI WYFWXMXYXIW

D
5

Examples
5. the school year starts
GLERKI MR TISTPI W XEWXIW MRGVIEWI MR HIQERH

P
4 4 4 5 5

D
5

Examples
6. new technology lowers the cost of producing pencils

-J TVMGI SJ TIRGMPW P JEPPW [LEX GEYWIH XLI HVST MR TVMGI# E -RGVIEWI MR KVETLMXI GSWX F -RGVIEWI MR 1' G 2I[ XIGL PS[IVMRK GSWX SJ TVSHYGMRK TIRGMPW 2SXI HVE[ SYX IEGL STXMSR

MRGVIEWI WYTTP] 4 5 4

D Q