SAMPLE Microeconomics
A. Markets and Competition Basically, a market is characterized by a group of buyers (consumers)andsellers(producers) fora specific good or service. A market existsforpracticallyallgoodsandservices.Marketsincludeshops, supermarkets, shoppingmalls,restaurants,andevenonlinemarketssuchasAmazon,eBay,etc.Think of a market as a place where buyers and sellers interact. The primary driver of demand and supply is to foster and promote competition, especially between buyers andsellers.However,thedegreeofcompetitiondependsonthehomogeneityofthegoodsand servicesoffered,aswellasthenumberofbuyersandsellers.Iftherearemanybuyersandsellersand the product sold is homogeneous, thenthemarketissaidtobeperfectlycompetitive.Inthiscase,all the market players have limited (or zero) control over price and quantity. They just accept the price dictated by the market; thus, they are price-takers, and everyone has the same information. Notallmarketsexhibitperfectcompetition.Theextremeoppositeofaperfectlycompetitivemarketisa monopoly . In a monopoly market, there is only one seller offering a unique product or service, for example,electricity.Monopolistshavemarketpowerandcandictatethepriceinthemarket;hence,they are price-makers. However, in the discussions for this section, we assume a perfectly competitive market.
Tounderstandhowmarketswork,westudythebehaviorofthemarketparticipants(buyersandsellers). We will then analyze how these buyers andsellersinteracttodeterminethepriceandquantityofthe goods and services offered in the market. To facilitate a simple discussion in the succeeding sub-sections,wewillusethemarketforcookiesasareference,andgoodstoincludethemarketforboth goods and services. B. Demand and its Determinants A buyer issomeonewhois 1)willingand2)abletopurchaseagood ,ofwhichthe amount isreferred toasthe quantitydemanded .Demandforagoodexistswhenthesetwoconditionsaresatisfied.Ifone or both of these conditions are not satisfied, then no demand exists. Themostinherent determinant ofdemandisthe priceofthegood .Forexample,ifthemarketpriceof onecookieis$3,thenyouwouldpurchase6cookies.Ifthepriceofthecookieincreasedto$5,thenyou would purchase less of itandbuyacheaperalternativeinstead.If,ontheotherhand,thepriceofthe
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