Competitive Markets

Description

Mind-map of all competitive markets
tiafisher99
Mind Map by tiafisher99, updated more than 1 year ago More Less
IBMichelle
Created by IBMichelle over 9 years ago
tiafisher99
Copied by tiafisher99 over 9 years ago
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Resource summary

Competitive Markets
  1. Market
    1. Mechanism that determines which goods and services will be produced in an economy
      1. Can also determine resource scarcity and allocation
      2. Components
        1. Factor Markets
          1. e.g. Factors of Production
          2. Financial Markets
            1. e.g. Stock Market; Bond Market; Foreign Exchange Markets
        2. Demand

          Annotations:

          • Summarizes the behavior of buyers in a market
          1. Demand Curve
            1. Negative Sloping
              1. a.k.a. "The Law of Demand"
            2. Goal of Consumers

              Annotations:

              • - to maximize consumer's utility
              1. Other Factors that shifts Demand
                1. Changes in Consumer's Income
                  1. Normal VS Inferior Good (Opposite Directions)
                    1. Normal Good = Brand Name Products
                      1. Inferior Good = Lower-quality
                    2. Changes in Prices of Other Products
                      1. Complemental Goods
                        1. Same Effects (almost proportional)
                      2. Change in Tastes
                        1. Change in the size of the market
                          1. i.e. the number of consumers
                        2. Movements along a Demand Curve
                          1. Changes in quantitity demanded due to price changes
                        3. Supply

                          Annotations:

                          • It summarizes the behavior of producers (or firms) in a market
                          1. Supply Curve

                            Annotations:

                            • Shows the direct relationship between price per unit of a good and the Qs per period
                            1. Positive Sloping
                              1. a.k.a. "The Law of Supply"

                                Annotations:

                                • If it becomes costlier for the firm to produce more units per period of time using existing capacity, then it will be willing to do so at a higher price
                            2. Shifts in Supply Curve
                              1. Change in the Cost of Factors of Production
                                1. Changes in Technology

                                  Annotations:

                                  • This ALWAYS shifts the supply curve TO THE RIGHT (as technological advances assume an increase in efficiency)
                                  1. Changes in Productivity

                                    Annotations:

                                    • This ALWAYS shifts the supply curve TO THE RIGHT as the increase in productivity means an increase in efficiency, therefore increasing supply
                                    1. Changes in Government Policies

                                      Annotations:

                                      • - Taxation (always shifts left as it is now more costlier to produce goods)
                                      1. Change in the price of a good that is jointly supplied
                                        1. Change in Price of a Good in Competitive Supply
                                          1. Change in the size of the market

                                            Annotations:

                                            • i.e. the number of firms
                                          2. Movements along S Curve
                                            1. Changes in Qs due to price change
                                          3. The Role of Price Mechanisms

                                            Annotations:

                                            • Changes in consumer preferences lead to changes in relative prices which have signaling power and change incentives of market participants
                                            • Assumes that the consumer is sovereign in a free market
                                            1. When demand increases, excess demand

                                              Annotations:

                                              • So,,, - Price increases - Extension of Supply along original supply curve - Contraction in demand along new demand curve
                                              1. When demand decreases, excess supply

                                                Annotations:

                                                • So... - Price decreases - Contraction of supply along the original supply curve - Extension of demand along the new demand curve
                                              2. Market Efficiency
                                                1. Consumer Surplus
                                                  1. The area under the demand curve and above the price line
                                                  2. Producer Surplus
                                                    1. The area above the supply curve and below the price line
                                                    2. Social/ Community Surplus
                                                      1. The sum of consumer and producer surplus
                                                      2. Allocative Efficiency

                                                        Annotations:

                                                        • When the scarce resources have been allocated in the best possible way (if the optimal amount is produced from society's point of view)
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