1.1 Competitive Markets

IBMichelle
Mind Map by , created over 5 years ago

Mind-map of all things 1.1

201
1
0
IBMichelle
Created by IBMichelle over 5 years ago
IB Economics SL: Microeconomics
Han Zhang
HSC Economics
lydia le
IB Economics SL: Macroeconomics
Han Zhang
Study Tips to Improve your Learning
miminoma
Factores Humanos en la Aviación
Adriana Forero
Using GoConqr to study Economics
Sarah Egan
Economics
Emily Fenton
Economics - unit 1
Amardeep Kumar
AN ECONOMIC OVERVIEW OF IRELAND AND THE WORLD 2015/16
John O'Driscoll
AS Economics Key Terms
Fred Clayton
1.1 Competitive Markets
1 Market
1.1 Mechanism that determines which goods and services will be produced in an economy
1.1.1 Can also determine resource scarcity and allocation
1.2 Components
1.2.1 Factor Markets
1.2.1.1 e.g. Factors of Production
1.2.2 Financial Markets
1.2.2.1 e.g. Stock Market; Bond Market; Foreign Exchange Markets
2 Demand

Annotations:

  • Summarizes the behavior of buyers in a market
2.1 Demand Curve
2.1.1 Negative Sloping
2.1.1.1 a.k.a. "The Law of Demand"
2.1.1.1.1 The Substitution Effect

Annotations:

  • BASICALLY: As price of X increases, substitutes becomes RELATIVElY cheaper (therefore buying substitutes)
2.1.1.1.2 The Income Effect

Annotations:

  • BASICALLY: As the price of X increases, the purchasing power of consumers decreases (meaning that they will be able to afford less of X)
2.2 Goal of Consumers

Annotations:

  • - to maximize consumer's utility
2.3 Other Factors that shifts Demand
2.3.1 Changes in Consumer's Income
2.3.1.1 Normal VS Inferior Good (Opposite Directions)
2.3.1.1.1 Normal Good = Brand Name Products
2.3.1.1.2 Inferior Good = Lower-quality
2.3.2 Changes in Prices of Other Products
2.3.2.1 Complemental Goods
2.3.2.1.1 Same Effects (almost proportional)
2.3.2.2 Substitutes
2.3.2.2.1 Opposite Directions
2.3.3 Change in Tastes
2.3.4 Change in the size of the market
2.3.4.1 i.e. the number of consumers
2.4 Movements along a Demand Curve
2.4.1 Changes in quantitity demanded due to price changes
3 Supply

Annotations:

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

Annotations:

  • Shows the direct relationship between price per unit of a good and the Qs per period
3.1.1 Positive Sloping
3.1.1.1 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
3.2 Shifts in Supply Curve
3.2.1 Change in the Cost of Factors of Production
3.2.2 Changes in Technology

Annotations:

  • This ALWAYS shifts the supply curve TO THE RIGHT (as technological advances assume an increase in efficiency)
3.2.3 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
3.2.4 Changes in Government Policies

Annotations:

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

Annotations:

  • i.e. the number of firms
3.3 Movements along S Curve
3.3.1 Changes in Qs due to price change
4 Equilibrium

Annotations:

  • Equilibrium price is when quantity demanded = quantity supplied (meaning there is neither excess demand nor excess supply)
4.1 Changes in Equilibrium
4.1.1 Changes in Demand Conditions

Annotations:

  • Excess demand tend to cause an increase in price (therefore a greater quantity is expected) and vice versa
4.1.2 Changes in Supply Conditions

Annotations:

  • Excess Supply tend to push down the price (and vice versa)
4.1.3 Both Factor Changes

Annotations:

  • Can determine algebraically the effects in that case
5 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
5.1 When demand increases, excess demand

Annotations:

  • So,,, - Price increases - Extension of Supply along original supply curve - Contraction in demand along new demand curve
5.2 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
6 Market Efficiency
6.1 Consumer Surplus
6.1.1 The area under the demand curve and above the price line
6.2 Producer Surplus
6.2.1 The area above the supply curve and below the price line
6.3 Social/ Community Surplus
6.3.1 The sum of consumer and producer surplus
6.4 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)

Media attachments