46383
Competitive markets
and how they work
- Demand: the quantity of goods and
services that consumers are willing and
able to buy at a given price level
- Non price determinants=
Subsitutues/complements,
Population, Income,
Taste/preference, Expected
future prices
- Change in
price
determinants
cause
movement
along demand
curve
- Change in
NPD cause a
shift in the
demand
curve
- Consumer surplus:
the diff between the
pirce that consumers
are willing to pay and
the actual price paid
- Non price determinants=
Subsitutues/complements,
Population, Income,
Taste/preference, Expected
future prices
- Supply: the quantity of a product that
producers are willing and able to provide at a
given price level over a period of time
- Non price
determinant=Subsides/tax,
Cost of input, Expected
future prices, No of firms,
Technology
- Change in
NPD cause
a shift in
supply curve
- Change in
cost causes
a movement
along the
curve
- Producer surplus:
the diff between the
price a producer is
willing to accept and
the price that is
actually paid
- Non price
determinant=Subsides/tax,
Cost of input, Expected
future prices, No of firms,
Technology
- Market equilibrium: the level of
output where supply = demand
- changing
demand and
supply means
that the position
of equilibrium
changes
- Disequilibrium:
demand and
supply are not
equal- eg surplus
and shortage
- changing
demand and
supply means
that the position
of equilibrium
changes
- Elasticity
- price elasticity of
demand:the
responsiveness of a
change in demand to
a %change in price
- %change in QD / %change in price
- factors affecting:
price, avalability,
substitutes, income,
time(to react)
- %change in QD / %change in price
- income elasticitiy
of demand:the
responsiveness of
demand to a
%change in price
- %change in QD / %change in income
- positive=normal,
negative=inferior, high
positive=luxury
- %change in QD / %change in income
- cross elasticity of
demand:the responsiveness
of demand for 1 product in
relation to change in price of
another
- %change in demand for good a / %change in demand for good b
- if positive=substitutes, if negative=complements
- %change in demand for good a / %change in demand for good b
- price elasticity of
supply:responsiveness
of producers of a
particular good to
change in price of
another good
- %change of QS / %change in price
- factors
affecting=amount of
time, unused capacity,
ability to store stocks
- %change of QS / %change in price
- price elasticity of
demand:the
responsiveness of a
change in demand to
a %change in price
- Allocative efficiency:where
customer satisfaction is
maximised and resources are
best used to benefit
customers
- competitive markets dont
always lead to allocative
efficiency as there is often
under/over supply in the
market
- competitive markets dont
always lead to allocative
efficiency as there is often
under/over supply in the
market
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