MICROECONOMICS BBA1 ENGLISH TRACK– MIDTERMS FICHE
Professor Giacomo Valletta
Chapter 1 à Supply, demand, and market equilibrium
Markets and Competition
• An economic good is any material or immaterial object (service) which satisfies a need
(of a firm or individual)
• It is through exchange in markets that the value of a good/service is revealed
• Supply and demand refer to the behavior of people interacting with one another in
markets
o Buyers determine demand
o Sellers determine supply
o The interaction between supply and demand determines the level of prices
There are different types of markets depending on the degree of competition.
• Competition: existence of a certain degree of rivalry among sellers/buyers of a given
product
• In a perfectly competitive market…
o There are many buyers and sellers so that each has a negligible impact on the
market price
§ Buyers and sellers are said price takers
o Products are the same (homogenous goods)
o Perfect information
o No barriers to entry
o Perfect mobility of goods
Monopoly à one seller and the seller controls the price
n Example Google in the online search market, sandwiches at EDHEC
Oligopoly à few sellers and not always aggressive competition
n Cable TV services, entertainment industries, airlines, pharmaceuticals
Monopolistic Competition
n Many sellers, slightly differentiated products, each seller may set price for its own
product
n Ex. Shampoo, breakfast cereals
,The DEMAND CURVE
We must distinguish between…
1. Individual demand: the demand of one individual or firm (for a particular good or
service)
2. Market demand: the sum of all individual demands for a particular good or service
à in both cases, the central determinant of the quantity demanded is the price.
à The law of demand: all other things equal, the quantity demand of a good falls when the
price of the good rises
The demand schedule is a table that shows the relationship between the price of the good and
the quantity demanded.
The demand curve is the graphical representation of the demand schedule; in practice: graph
of the relationship between the price of a good and the quantity demanded.
Horizontal Interpretation of Demand
Vertical Interpretation of Demand
, Market Demand
• Each market is made up of a large number of buyers, each with their own demand plan
• Market demand refers to the sum of all individual demands for a particular good or
service
Shifts in the Demand Curve
• Market demand describes how the total quantity demanded of a certain good varies
when the price varies, everything else being equal
o Movement along the demand curve (when the demand varies)
• Other changes in the economic environment can lead to a decrease or to an increase of
the quantity demanded at any given price
o Shift in the demand curve
Any change that raises the quantity that buyers wish to purchase at a given price shifts the
demand curve… increase in demand = shift to the right
Any change that lowers the quantity that buyers wish to purchase at a given price shifts the
demand curve… decrease in demand = shift to the left
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