100% satisfaction guarantee Immediately available after payment Both online and in PDF No strings attached
logo-home
Microeconomics: Price determination in competitive markets £4.99
Add to cart

Lecture notes

Microeconomics: Price determination in competitive markets

 26 views  0 purchase

Demand (types of demand, demand curve - factors that cause movements along and shifts of the demand curve) Supply (law of supply, supply curve - factors that cause movements along and shifts of the supply curve) Equilibrium (excess supply, excess demand, shifts in demand and supply) Price elasti...

[Show more]

Preview 2 out of 13  pages

  • June 4, 2021
  • 13
  • 2020/2021
  • Lecture notes
  • Tejvan pettinger
  • All classes
book image

Book Title:

Author(s):

  • Edition:
  • ISBN:
  • Edition:
All documents for this subject (45)
avatar-seller
ethanvega
Price determination in Competitive Markets: How Markets Work
Demand
Quantity of a good/service consumers are willing and able to buy at a given time period
Effective Demand: Willing/able to pay
Latent Demand: Willingness to buy, but lack purchasing power
Derived Demand: Demand for good X connected to demand for good Y
e.g. demand for steel linked to demand for new vehicles and other manufactured products
Steel is a cyclical industry – market demand for steel affected by changes in economic cycle
and fluctuations in exchange rate. In recession, demand for steel falls
Composite demand: Good demanded for multiple uses e.g. oil to make plastic or petrol
Joint Demand: Demand for two interdependent goods e.g. printer and printer ink
Giffen Good: price rise leads to increase in demand – poor can’t afford luxury alternatives
Ostentatious good: price rise increases demand as quality has increased
Demand Curve
 Relationship between price and quantity demanded over period
 Increasing the price increases opportunity cost
 If rational, only consume more if it increases welfare
 If demand rises – extension of demand
 If demand falls – contraction of demand
Income Effect:
 Fall in price increases real purchasing power of consumers
 Allows higher consumption – smaller % of income
 For normal goods, increase in demand caused by increase in real income
Substitution Effect:
 Fall in price of good X makes it relatively cheaper compared to substitutes
 Some consumers switch to good X, increasing demand
 Depends on how close of a substitute
Movement along demand curve:
A change in price causes movement along demand curve
Elastic demand: price increase cause significant fall in demand e.g. Tesco tea bags
Inelastic Demand: Price increase will cause small fall in demand e.g. petrol

Firms reduce price to increase demand
Consumers effective demand increases when:
1. Increase real purchasing power
2. Relatively cheaper compared to substitutes
3. Opportunity cost falls

Factors that shift demand curve

, 1. Incomes
 Disposable income rises (afford more goods) - consumption rises – demand increases
 Inferior goods: Incomes rise – afford better alternatives – consumption/demand falls
2. Advertising/Publicity
 More aware of product - increase brand loyalty - demand increases
 e.g. Higher spending on advertising by Coca Cola increased global sales
 Bad publicity – reduce demand
3. Price of Substitute goods
 If price of substitute good falls, demand falls (cheaper alternative)
 If price of substitute good increases, demand increases (cheaper alternative)
 e.g. If price of Samsung phones increase, demand for Apple iPhones increase
4. Price of complementary goods
 If price of complementary good falls, demand increases
 If price of complementary good increases, demand falls
 e.g. If price of game consoles fall, demand for video games increases
5.Fashion
6.Changes in quality
 Increase in quality e.g. better-quality phone cameras, encourages consumption –
reduces demand of substitute goods
7.Change in interest rates
 If interest rates fall, cheaper to borrow, increase consumer spending, demand increases
 If interest rates increase, more expensive to borrow, incentive to save, demand falls
8.Weather
 In cold weather, increased demand for fuel and warm clothes
9.Expectations over future prices
 A commodity e.g. gold, may be bought due to speculation it will increase in price




Supply

The benefits of buying summaries with Stuvia:

Guaranteed quality through customer reviews

Guaranteed quality through customer reviews

Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.

Quick and easy check-out

Quick and easy check-out

You can quickly pay through credit card for the summaries. There is no membership needed.

Focus on what matters

Focus on what matters

Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!

Frequently asked questions

What do I get when I buy this document?

You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.

Satisfaction guarantee: how does it work?

Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.

Who am I buying these notes from?

Stuvia is a marketplace, so you are not buying this document from us, but from seller ethanvega. Stuvia facilitates payment to the seller.

Will I be stuck with a subscription?

No, you only buy these notes for £4.99. You're not tied to anything after your purchase.

Can Stuvia be trusted?

4.6 stars on Google & Trustpilot (+1000 reviews)

53022 documents were sold in the last 30 days

Founded in 2010, the go-to place to buy revision notes and other study material for 14 years now

Start selling
£4.99
  • (0)
Add to cart
Added