ECN101/Basic Microeconomics Market Analysis: Demand

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Questions and Answers

What is a competitive market?

A competitive market is one with many buyers and sellers, each has a negligible effect on price.

What is the law of demand?

The law of demand states that the quantity demanded of a good falls when the price of the good rises, other things equal.

What is a demand schedule?

A demand schedule is a table that shows the relationship between the price of a good and the quantity demanded.

What does the tabular approach show in presenting demand?

The tabular approach presents demand in a form of schedule or table. Signup and view all the answers

How does a perfectly competitive market function?

In a perfectly competitive market, all goods are exactly the same and buyers & sellers are so numerous that no one can affect market price – each is a 'price taker'. Signup and view all the answers

What is the graphical approach in presenting demand?

The graphical approach presents demand in a form of curve or graph. Signup and view all the answers

What is the demand equation in terms of price?

P = a - bQd Signup and view all the answers

How do you solve for the slope (b) in the demand equation?

b = (P2 - P1) / (Qd2 - Qd1) Signup and view all the answers

What is the intercept or constant (a) in the demand equation for lattes?

a = 8 Signup and view all the answers

What is the final demand equation for lattes in terms of price and quantity demanded?

P = 8 - 0.5Qd Signup and view all the answers

What does the demand equation 1/2Qd = 16 - 2P imply?

An increase in the price of latte by $1 results in a decrease of 2 units in the quantity demanded. Signup and view all the answers

What is the market quantity demanded for lattes when the price is $3.00?

Market Qd = 15 Signup and view all the answers

In the Latte market, what is the total quantity demanded when the price is $4.00?

Total Qd = 12 Signup and view all the answers

How is the market demand curve for lattes derived?

It is derived by summing the quantities demanded by all buyers at each price to obtain the market quantity demanded. Signup and view all the answers

What does a change in quantity demanded represent?

Changes in the price of a good lead to a change in the quantity demanded of that good. Signup and view all the answers

What does the change in demand imply?

It represents a shift in the entire demand curve due to factors other than price. Signup and view all the answers

Study Notes

Competitive Market

A competitive market involves numerous buyers and sellers, each having minimal impact on prices.
Homogeneous products are typically offered, leading to price uniformity across the market.

Law of Demand

The law of demand states that, all else being equal, as the price of a good decreases, the quantity demanded increases, and vice versa.

Demand Schedule

A demand schedule is a table that displays the quantity of a good that consumers are willing to purchase at various price levels.

Tabular Approach

The tabular approach presents demand by using a chart that lists prices and corresponding quantities demanded, illustrating the relationship between price and quantity.

Perfectly Competitive Market Function

In a perfectly competitive market, firms are price takers and cannot influence market prices.
Market equilibrium is reached when supply equals demand, determining the market price.

Graphical Approach

A graphical approach shows demand through a demand curve, plotting price on the vertical axis and quantity demanded on the horizontal axis, demonstrating the inverse relationship.

Demand Equation

The demand equation expresses quantity demanded (Qd) as a function of price (P), often in the form Qd = a - bP, where 'a' is the intercept and 'b' is the slope.

Solving for Slope (b)

The slope (b) in the demand equation is found by measuring the change in quantity demanded relative to the change in price along the demand curve.

Intercept (a) for Lattes

The intercept (a) represents the maximum quantity demanded when the price is zero; specific to lattes, this could be represented as a constant in the demand equation.

Final Demand Equation for Lattes

The finalized demand equation for lattes can be expressed as Qd = 16 - 2P, indicating quantity demanded (Qd) is dependent on the price (P).

Implications of Demand Equation

The equation 1/2Qd = 16 - 2P indicates the relationship between price and quantity demanded, simplifying to show price elasticity and demand responsiveness.

Market Quantity Demanded at $3.00

When the price of lattes is set at $3.00, the market quantity demanded can be calculated using the demand equation, yielding Qd = 16 - 2(3) = 10.

Total Quantity Demanded at $4.00

At a price of $4.00, the total quantity demanded for lattes is found by substituting into the demand equation: Qd = 16 - 2(4) = 8.

Derivation of Market Demand Curve

The market demand curve for lattes is derived by summing individual demand curves representative of all consumers in the market at each price point.

Change in Quantity Demanded

A change in quantity demanded reflects movements along the demand curve caused by price changes, illustrating immediate consumer responsiveness.

Change in Demand

A change in demand indicates a shift of the entire demand curve due to factors other than price, such as consumer preferences, income changes, or the prices of related goods.

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Description

Test your knowledge of market analysis and demand in basic microeconomics with this quiz. Topics include competitive markets, demand behavior, and the characteristics of a perfectly competitive market.