Questions and Answers
In a perfectly competitive market, what is a key characteristic of the goods offered for sale?
They are all exactly the same
What is the relationship between the price of a good and the quantity demanded according to the law of demand?
The quantity demanded increases as the price decreases
What is the term used to describe the amount of a good that buyers are willing and able to purchase?
Quantity demanded
In economics, what is meant by 'exogenous variables' in relation to demand?
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Which type of market structure involves many buyers and many sellers such that no single buyer or seller can influence the market price?
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What term is used to describe a market in which there is only one buyer?
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Study Notes
Market and Competition
- A market is a group of buyers and sellers of a particular good or service.
- Competition occurs in a market where there are many buyers and many sellers, so that each has a negligible impact on the market price.
Characteristics of Perfectly Competitive Markets
- Goods offered for sale are all exactly the same.
- Buyers and sellers are numerous, and no single buyer or seller has any influence over the market price.
Types of Markets
- Monopoly: a market with a single seller.
- Monopsony: a market with a single buyer.
Demand
- Demand curve: shows the relationship between price and quantity demanded.
- Quantity demanded: the amount of a good that buyers are willing and able to purchase.
- Law of demand: the quantity demanded of a good falls when the price of the good rises, ceteris paribus.
- Types of goods:
- Normal goods: quantity demanded increases when income rises.
- Inferior goods: quantity demanded decreases when income rises.
- Giffen goods: quantity demanded increases when price rises.
- Veblen goods: quantity demanded increases when price rises due to prestige or status.
- Market demand vs. individual demand: the demand of all buyers in the market vs. the demand of a single buyer.
- Factors affecting demand: income, price of related goods, taste, expectations, etc.
- Endogenous and exogenous variables: variables that are affected by changes in the economy (endogenous) vs. variables that are independent of changes in the economy (exogenous).
Supply
- Supply curve: shows the relationship between price and quantity supplied.
- Quantity supplied: the amount of a good that sellers are willing and able to sell.
- Law of supply: when the price of a good rises, the quantity supplied of the good also rises, and when the price falls, the quantity supplied falls, ceteris paribus.
