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Questions and Answers
In a perfectly competitive market, what is a key characteristic of the goods offered for sale?
In a perfectly competitive market, what is a key characteristic of the goods offered for sale?
What is the relationship between the price of a good and the quantity demanded according to the law of demand?
What is the relationship between the price of a good and the quantity demanded according to the law of demand?
What is the term used to describe the amount of a good that buyers are willing and able to purchase?
What is the term used to describe the amount of a good that buyers are willing and able to purchase?
In economics, what is meant by 'exogenous variables' in relation to demand?
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?
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?
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.
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Description
Test your knowledge on the supply and demand model, markets, and competition in economics. Learn about what constitutes a market, the concept of competition, and the characteristics of perfectly competitive markets.
