Key Economic Concepts

• The following are notes of key economics concepts for exams.

Market Defined

• Markets are physical or digital places where supply and demand meet exchanging goods, services, or production factors like labor
• Prices are determined by the interaction of supply and demand.

Perfect vs. Imperfect Markets

• Perfect markets are a theoretical ideal where all participants have complete information, there are no preferences for specific products or providers, all products are homogeneous, no market entry barriers exist, and all participants act rationally

• An example is the stock market as shares of a company are identical and can be bought/sold simultaneously

• Imperfect markets are the reality, with incomplete information where not everyone knows all available offers, preferences such as brand loyalty or personal connections, product differentiation like Apple versus Samsung, and market entry barriers such as licenses, patents, or high entry costs

• An example is the car market as VW Golf is not the same as a BMW, and buyers often have brand preferences

Market Functions

• Markets serve to coordinate by bringing buyers and sellers together
• Prices are established through supply and demand
• Scarcity determines which products are produced
• Consumers get goods and services via the distribution function

Market Structures

• A polypoly consist of many suppliers and demanders, resulting in high competition and low prices like bakeries in a city
• An oligopoly consist of few suppliers but still many demanders, leading to price wars or collusion like mobile network providers
• A monopoly consist of one supplier and many demanders, allowing the supplier to set prices without competition like the Deutsche Bahn for long-distance trains

Supply and Demand Curves

• Demand curves show how quantity demanded changes with price
  • Higher prices lead to lower demand
  • Lower prices lead to higher demand
• Supply curves show how supply changes with price
  • Higher prices incentivize suppliers to produce more
  • Lower prices lead to decreased production
• The intersection of supply and demand curves indicates the equilibrium, where supply equals demand

Factors Influencing Supply and Demand

• Demand increases with rising incomes or trendier products
• Demand falls when substitute products become cheaper
• Supply increases as production costs decrease or more suppliers enter the market
• Supply decreases when raw materials become more expensive

Buyer's Market vs. Seller's Market

• A buyer's market occurs when supply exceeds demand giving buyers power and lowering prices caused by unsold cars at dealerships
• A seller's market occurs when demand exceeds supply giving sellers power and raising prices like housing markets in major cities

Equilibrium Price

• The equilibrium price is where supply and demand are balanced
• Excess demand occurs when demand exceeds supply, increasing prices like sold-out concert tickets in advance
• Excess supply occurs when supply exceeds demand, decreasing prices like too many mobile phones on the market

Supply Monopolies

• Supply monopoly signifies an exclusive seller, and a single company operating all public transport it can be problematic since prices could be high with no competition, quality could drop without alternatives for customers, innovation could slow down
• Alternative solutions include government regulation or opening the market to more providers

Study Technique

• Create study plans by dividing topics into blocks
• Discuss in groups to reinforce knowledge
• Self-test by explaining topics aloud or solving practice problems
• Reflect on what went well, identify gaps, and adjust the study plan accordingly