We'll talk about competitive market, supply and demand model and curves.
A competitive market is a market in which there are many sellers and buyers. when a market is competitive,its behaviour is well described by a model known as the supply and model.There are five key elements in this model:
- The demand curve
- the supply curve
- the set of factors that cause the demand curve to shift and the set of factors that cause the supply curve to shift.
- the equilibrium price
- the way the equilibrium price changes when the supply or demand curves shift
THE DEMAND CURVE
A demand curve is a graphical represantation of the demand schedule.It shows how much of a good or service consumers want to buy at any given price.The Law of demand says that higher price for a good ,other things equal,leads people to demand a smaller quantitiy of the good.
SHİFTS OF THE DEMAND CURVE
Any event that increases demand shifts the demand curve to the right,reflecting a rise in the quantitiy demanded at any given price.Any event that decreases demand shifts the demand curve to the left,reflecting a fall in the quantity demanded at any given price.
*economists believe that there are 4 principal factors that shift the demand curve for a good:
- changes in the prices of related goods
- changes in income
- changes in tastes
- chanes in expectations
*two goods are substitues if a fall in the price of one of the goods makes consumers less willing to buy the other good.
*two goods are complements if a fall in the price of one good makes people more willing to buy the other good.
THE SUPPLY CURVE
A supply curve shows graphically how much of a good or service people are willing to sell at any given price.
Economists believe that shifts of supply curves are mainly the result of three factors
- changes in input prices
- changes in technology
- changes in expectations
Any event that increases supply shifts the supply curve to the right,reflecting a rise in the quantitiy supplied at any given price.Any event that decreases supply shifts the supply curve to the left,reflecting a fall in the quantitiy supplied at any given price.
EQUİLİBRİUM
A competitive market is in equilibrium when price has moved to a level at which the quantitiy demanded of a good equals the quantity supplied of that good.The price at which this takes place is the equilibrium price,also referred to as the market-clearing price.The quantitiy of the good bought and sold at that price is the equilibrium quantity.
Equilibrium and Shifts of the Demand Curve
An increase in demand shifts demand curve to the right and at new equilibrium point price and quantitiy would be higher.
Equilibrium and Shifts of the Supply curve
An increase in supply shifts supply curve to the right.At new equilibrium point price would be lower,and quantity would be higher.
PRİCE CONTROL
Price controls are legal restrictions on how high or low a market price may go.They can take two forms. a price ceiling, or a price floor.
Price ceiling: A maximum price sellers are aloowed to charge for a good
Price floor: A minimum price buyers are required to pay for a good.
Effects of Price Ceiling
price ceilings often leads to inefficiency in the form of inefficient allocation to consumers.
Effects of Price Floors
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