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Title: IB Competitive Markets
Description: According to syllabus points for IB Higher Level Economics Course. Helped me get straight 7s throughout Micro! Collated from various IB approved textbooks :)
Description: According to syllabus points for IB Higher Level Economics Course. Helped me get straight 7s throughout Micro! Collated from various IB approved textbooks :)
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Urvi Guglani
Competitive Markets: Demand and Supply!
!
!
Markets!
The nature of markets !
•!
Outline the meaning of the term market
...
Goods or services exchanged for money; Online markets where money transfers or credit
cards are used
...
!
Industry: made up of all the firms engaged in the same market activity!
•
Industries can be categorised into four general market structures:!
-! Perfect competition!
-! Monopolistic competition !
-! Oligopoly!
-! Monopoly!
!
Further categorised by: !
-! number of firms in industry (tells how many competitors are fighting for the same
costumers)!
-! a firm’s market power (ability of firm to control price of its product)!
-! degree of product differentiation (homogenous, sustainable items, firms have
little choice)!
-! ease of exit and entry (when industry becomes profitable It can prevent others
from joining in)!
!
Perfect competition: !
-! many firms in the market – no individual firms’ decision can affect market !
-! individual firms’ decision only reflect tiny portion of all market
...
g
...
g
...
!
!
Oliogopoly: !
!
Urvi Guglani
-!
-!
few firms in the industry, they dominate!
firms have significant control over price, especially if they cooperate in pricing
and output decisions!
-! Products can be homogenous or heterogeneous (depending on industry)!
-! Barriers to entry are high – high industry profits can be protected and maintained
through these barriers to competition !
e
...
breakfast cereal, car rental, airline and pharmaceutical companies !
!
Monopoly: !
-! only one firm in the industry – dominates market!
-! firm sells to entire market – full power to control output an price!
-! no substitutes goods !
-! high barriers to entry – ensuring long term profits!
e
...
local utilities !
!
!
Demand!
The law of demand !
!
Demand: !
!
Defined as the quantity of a good or service that a consumer or group of consumers are
willing and able to purchase at a given price, during a particular time period, cetirus
paribus
...
Represents nominal income adjusted for
the price level
...
change in quantity demanded: !
-! Change in quantity demanded = as price of product changes, consumers
demand more/less of the product!
-! Change in demand: price level stays the same, consumers demand either more/
less of the same product at various product!
!
•!
Explain the negative causal relationship between price and quantity demanded
...
!
•!
Describe the relationship between an individual consumer’s demand and
market demand
...
!
!
Urvi Guglani
The demand curve !
•!
Explain that a demand curve represents the relationship between the price and
the quantity demanded of a product, ceteris paribus
...
!
!
•!
!
Draw a demand curve
...
!
Non-price determinants of demand: !
1
...
! price of related goods: substitutes/complementary goods !
3
...
! Income: inferior goods/normal goods!
5
...
! future expectations: future prices, future income!
7
...
! changes in demographics: gender balance, age groups !
!
!
Movements along and shifts of the demand curve!
•!
Distinguish between movements along the demand curve and shifts of the
demand curve
...
!
!
•!
Draw diagrams to show the difference between movements along the demand
curve and shifts of the demand curve!
!
!
Linear demand functions (equations), demand schedules and graphs!
•!
Explain a demand function (equation) of the form Qd = a – bP
...
!
P is the price: y - axis!
•!
Plot a demand curve from a linear function (eg
...
!
•!
Identify the slope of the demand curve as the slope of the demand function Qd
= a – bP, that is –b (the coefficient of P)
...
!
•!
Outline how a change in “b” affects the steepness of the demand curve
...
!
-! Positive relationship between price and quantity supplied: Profit incentive (firms
exisit to maximise profit)!
!
-!
-!
!
Change in quantity supplied vs
...
illustrated by a movement along the supply curve!
Change in supply shows that at each of the various prices, producers either
supply or either more or less of the product before!
•!
Describe the relationship between an individual producer’s supply and market
supply
...
!
!
The supply curve !
•!
Explain that a supply curve represents the relationship between the price and
the quantity supplied of a product, ceteris paribus
...
!
•!
Draw a supply curve
...
g
...
g
...
g
...
!
A movement along the supply curve means that there was a change in price
...
!
•!
Construct diagrams to show the difference between movements along the
supply curve and shifts of the supply curve
...
!
•!
Plot a supply curve from a linear function (eg, Qs = –30 + 20 P)
...
!
•!
Outline why, if the “c” term changes, there will be a shift of the supply curve
...
!
!
Market equilibrium!
Equilibrium and changes to equilibrium!
•!
Explain, using diagrams, how demand and supply interact to produce market
equilibrium
...
!
Therefore, at any price other than the clearing, firms are at disequilibrium level!
!
Role of price in resource allocation: !
-! scarcity forces us to allocate resources!
-! markets operate freely!
-! Adam Smith’s ‘invisible hand of the market!
!
•!
Analyse, using diagrams and with reference to excess demand or excess
supply, how changes in the determinants of demand and/or supply result in a new
market equilibrium
...
!
Urvi Guglani
•!
Plot demand and supply curves from linear functions, and identify the
equilibrium price and equilibrium quantity
...
!
Because there is limited resources, choices must be made to be as efficient as one can be
in a society when answering “What to produce?”
...
!
•!
Explain, using diagrams, that price has a signalling function and an incentive
function, which result in a reallocation of resources when prices change as a result of a
change in demand or supply conditions
...
If price goes down, sellers are less willing to make
products while consumers are more willing to buy products
...
!
!
Market efficiency!
Consumer surplus !
•!
Explain the concept of consumer surplus
...
!
!
Producer surplus !
•! Explain the concept of
producer surplus
...
!
Consumer surplus = producer
surplus!
!
•! Identify producer surplus on
a demand and supply diagram
...
!
!
!
!
Title: IB Competitive Markets
Description: According to syllabus points for IB Higher Level Economics Course. Helped me get straight 7s throughout Micro! Collated from various IB approved textbooks :)
Description: According to syllabus points for IB Higher Level Economics Course. Helped me get straight 7s throughout Micro! Collated from various IB approved textbooks :)