TOPIC 3 MARKETS
The role of the market
- determining solutions to the economic problem
- the importance of relative price in reflecting opportunity costs in the goods and services and factor markets
Demand and supply
Demand
– calculation of elasticity using total outlay method
– existence of close substitutes
– proportion of income spent on the good
– the length of time since a price change
Price elasticity of supply
- law of demand, individual and market demand, the demand curve
- factors affecting demand – price, income, population, tastes, prices of substitutes and complements, expected future prices
- movements along the demand curve and shifts of the demand curve
- law of supply, individual and market supply, the supply curve
- factors affecting supply – price/cost of factors of production, prices of substitutes and complements, expected future prices, number of suppliers, technology
- movements along the supply curve and shifts of the supply curve
- market equilibrium – using diagrams
- movement to equilibrium
- effects of changes in supply and/or demand on equilibrium market price and quantity through the use of diagrams
- effects of changing levels of competition and market power on price and output
- ceiling prices, floor prices
- market failure – merit goods, public goods, externalities
- significance of price elasticity of demand – market research
- price elasticity
– calculation of elasticity using total outlay method
- factors affecting elasticity of demand
– existence of close substitutes
– proportion of income spent on the good
– the length of time since a price change
Price elasticity of supply
- elastic supply, inelastic supply
- factors affecting elasticity of supply (no calculations are required)
Variations in competition
Market structures
- pure competition
- monopolistic competition
- oligopoly
- monopoly