Introducing the market

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  • Introducing the Market
    • Demand
      • Effective demand
        • Quantity consumers are willing & able to buy at the current market price
      • Individual demand
        • Demand of an individual or firm, measured by the quantity bought at certain price at 1 point in time
      • Market demand
        • Sum of all individual demands in a market
      • Varies with price
        • Lower = more affordable good & consumer demand increases
      • IRACISTPop
        • Interest Rates
        • Advertising
        • Complementary
        • Income
        • Substitutes
        • Tastes
        • Population
    • Supply
      • Individual supply
        • supply a producer is willing & able to sell at a given period of time
      • Market supply
        • Sum of all individual supplies in the market
      • Types:
        • Joint Supply
          • When increasing supply of 1 good causes an increase or decrease of supply of another good
        • Composite Supply
          • This occurs when good or service can be obtained from different sources
        • Competitive Supply
          • If raw materials producing good in composite supply are perfect substitutes of each, the sources of supply are in competition to satisfy particular need or want
      • Supply curves are upward sloping because
        • If price increases, it's more profitable for firms to supply the good, so supply increases
        • High prices encourage new firms to enter the market, because it seems profitable, so supply increases
        • With larger outputs, firm's costs increase, so they need to charge a higher price to cover the costs
      • PINTSWC
        • Productivity
        • Indirect taxes
        • Number of firms
        • Technology
        • Subsidies
        • Weather
        • Costs of production
    • Price determination
      • Equilibrium price & quantity & how they're demanded
        • When supply meets demand
          • At market equilibrium, price has no tendency to change & is known as market clearing price
      • Excess demand
        • There's shortage in the market - pushes price up, causes firms to supply more
          • Since prices increase, demand will contract
      • Excess supply
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