Market

• Exist when buyers and sellers exchange goods for money

• Function:

  • Price determination
  • Resources allocation

• Supply = sellers

• Buyers = demand

• Reasons of failure:

  • externality from production
  • underproduction of public goods
  • lack of competition
  • anticompetitive practices

Black market

• Market that trade illegally

• Operate outside the formal economy (supported by state power)

• Motive:

  • avoid taxes
  • price controls

Demand

<aside> 📖 Demand: amount of good that will be bought a given prices

Effective demand: amount of good would be bought at any price

</aside>

Want

• Willing but unable to buy at a given price in a given time period

Demand

• Willing and able to buy at a given price in a given time period
• Effective: supported by purchasing power

Demand curve

• Shows relationship between price and demand
• Quantity demanded depends on price (X other factors)

| Upward movement • decrease quantity demanded | Downward movement • increase quantity demanded | | --- | --- |

<aside> 💡 Law of demand states: higher the price, lower the quantity demanded, cereus paribus (other factors constant)

• demand curves are downward sloping

→ price and quantity demanded are inversely related

</aside>

Individual demand

• An individual buyer’s demand
• shows relationship between price and quantity demanded

Market demand

• All buyers’ demand

Movement along a demand curve versus shifts of a demand curve

• show changes in price causing movements along demand curve
• show shifts indicating increased and decreased

Increase in price → Decrease in quantity demanded, other factors unchanged

Decrease in price → Increase in quantity demanded, other factors unchanged

Leftward shift: Changes in other factor → decrease in demand

Rightward shift: Changes in other factors → increase in demand