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Chapter 3
Microeconomics
Taylor's University Lakeside Campus
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Market Forces of Demand and Supply Market: is a group of buyers (consumers) and sellers (producers / firms) of a particular product / good. Assumption: Markets are perfectly competitive o All goods are exactly the same o Many buyers and sellers so no one can affect the price individually Consumers (Buyers) Demand: Consumers’ desire to buy and can afford to pay the price of the goods and services Quantity demanded: amount of the goods that buyers are willing and able to purchase. Law of demand: when price of a good increases → quantity demanded by consumers falls, ceteris paribus. (the higher the price → the smaller the quantity demanded)
Determinants / Factors of demand o Number of buyers The higher the number of buyers, the higher the demand o Income of buyers Normal: The higher the Income of buyers, the higher the demand Inferior: The higher the income of buyers, the lower the demand. (Eg. Second hand goods) o Trend and preference If a good is more preferred by buyers, demand increases. o Price of related goods Price of substitute goods (Coke vs Pepsi, coffee vs tea) The higher the price of a substitute good, the higher the demand Price of complement goods (left shoe and right shoe, petrol and car, mobile phone and charger) The higher the price of a complement good, the lower the demand o Expected price in the future The higher the expected price, the higher the demand
Tutorial Questions: Discuss the impact of following events to the market price and market quantity of laptop if: a) Price of processor, a component of laptop, increases
Chapter 3
Course: Microeconomics
University: Taylor's University Lakeside Campus
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