➞ Part 1 : The market system (Supply & Demand model)
⬩ Economic model :
I.g. The drawing of a house is just the simplification of a concept otherwise the reality is too complex.
⬩ Model is how we’ll be able to determine the Q supplied and demanded of a given goods, and the P at which these given goods will be exchanged.
⬩ P = It is not money, costs or values. The P is the amount of money that business or consumers (firms or individuals) has to give up to acquire goods.
⬩ Whereas Cost is what suppliers need to pay for their inputs.
➞ We need to make assumptions so the model reflects reality.
⬩ There is plenty of buyers and sellers, many economic agents that are gonna supply or demands a given good. How many ?
No one can individually change or influence the market price (equilibrium).
⬩ Monogenous goods. All the goods are similar enough so the only characteristic that makes us prefer one or the other will be the price.
⬩ Perfect information. Enough info to make a better choice
⬩ Free entry and exit. It works for both suppliers and demanders. It means you can start entering the market and start transactions without further barriers (invest…). You can stop consuming at any time.
⬩ Property rights. You own and protect things that you sell. As a firm you need to pay for inputs.
⬩ No transaction costs. You don’t need an extra cost on top of the price you’re paying for something. (I.g.The fee that you have on the exchange rate of currencies. )
⬩ Rationality. We assume that people make the best choices for themselves in reaction to their own benefits. Individual consumers will try to maximize their utilities on top of their incomes.
If you have a low income you will try to make the best use of our income so go for the cheaper option. We expect that if A>B and B>C then A>C.
We need a certain regularity. Although for some people, rationality doesn’t work.
➞ When S&D meets together we're gonna have a market
⬩ A market is a situation in which you havebuyers and sellers that comes together in order to exchange.
➞ One specific type of market : Perfectly Competitive Market :
To be competitive PCM needs to fill 2 mains conditions :
⬩ Homogeneity of goods
⬩ Everyone is price taker. No one has market power, nobody (suppliers and demanders) can individually influence the price.
➞ Depending of the market power we have different market structures :
⇾ Imperfect or Monopolistic Market :
There are a lot of suppliers and demanders but there is a differentiation between goods due to individual preferences. So the players can not adjust a price
⇾ The oligopoly Market :
A few firms that have some market power and therefore the ability to influence the price.
⇾ The Monopoly or Monopsony Market :
There is only one supplier (I.g. SNCF) in the middle of a lot of buyers or only one buyer.
The more MP the economic agents have the more we are directing to a Mono Market.
➞ Supply :
Is a relationship between Q supplied and P. It is driven by the Law of Supply.
It means that when P increases Qs increase and when the P decreases Qs too. Positive relationship between the two.
If when the price is 1 Firm A and Firm B both produce 10. Then on the Market supply we have 20 (It is the sum up of all individual suppliers in the market).
ex : Qs.A = 10P / Qs.B = 10P so Qs= 20P
⇒ Supply Equation : Qs = f(P, Z)
Z : Sum exogenous ( extern ) factors (variables different from the P that influence quantity supplies). Z is fixed, it doesn’t move depending on the model.
QsP > 0 Qs is a positive f0 of P.
Linear example case of supply equation : Qs = a+ bP with b > 0
➞ Part 2 : Taxes and Subsidies through the market system
⬩ Externalities and market failures.
➞ Part 3 : Costs & Revenue. Firms Behaviour and Industrial Organization.