ECON 2305 1st Edition Lecture 4 Outline of Last Lecture I. Opportunity Cost II. Production Possibilities Curve Outline of Current LectureI. Macro GoalsII. Supply and DemandIII. Non-price determinants Current LectureMacro Goals- Full employment: About 5% (currently) NAIRU (Non-accelerating inflation rate of unemployment)- Price Stability: No inflation Inflation vs Deflation (overall progress) Small amounts of inflation is beneficial - Increased standard of living - Freedom of choice - Safety for sick and elderly - International trade – balanced - Supply & Demand: Variable: Price and quantity – one changes the other Parameter: Value that unites and ties the change together Ceteris Paribus: All is held constant Law of Demand: Price and Quantity are inversely related These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Price goes up, quantity goes down.Only under ceteris paribus, it stays constant. Law of Supply: Price and Quantity are directly relatedPrice goes up, quantity goes up.Ceteris paribus is when all things are held constant Law of Product Equilibrium:Market at rest Quantity supplied equals quantity demanded Demand curve:Represents a willingness to buy Does not mention the market place Moving up and down the demand curve shows change in quantity demanded A right or left shift of the demand curve shows change in demand. Supply CurveShows willingness to sellDoes not tell us the market place Equilibrium pointAnything above the equilibrium: SURPLUSAnything below the equilibrium: SHORTAGE Non-price determinants of demand (think parameter) Taste/PreferencesStyle Health Age Music Income Income goes up, demand goes up = Normal GoodIncome goes up, demand goes down = Inferior Good Inferior goods are not universal and are based on personal preference. Price of related goodsComplementary goods – one good affects the otherPrice goes up, demand goes
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