ECON 201 1st Edition Lecture 5 Outline of Last Lecture I Supply and Demand II Demand III The Law of Demand IV Demand Curve a Why the demand curve slope is negative V VI VII The demand table Shifts in Demand Shifts in Demand Versus movements along a demand curve a Quantity movement and shift VIII Shift factors Outline of Current Lecture I II Supply Shift in Supply vs Movements along a supply curve III a Quantity supplied Shift factors of Supply IV Clicker questions V Equilibrium VI Excess Demand Current Lecture I Supply 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 II III IV V a Consider coal mining industry in WV and suppose the wage is increased so workers are pad higher wages and the production cost is increased How does the supply of coal change i A Reduced B Increased C Stay the same b The Law of Supply i There is a positive relationship between price and quantity supplied ceteris Paribus P Qs ii Reasons 1 When prices rise firms substitute production of one good for another Assuming firms costs are constant a higher price means higher profits 2 Price signal increases firm is more willing and able to produce more Ex Dig oil in Artic circle Shift in Supply vs Movements along a supply curve a Supply refers to a schedule of quantities a seller is willing to sell per unit of time at various prices other things constant b Quantity supplied refers to a specific amount that will be supplied at a specific price Shift factors of Supply a Other factors besides price affect how much will be supplied i Prices of inputs used in the production of a good ii Technology iii Supplier s expectations iv Taxes and subsidies v Number of suppliers Which of the following would be expected to cause an increase in the supply of fax machines a An increase in the number of business firms demanding fax machines b An increase in the price of fax machines c A decrease in the cost of manufacturing fax machines d The expectation that the price of tax machines will increase in the future e In the early 2000 interest rate drops and demand for housing increases What will happen to the price of houses i Up ii Down iii The same f Consider Miami more room for expansion and San Francisco limited land tight restrictions In which city will housing prices increase more i Miami ii San Francisco Equilibrium a Equilibrium price the price toward which the invisible hand drives the market b Equilibrium quantity the amount bought and sold at the equilibrium price c Market reduces transaction cost cost of time and information for exchange VI Excess Demand a Excess demand a shortage the quantity demanded is greater than the quantity supplied b Prices below equilibrium price tend to rises c Excess supply a surplus the quantity supplied is greater than quantity demanded d Prices above equilibrium price tend to fall