ECON 1051 1st Edition Lecture 7 Outline of Last Lecture I. SpecializationII. Example of Specialization Outline of Current Lecture I. Terms II. Law of Demand III. Chicken Wings and the Super Bowl IV. Variables that Shift Market DemandV. Supply VI. Market Equilibrium Current LectureI. Termsa. Demand schedule i. A table that shows the relationship between the price of a product and the quantity of the product demandedii. As price falls the quantity demanded increases and vice versa b. Quantity demanded i. The amount of a good or service that a consumer is willing and able to purchase at a given pricec. Demand curve i. A curve that shows the relationship between the price of a product and the quantity of the product demandedd. Market demand i. The demand by all the consumers of a given good or serviceII. Law of Demand a. DefinitionThese 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.i. When the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decreaseb. Explanationi. Substitution Effect1. The change in the quantity demanded for a good that results froma price change, making the good more or less expensive relative toother goods that are substitutes.2. Income effect a. The change in the quantity demanded of a good that results from the effect of a change in the good’s price on consumers’ purchasing power. III. Chicken Wings and the Super Bowla. Chicken wing demand is estimated to increase by 20 million more wings than lastyearb. The National Chicken Council estimates four percent more chickens will be produced this year i. This increase in chicken production means a bigger supply of wings and more favorable prices, a 5 percent decrease in price than last January c. Prices were higher last year because the price of corn to feed the chicken went up due to drought resulting in the price of chickens going up and ultimately chicken wings i. This explains why supply was low and prices were higher IV. Variables That Shift Market Demand a. Income i. Normal Good: 1. A good for which demand increases as income rises and decreasesas income fallsa. Ex: Bud Lightii. Inferior Good: 1. A good for which demand increases as income falls and decreases as income rises a. Ex: Natty Light b. Prices of Related Goodsi. Substitutes 1. Goods and services that can be used for the same purposeii. Complements 1. Goods and services that are used together a. Chicken wings and ranch dressingc. Tastes i. Subjective elements, such as ad campaigns or trends, can enter into a consumer’s decision to buy a productd. Population and Demographics i. Demographics1. The characteristics of a population with respect to age, race and gendere. Expected Future Prices i. Consumers choose not only which products to buy but also when to buy them V. Supply a. Terms i. Quantity supplied1. The amount of a good or service that a firm is willing and able to supply at a given price ii. Supply schedule 1. A table that shows the relationship between the price of a productand the quantity of the product suppliediii. Supply curve 1. A curve that shows the relationship between the price of a product and the quantity of the product supplied iv. Law of Supply 1. Increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied.b. Variables that Shift Market Supply i. Prices of Inputs 1. An input is anything used in the production of a good or service (the corn to feed the chickens)2. A change in the price of an input is the most likely to cause the supply curve for a product to shift ii. Technological Change1. A positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputsiii. Prices of Substitutes in Production 1. Alternative products that a firm or country could produce iv. Number of Firms in the Market v. Expected Future PricesVI. Market Equilibrium a. Definitioni. The push and pull of supply and demand. It is determined by where the demand curve crosses the supply curve, so quantity demand = quantity supplied b. Ceteris Paribus i. The requirement that when analyzing the relationship between two variables other variables must be held constantc. Competitive Market Equilibrium i. A market equilibrium with many buyers and many sellersd. Surplus i. When quantity supplied is greater than the demande. Shortage i. When quantity demanded is greater than
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