ECON 201 1st Edition Lecture 2 I Continuing from Thursday s Lecture A Changes in Demand 1 Preferences Tastes 2 Relative prices for other goods a Choice of what movie to go to restaurant food b Should I work or not c View college as being relatively cheaper compared to going to work with a high school degree 3 Income a The only things that affect consumers is customer preferences relative prices of other goods and income b If a good is normal then demand rises as incomes rise c If a good is inferior then the demand falls as income rises d As consumers income rises they are more willing to buy a good e As income rises and it s a normal good then demand rises and shifts to the right f Shift to the right if it s a normal good or left if its an inferior good 4 Suppose the price of other goods rises like the price of UC Universities a As the price of UC schools goes up the demand for UO enrollment goes up b If an increase in the price of one good causes an increase in demand for another we call these goods substitutes c If raised the price on textbooks for this class the likeliness of taking this class compared to another is much lower d If an increase in the price of one good causes a reduction in the demand for another we call these goods complements e The increase in price of gasoline caused an increase in demand for electrical cars II Supply A Market Supply is the maximum firms are willing and able to supply at any given price 1 Law of Supply a At higher pries forms are willing and able to supply a larger quantity to the market b Supply curves for this class are always upward sloping 2 Changes In Supply a Determinants b Technology Costs c What determines my ability to supply to the market at any given price 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 d As price goes up farmers would be more willing to dedicate more of their land to that good corn wheat e Use of DDT can t use the pesticide reduction is supply shift left means reduction f EX Corn expect next year wheat prices are going to be high Do you plant wheat or corn Corn g Opportunity Cost is the value of the next best option forgone h Willingness to supply is opportunity cost 3 Technology ability to produce and opportunity to produce III Equilibrium A Market Equilibrium a position of rest given market forces Market Equilibrium is a price such that no agent in the market place has an incentive to change their behavior 1 Firms put objects on sale if no one is willing to buy the product a Lower prices to try and sell b At lower prices consumers are willing and able to buy more c Want tickets for the Duck game and you are willing and able to pay a higher price for the tickets you bid up the price not going to sell unless get a higher price 2 The equilibrium price is the price that equates the quantity supplied and quantity demanded a Everyone who wants the good at the equilibrium price gets it b Price at which everyone who wants to buy it can find a supplier that is willing to sell it for that price c Perfectly competitive market have the ability to bid up the prices and naturally achieve a higher point 3 Once you understand what suppliers and consumers are willing to do you can predict how much will be sold and at what price