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SC ECON 222 - How Price Affects Supply, Demand, and the Economy

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Econ 222 1st Edition Lecture 2Outline of Last Lecture I. What is Economics? (Micro vs. Macro)II. Supply and Demand (As defined in Econ 221)III. Definitions of related terms.Outline of Current Lecture I. Surplus vs. ShortageII. How Price affects Goods and Supply/DemandIII. Terms and DefinitionsCurrent LectureI. Surplus vs. ShortageSurplus is when the price of a good or service is very high, which causes demand to be very low and supply to be high.This means that only a few people bought the product, so much of the product is left over. Eventually this will drive prices down, toward the equilibrium price. Shortage is the opposite of supply. It occurs when the price of a good or service is very low, causing demand to be high and supply to be low. This means that many people want to buy the good or service but there is not enough of the good or service for everyone that wants it.Below is a picture depicting both surplus and shortage: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. How price affects Goods and Supply/DemandIf the price changes then the Quantity Demanded or QD will change as wellIf the price changes then the Quantity Supplied or QS will change as wellNormal Good: If Income goes up then Demand will go upInferior Good: If Income goes up then Demand will go downWhen Measuring Welfare:- Output growth- Unemployment- Price levelOutput Growth – Otherwise known as business cycles that encompass the short-term ups and downs of an economy- Terms associated with Output Growth include: Recession – a period of time where output declines for 2 consecutive quartersExpansion – increasing of output following a recessionDepression – Prolonged recessionUnemployment – The unemployment rate is the % of the labor force that is unemployed (Labor force is only made up of people actually seeking a job)Price Level – includes inflation and deflation. Inflation is the overall increase in price level and deflation is the decrease in the overall price level III. Related Terms and Definitions- Surplus (Defined above)- Shortage (Defined above)- Recession (Defined above)- Expansion (Defined above)- Depression (Defined above)- Marginal Cost vs. Marginal Benefit: How much will cost to produce one more vs. how much will I benefit from selling one


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SC ECON 222 - How Price Affects Supply, Demand, and the Economy

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