EC 111 1st Edition Lecture 3PREVIOUS LECTUREI. Assumptions and ModelsII. The Circular-Flow DiagramIII. Factors of ProductionIV. The Production Possibility FrontierV. Microeconomics and MacroeconomicsCURRENT LECTUREI. DemandII. Demand Curve ShiftersIII. SupplyIV. Supply Curve ShiftersV. Supply and Demand TogetherDEMAND- Quantity Demanded (QD): the amount of the good that buyers are willing and able to purchase at a specific price. Quantity demanded is a point on the demand curve- Demand Curve: a set of various quantities demanded at corresponding prices. It is the curve itselfo There is an inverse or negative relationship between quantity demanded and price (demand curve is downward sloping)- Law of Demand: the claim that the quantity demanded of a good falls when the price of a good rises, other things equal- Demand Schedule: a table that shows the relationship between the price of a good and the quantity demanded- When creating the demand curve, price is ALWAYS on the y-axis, quantity demanded is ALWAYS on the x-axis- The quantity demanded in the market is the sum of the quantities demanded by all the buyers and each price (this is the market demand)DEMAND CURVE SHIFTERSThese 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.- The demand curve shows how price effects quantity demanded other things equal- A change in the price of a good changes quantity demanded and results in a movement along the curve- These “other things” are non-price determinants of demand (determine a buyer’s demand for a good other than price)- Changes in these “other things” result in a shift in the demand curve- An increase in demand causes the demand curve to shift to the right- A decrease in demand causes the demand curve to shift to the left- The demand curve shifters are:o Number of Buyers Increase in the number of buyers increases the quantity demanded at each price. Shifts the demand curve to the right Decrease in the number of buyers decreases the quantity demanded at each price. Shifts the demand curve to the lefto Income The demand for a normal good is positively related to income- Normal good examples: eating out at a nice restraint, a new car ect.- Increases in income causes an increase in quantity demanded at each price and shifts the demand curve to the right Demand for inferior goods in negatively related to income- Inferior good examples: public transport, ramen noodles ect.- As income goes up, demand curve for inferior goods shifts to the lefto Price of Related Goods Two goods are substitutes if an increase in the price of one causes an increase in the demand for the other- Substitute examples: coke and pepsi, butter and margarine, nike and addidas ect. Two goods are complements if an increase in the price of one causes a decrease in demand for the other- Complement examples: peanut butter and jelly, bagels and cream cheese, tuition and text bookso Tastes and Preferences Anything that causes a shift in tastes toward a good will increase demand for that good and shifts its demand curve to the right Anything that causes a shifts in tastes away from a good will decrease demand for that good and shifts its demand curve to the lefto Expectations If people expect their incomes to rise, their demands for normal good willgo up. They will spend more money If the economy sours and people worry about their future job security, demand for normal goods will fall. People will spend lessSUPPLY- Quantity Supplied (QS): is the amount that sellers are willing and able to sell at a specificprice. Quantity supplied is a point of the supply curve- Supply Curve: a set of various quantities supplied and corresponding priceso Price is ALWAYS on the y-axis and quantity supplied is ALWAYS on the x-axis whengraphing the supply curve- Law of Supply: the claim that the quantity supplied of a good rises when the price of a good rises, other things equal- Supply Schedule: a table that shows the relationship between the price of a good and the quantity supplied- The quantity supplied in the market is the sum of the quantities supplied by all sellers in the market (market supply)- The supply curve has a positive relationship between price and quantity supplied. The supply curve is upward slopingSupply Curve Shifters- The supply curve shows how price affects quantity supplied, other things being equal- A change in the price of the good causes a movement along the supply curve- These “other things” are non-price determinants of supplyo Causes a shift in the supply curve when these things change- Increase in supply shifts the supply curve to the right- Decrease in supply shifts the supply curve to the left- Things that cause a shift in the supply curve:o Input Prices Wages, price of raw material ect. A fall in input prices makes production more profitable at each output point. So many firms supply larger quantities at each price and supply curve shifts to the right A rise in input prices makes production less profitable at each output point. So many firms supply smaller quantities at each price and supply curve shifts to the lefto Technology Always and forever shifts the supply curve to the right Technology determines how much inputs are required to produce a unit of output A cost saving technology saves moneyo Number of Sellers An increase in the number of sellers increases the quantity supplied at each price. This shifts the supply curve to the right A decrease in the number of sellers decreases the quantity supplied at each price. This shifts the supply curve to the lefto Expectations When sellers expect something they will respond accordingly In general, sellers may adjust supply when their expectations of future price’s changeSUPPLY AND DEMAND TOGETHER- Equilibrium: price has reached the level where quantity supplied equals quantity demanded (the point where the supply curve and demand curve intersect- Equilibrium Price: the price that equates quantity supplied with quantity demanded- Equilibrium Quantity: the quantity supplied and quantity demanded and the equilibrium
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