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UA EC 111 - Supply and Demand
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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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