ECON 1101 1st Edition Lecture 3 Outline of Last Lecture I Auctions a Single sided vs Double sided b Types of bidding c Adding Competition d Electricity Auctions II Outline of Current Lecture II Demand in Electricity Auction a Why bid at cost of production b Uniform price auction III Introduction to Supply and Demand a Competitive Markets b Quantity Supplied c Quantity Demanded d Equilibrium Current Lecture Demand in Electricity Auction I Demand is fixed because the ISO determines demand Demand is low price is low demand is high price is high DEMAND INFLUENCES PRICE o Example with electricity cost to produce doesn t change throughout the day but the demand for electricity does Why Bid at Cost of Production a It is the best strategy b Choice of bid determines whether you re in out of the auction c If you bid more than the cost and the system price is lower than your bid then you are out of the auction 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 d If you bid less than your cost but the system price is lower than your cost but higher than your bid then you are in but you lose money Uniform Price Auction a Bottom line of a uniform price auction with many bidders is that your bid determines whether you re in or out of the auction but NOT what you get paid b Use uniform price auctions because it drives prices down c What if bid prices are AT your cost of production i It is a good situation if you know you are already in the auction ii It is a bad situation if you are unsure because your cost may be the bid price iii It is very dependent on how many bidders are in the auction If there are more bidders it is safer to bid at cost of production Introduction to Supply and Demand Once again high demand leads to high prices The big idea is that for SOME markets having no ISO acts as if there is an ISO picking P Q and Who Competitive Markets Markets work as if guided by the INVISIBLE HAND People are selfish so they make choices based on the easiest road to self gain Example would be a cheesecake baker baking a cheesecake not with the intention of making the buyer happy but making a profit Definition A market in which there are many buyers an many sellers that the behavior of an individual buyer or seller has negligible impact on the market price IPads is NOT a competitive market because there is only one seller Apple Corn IS a competitive market because many farmers sell corn to many buyers Quantity Supplied the amount sellers are willing and able to sell Quantity supplied is very dependent on the price When there is a higher price more suppliers are willing to produce the good or service Quantity Demanded Amount buyers are willing and able to purchase Still very dependent on price When the price is higher the demand decreases Equilibrium When a market has a PRICE and QUANITITY such that the market is stable Points on the supply or demand line BELOW the point of equilibrium means there is a shortage in either supply or demand