ECON 1101 1st Edition Lecture 3Outline of Last Lecture I. Auctionsa. Single-sided vs. Double-sidedb. Types of biddingc. Adding Competitiond. Electricity AuctionsII. Outline of Current Lecture II. Demand in Electricity Auctiona. Why bid at cost of productionb. Uniform price auctionIII. Introduction to Supply and Demanda. Competitive Marketsb. Quantity Suppliedc. Quantity Demandedd. Equilibrium Current LectureDemand in Electricity Auction- Demand is fixed because the ISO determines demand.- Demand is low, price is low; demand is high, price is high - DEMAND INFLUENCES PRICEo Example with electricity: cost to produce doesn’t change throughout the day but the demand for electricity does.I. Why Bid at Cost of Production?a. It is the best strategyb. Choice of bid determines whether you’re in/out of the auctionc. 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.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.II. Uniform Price Auctiona. 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 auctionii. 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 productionIntroduction to Supply and DemandOnce 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