AGEC 217 1st Edition Lecture 6Outline of Last LectureI. Production Possibilities FrontierA. Definition of Production EfficiencyB. Definition of Allocative EfficiencyC. Definition of the Law of Diminishing ReturnsII. Changes in Resources or TechnologyA. Graph of Changing PPFIII. Changes in Both GoodsA. Graph of Changes in Both GoodsIV. Economic Point of ViewA. Definition of Positive AnalysisB. Definition of Normative AnalysisOutline of Current Lecture I. Example of Economic AnalysisII. Supply and DemandA. Definition of DemandB. Definition of PriceC. Definition of Quantity DemandedD. Definition of Law of DemandIII. Demand ScheduleA. Demand CurveIV. Supply ScheduleA. Supply CurveV. Market Equilibrium GraphCurrent LectureContinuing on with another example of the economist’s point of view. Suppose you propose a two dollar tax on gas. The positive analysis looks at how much money will be earned and what the money could be spent on. The normative analysis asks if it is morally right to raise the tax. Economists are interested in self-interest. That is, a person’s social freedoms. The leads to efficiency, also known as maximizing the social pie.Now we move onto chapter 3, which focuses on supply and demand. Demand is the amount of a good or service that someone is able and willing to pay for. Price is what the seller receives and what the consumer pays for each unit. Quantity demanded is how much of a good 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.or service, at a certain price, the consumer wants and is able to buy. The law of demand states that when the price of a good falls, the quantity demanded rises and when the price of a good rises, the quantity demanded falls. This is only true when everything else is held constant. A demand schedule is like a table of values for a demand curve. Below is an example showing the price of a gallon of gas and the quantity of gas demanded in millions of gallons. Thedemand curve will always be downwards sloping and does not have to be straight. The table below represents the demand schedule.0.8 1 1.2 1.4 1.6 1.8 2 2.2 2.40100200300400500600700800900Demand Curve)Quantity Demanded (Millions of Gallons)Price (dollars)Price(dollars) Quantity Demanded( millions of gallons)1 8001.2 7001.4 6001.6 5501.8 5002 4602.2 420Supply refers to the amount of a good or service that each producer, ateach price, is willing to produce. The law of supply states that when the quantity of supplies rise, the price rises for the product. Also, when the quantity supplies fall, the price falls, as long as everything else is held constant. The graph of the supply curve is always upwards sloping. Below is a supply schedule and the supply graph.A demand and supply graph can be made by graphing the two points at once. The market equilibrium values can then be found. The market equilibrium value is when supply and demand are equal, and is shown by where the two curves intersect. At these values everybody who wants to buy and sell are able to at that price. The graph below has a market equilibrium price of $1.40 and quantity of 600 units.Price(dollars) Quantity Supplied1 5001.2 5502.2 7002.4 7200.8 1 1.2 1.4 1.6 1.8 2 2.2 2.4 2.60100200300400500600700800Supply CurveQuantityPrice (dollars)0.8 1 1.2 1.4 1.6 1.8 2 2.2 2.40100200300400500600700800900Supply and DemandQuantity Demanded( millions of gallons)Quantity SuppliedQuantityPrice