ECN 222 1st Edition Lecture 6Outline of Last Lecture - The Demand Curve- Law of Demand- Non-Price Determinants- Demand vs. Quantity DemandedOutline of Current Lecture- Review- Demand Curve Practice- The Supply Curve- Non-Price Determinants- Supply vs. Quantity Supplied- Supply and Demand Together- Government Policies that alter the Private Market OutcomeCurrent LectureDemand Shifters- # of buyers- Income of buyerso Normal goods, Inferior goods- Prices of Related Goodso Substitutes and complements- TastesThese 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.- ExpectationsDemand Curve Practice- Draw a demand curve for music downloads. What happens to it in each of the following scenarios? Why?o A. The price of Ipods falls Demand goes up because it is cheaper to buyo B. The price of music downloads falls Does not shift, moves along curveo C. The price of satellite radio falls Demands go down because of less need to buy songsThe other side of the MarketThe Supply Curve- The quantity supplied of any good is the amount that sellers are willing and able to sello P = Qo P = Q- Law of Supply- the claim that the quantity supplied of a good rises when the price of the good rises, other things equal (upward sloping curve)- Supply of Volunteers- A change in the price causes a movement in supplyNon-Price Determinants- Changes in determinants other than price shift the supply curve- Input prices- Increase in input prices, supply shifts - Technology- how much of each input is required for a unit of output- Similar to a change in input prices# Of Sellers- Increase in the number of sellers supply shifts out Expectations- Could shift supply either way- Sell when prices are higherSupply vs. Quantity Supplied- Change in Supply: a shift in the supply curve, occurs when a non-price determinant of supply changeso Suppose exam averages are low, more volunteer for points- Change in quantity supplied: a movement along a fixed supply curve, occurs when price changesSupply and Demand Together- Equilibrium: Price has reached the level where quantity supplied equals quantity demanded- Disequilibrium- Shortage- is not enough to go around (when quantity demanded exceeds quantity supplied)o When: Q(Demand) > Q(supply)o Why: P < P(E)- Surplus – when quantity supplied exceeds quantity demando When: Q(Supply) > Q(Demand)o Why: P > P(E)  Price must fall- until Q(Supply)=0Government Policies That Alter the Private Market Outcome- Price Controlso Price ceiling: a legal maximum on the price of a good or service  Example: Rent control A binding price ceiling leads to shortageso Price floor: a legal minimum on the price of a good or service Example: Minimum wage A binding price floor leads to surplusesShortages and Rationing- Shortagessellers must ration goods- Some rationing mechanisms: ( 1 ) Long lines ( 2 ) Discrimination according to sellers biases- Inefficient: goods do not necessarily go to the buyers who value them most highly- Let prices change: the rationing mechanism is efficient (may not be equitable)- Rationing Exampleo Oil Embargo of 1973 October 1976 - March 1974 oil prices were between $3 to $12 November 1974 – Nixon freezes price of