ECON 201 1st Edition Lecture 9Outline of Last Lecture I. Comparative Advantage ReviewII. Assumptions of Supply and Demanda. Definition of marketb. Definition of competitive marketc. Definition of perfectly competitive marketd. Definition of rational peoplee. Definition of marginal analysisIII. Demanda. Definition of demandb. Definition of quantity demandedc. Definition of law of demandd. Definition of demand schedulee. Definition of demand curveIV. Satisfactiona. Definition of utilityb. Definition of satisfaction utilityc. Definition of marginal utilityd. Definition of diminishing marginal utilityV. Market Demand vs. Individual DemandVI. Demand Curve Shiftersa. Definition of normal goodsb. Definition of inferior goodsc. Definition of substitute goodsd. Definition of complement goodsOutline of Current Lecture I. Example Problem: Demand Curve ShiftersII. Review: Shift vs. Movement Along a CurveIII. Supplya. Definition of supplyb. Definition of quantity suppliedc. Definition of law of supplyThese 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. Definition of supply schedulee. Definition of supply curveIV. Market Supply vs. Individual SupplyV. Supply Curve ShiftersVI. Example Supply and Demand ProblemCurrent LectureI. Example Problem: Demand Curve ShiftersConsider what happens if the price falls for each of the following products: iPods, music downloads, and CDs. If the price of CDs falls, what would happen to the demand of music downloads?- Answer: if the price of CDs falls, the demand of CDs would rise. The demand of music downloads would then fall, because CDs and music downloads are substitutes for each other; in other words, if the demand of one rises, the demand of the other will fall.If the price of iPods falls, what would happen to the demand of music downloads?- Answer: if the price of iPods falls, the demand of music downloads would rise. This is because iPods and music downloads are complements for each other; in other words, if the price of one falls, the demand of the other will rise.Both of these problems involve the understanding of how factors can shift the demand curve. II. Review: Shift vs. Movement Along a CurveRemember that a change in income will cause a shift in the demand curve for the item. A change in the price of the item will only cause movement along the demand curve for that item. A change in the demand (an increase or decrease) will cause a shift in the demand curve (these are also known as non-price determinant changes). A change in the quantity demanded will cause a movement along the demand curve. There will be at least one question on the exam about this topic, so you must understand the terminology and applications.III. SupplySupply is the willingness to sell and the ability to sell. The quantity supplied (Qs) is a question that all sellers must ask themselves when selling an item; that is, “at a given price, what amountcan I sell”? The law of supply is the claim that the quantity (Qs) of a good rises when its price (P)rises, other things being equal (ceteris paribus). The law of supply simply means that as the price goes up, the quantity that suppliers will offer also goes up. Unlike the law of demand, the relationship between price and quantity is not an inverse one. An example of supply is shown in the table below; this table uses the same example from the previous lectures notes about latte consumption, only from the seller’s point of view rather than the buyer’s. It shows the supplier, Starbucks, will sell varying amounts of coffee (Qs) depending on the prices of the lattes. As the price increases, the amount of coffee the suppliers will sell also increases. At $0, Starbucks does not want to sell any coffee because they will not make a profit. However, at $6 per coffee,Starbucks would like to sell even more coffee than before – 18 cups. Notice that Starbucks follows the law of supply. This is also shown in the graph following the table. The table is known as the supply schedule for Starbucks’ coffee sales, while the graph is known as the supply curve.Price of Lattes Qs of lattes0 01 32 63 94 125 156 18The demand schedule for Starbucks’ latte sales. -2 2 6 10 14 180123456Starbucks' Latte SalesQs of LattesPrice of Lattes ($)IV. Market Supply vs. Individual SupplyThe market supply differs from the individual supply in that it is the sum of all of the individual supplies for a product. Using the example from before about Starbucks’ latte sales, we can makethe assumption that there is now another seller in the market named Jitters. Starbucks and Jitters are the only two companies selling coffee in this world, and their coffee sales are in the table below. Price of Lattes Starbucks' Qs of lattes Jitter's Qs of lattes Market Qs0 0 0 01 3 2 52 6 4 103 9 6 154 12 8 205 15 10 256 18 12 30The Market Supply Curve can be graphed by using the price as the y-variable and the Market Qs as the x-variable. An example Market Supply Curve for this problem is shown below. 0 5 10 15 20 25 3001234567Market Supply CurveQs of LattesPrice of Lattes ($)V. Supply Curve ShiftersThe graph below shows three different supply curves. The curve with blue diamonds is S1, the curve with red squares is S2, and the curve with green triangles is S3. Notice that though the S2 curve is below the S1 curve, it is actually an increase in supply. This is because there is an increased quantity though the price is the same, represented by point (8,6). Likewise, though the S3 curve is above the S1 curve, it a decrease in supply because the quantity value is four, not six. This graph will be useful in understanding how shifts can affect the supply curve. There are multiple factors that can shift a supply curve. These factors exclude price (non-price determinants) and also follow the assumption that all other things are equal. They are listed below. 1 2 3 4 5 6 7 8 9 10 1102468101214Supply CurvesQuantityPrice- Number of sellers of a product. These are known as population-generated changes. - Input prices. Examples of input prices include wages and raw materials. As the input prices increase, the supply decreases. This would be a left shift on the supply curve, such as moving from curve S1 to S3.- Technology. As technology increases, the supply also increases. This is an example of a right shift; typically, in technology, all shifts are right, because we are