Ag_Econ 1042 1st Edition Lecture 3 Outline of Last Lecture I. How economists study the decisions made by individualsa. Definition of Rational Behaviorb. Definition of ScarcityII. Opportunity Costs, Incentives and Efficiency II. The Production Possibilities Frontier (PPF)a.Linear vs. Convex PPFsb. Shifts and Rotations of the PPFIII. Absolute vs. Comparative AdvantageIV. Comparative Advantage and TradeOutline of Current Lecture I. Competitive MarketsII. Demanda. Law of demandb. Non-price determinant of demandIII. Supplya. Law of supplyb. Non-price determinant of supplyCurrent LectureI. Competitive MarketsWhen most people hear the word market they think of an actual place. However, market actually refers to the trade of certain goods and services between buyers and sellers. There are local markets,online markets and global markets. One kind of a market is called a competitive market. The four characteristics of a competitive market are: a standardized good, no transaction costs, buyers and sellers have the full information about the good and all participants are price takers. A price taker is someone who must accept the market prices for what they are and not able to change them. There are very few competitive markets in the real world.II. DemandIn order for firms to have a successful business their good or service has to be something that consumers want and demand for. Consumers are the ones to decide the demand level. The law of demand states that when prices increase demand decreases, and when prices decrease demand increases.The demand curve is a physical representation that helps one see what the level of demand would be if they produced goods at various prices. There are five things that can shift the demand curve called non-price determinants of demand. Theses determinants are: buyers’ preferences, buyers’ income, the number of buyers, buyers’ expectations and the prices of related goods. If any of these determinants change and have a positive influence then demand will increase, but if there is a negative influence then demand will decrease. When demand increases the demand curve will shift to the right, and when demand decreases the demand curve will shift to the left. Price does not cause the demand curve to shift. When prices changes it only causes a movement along the demandcurve.III. SupplySince consumers determine demand it is only fair that producers determine the supply of a product. The law of supply states that, all other things remaining the same, if there is an increase in price thenthe quantity supplied should increase and if there is a decrease in price than the quantity supplied should decrease. The quantity supplied refers to the amount of a certain good that the producers arewilling and able to purchase at a certain price.Just like the demand curve, the supply curve is a physical representation to help firms see the levels they should be at. However, there are five things that can shift that level called the non-price determinants of supply. These determinants are: technology, number of producers, price of inputs, suppliers’ expectations and the price of related goods. When the influence of the determinant is positive the supply will increase, shifting the supply curve to the right. Then, when the determinant is negative the supply will decrease and the curve will shift to the left. Identical to the demand curve,when price changes, it only causes a movement along the already established supply