ECN 222 1st Edition Lecture 7Outline of Last 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 OutcomeOutline of Current Lecture - Review- Changes in Equilibrium- Using Supply and Demand ModelCurrent LectureReview of last time- Supply Curveo Shows relation between price and quantity supply- Shifters of supplyo Input priceso Technologyo # sellerso Expectations- (Now vs. Later) Sell today or in the future- Shortages and Changes in EquilibriumThese 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.Changes in Equilibrium- Three Steps to Analyzing Changes in Equilibrium to Determine the effects of any event1) Decide whether even shifts Supply curve, Demand Curve, or both.2) Decide in which direction curve shifts3) Use Supply-Demand diagram to see how the shift changes equilibrium with Price and Quantity- Example of a Supply and Demand DiagramSupply and Demand GraphP S Equilibrium: P has reached the level where quantity supplied equals quantity demandedDQ(0) QUse the Model- Use the model and then check with intuition- Mentally figure out and then modeling will lead to problemsExample- Suppose wages of coffee bean pickers falls - Do you think there are more or less coffee bean pickers?P(0)Q(1) Q(1) SDThe Demand for workers has gone down, thus causing the supply to go down as well.Contrary to belief since the demand went down for wages it is actually the opposite of what you would expect. Since wages are lower they would be able to hire more workers at lower wages.Thinking through these problems do not just take the physical graph, but the situational circumstance, or strategic marketing and or selling method being used to make the most profitP(1)Example 1: using the three step method from earlier in the notes.How will the event affect the Market for Hybrid Cars?Event: Suppose the price of gas increases1) Which curve does it affect?a. Demand Curve (related good to a car) Increase in gas price causes demand to go higher for a hybrid because you do not need as much gas as non-hybrid cars.2) Demand increases or shifts out (to the right)3) Price is up, Quantity is upExample 2Market for HybridsEvent: Suppose increase in battery technology makes batteries cheaper1) Supply curve shifts2) Supply curve goes right, it rises3) Price goes down, Quantity goes upD2D1S1 S2Example 3Markets for HybridsEvent: Suppose both price of gas goes up and battery technology gets better1) Both curves shift2) Demand goes right, Supply goes right3) Prices: is unknown, Quantity goes upOther things to consider:- What if the Boss offers a raise- Does price go up?- Better or worse off?- Depends on Demand and supply at the timeD D D P , Q P , Q P , Q P , QP ? , Q P , Q ? P , QP , Q ? P ? , QSD2D1S1 S2SSRight is up, Left is down- Price increases, Quantity decreases- Shift up, know price increases- Price decrease, Quantity increases- Down or up?o When it moves left your price increaseso When it moves right your quantity increasesAnalyze effects of each event on equilibrium price and quantity of music downloadsEvent A: A fall in price of CD’s1)Event B: Sellers of music downloads negotiate a reduction in the royalties they must pay for each song they sellEvent C: Events A and B Both OccurPQ(1) Q(1) DP(1)SS1 S2D1D2S1 S2Market for DownloadsEvent CP is going upWhile Q we are not sure aboutMarket for Downloads Event BP is going downQ is going upMarket for Downloads Event AP is going downQ is going downQ- Using the Supply and Demand model, try to determine what causes the following observed outcomes.Supply and Demand CurveSP(0)DQ(0)A. Gas prices over last 8 monthsa. Prices go up as well as Quantityb. Supply shifts to the right , supply increasesB. Gas prices in the summera. Prices go up as well as Quantityb. Price goes up, Demand goes up, ( more traveling)C. Tickets to Super Bowl after Seahawks and Patriots won conferencesa. Prices go up but Quantity is unchanged (cannot add seats to a stadium)b. Supply is set and finite, Price went up because Demand