ECO 2030 1st Edition Lecture 10 Outline of Last Lecture I Supply curve shifters and determining changes from shifts Outline of Current Lecture II Supply and Demand together with examples III Introduction to Elasticity Current Lecture Demand and Supply Market forces push price and demand to equilibrium When price rises producers supply larger amount of hybrids even though the Supply curve has not changed Example the Market for Hybrid cars If the price of gas increases This would create a positive shift in demand which would also cause a movement along the supply curve causing an increase in both price and supply Note even though the Supply curve is not shifted producers make more cars because the price is higher 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 If there is a new technology to aid in the production of Hybrids Recall that technological advancements aid production and therefore are supply curve shifters Since the supply curve is shifted to the right we also have a movement along the demand curve higher demand and lower prices If gas prices rise and a new technology is developed to produce hybrids cheaper Because increased gas prices results in an increase in demand and new technology results in an increase of supply both the demand and supply curve shift to the right We can see that Quantity rises however the effect on price is ambiguous meaning it cannot accurately be determined without placing numbers in our P and Q values In other words we would know whether price decreased or increased if we had numbers to determine which shift was greater Supply or Demand If supply increases more than demand then the price will fall Terms for Shift vs Movement Along the Curve Change in supply a shift in the S curve occurs when a non price determinant of supply changes like technology or costs Change in the quantity supplied a movement along a fixed S curve occurs when P changes Change in demand a shift in the D curve occurs when a non price determinant of demand changes like income or of buyers Change in the quantity demanded a movement along a fixed D curve occurs when P changes The following two graphs were put on the board and we were asked how to interpret them I have filled in the correct interpretations however you should be comfortable with this for exams Music downloads What happens to music downloads if A Price of CD s falls a Demand curve shifts left because CD s are substitutes for music downloads and both Demand and Price fall along the supply curve B Fall in cost of Royalties sellers have to pay each song sold a Result is an increase in supply because inputs become less after negotiations This means there will be a movement along the demand curve prce goes down and demand goes up C What if both A and B occur a Both the demand and Supply curves shift right Price unambiguously falls and Quantity is Ambiguous because we again lack the numbers to determine which shift is greater Chapter 5 Elasticity and its application Elasticity measures how a change in one variable affects another Elasticity is a numerical measure of the responsiveness of Qd or Qs to one of its determinants A Scenario from the PPT You design websites for local businesses ou charge 200 per website and currently sell 12 websites per month Your costs are rising including the opportunity cost of your time so you consider raising the price to 250 The law of demand says that you won t sell as many websites if you raise your price How many fewer websites How much will your revenue fall or might it increase Price elasticity of demand DELTA Qd DELTA P Price elasticity of demand percent change in Qd percent change in P Example Price elasticity of demand 15 10 1 5
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