ECO 2030 1st Edition Lecture 10Outline of Last Lecture I. Supply curve shifters and determining changes from shiftsOutline of Current Lecture II. Supply and Demand together (with examples)III. Introduction to ElasticityCurrent LectureDemand and Supply ● Market forces push price and demandto equilibrium. ● When price rises, producers supplylarger amount of hybrids even thoughthe Supply curve has not changed.Example - the Market for Hybrid cars● If the price of gas increases. ○ This would create a positiveshift in demand which wouldalso cause a movement alongthe supply curve causing anincrease in both price andsupply.Note; even though the Supply curve is notshifted, producers make more cars because theprice 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 inthe production of Hybrids.○ Recall that technologicaladvancements aidproduction and therefore aresupply curve shifters. Sincethe supply curve is shifted tothe right we also have amovement along the demandcurve (higher demand andlower prices).● If gas prices rise and a newtechnology is developed to producehybrids cheaper.○ Because increased gas prices results in an increase in demand and new technologyresults in an increase ofsupply, both the demandand supply curve shift tothe right. We can see thatQuantity rises, however theeffect on price isambiguous - meaning itcannot accurately bedetermined without placingnumbers in our P and Qvalues. In other words wewould know whether pricedecreased or increased ifwe had numbers todetermine 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 CurveChange 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 changesThe 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 fallsa. 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 solda. Result is an increase in supply because inputs become less after negotiations. Thismeans 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 determinantsA 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’tsell 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 PPrice elasticity of demand = percent change in Qd/percent change in PExample: Price elasticity of demand = 15% / 10% =
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