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UI ECON 1200 - Chapter 3 Lecture Examples

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Spring 2015Spring 2015Spring 2015Spring 2015 ~ ECON:1200~ ECON:1200~ ECON:1200~ ECON:1200 Principles of Macroeconomics ~ Chapter 3Principles of Macroeconomics ~ Chapter 3Principles of Macroeconomics ~ Chapter 3Principles of Macroeconomics ~ Chapter 3 Lecture ExampleLecture ExampleLecture ExampleLecture Examplessss PPPPaaaaggggeeee 1111 ooooffff 2222 The five most important demand variables are as follows: ddddemand increases (shiftsemand increases (shiftsemand increases (shiftsemand increases (shifts right)right)right)right) ddddemand decreases (shifts left)emand decreases (shifts left)emand decreases (shifts left)emand decreases (shifts left) iiiincomencomencomencome --- --- nnnnormal goodormal goodormal goodormal good income increases income decreases iiiinferior goodnferior goodnferior goodnferior good income decreases income increases pppprices of related goodsrices of related goodsrices of related goodsrices of related goods --- --- ssssubstitutesubstitutesubstitutesubstitutes price of substitute increases price of substitute decreases ccccomplementsomplementsomplementsomplements price of complement decreases price of complement increases ttttastesastesastesastes taste increases taste decreases population/dpopulation/dpopulation/dpopulation/demographicsemographicsemographicsemographics population/demographic increases population/demographic decreases eeeexpected future pricesxpected future pricesxpected future pricesxpected future prices buyers expect future price to increase buyers expect future price to decrease The five most important supply variables are as follows: ssssupply increases (shifts right)upply increases (shifts right)upply increases (shifts right)upply increases (shifts right) ssssupply decreases (shifts left)upply decreases (shifts left)upply decreases (shifts left)upply decreases (shifts left) iiiinput pricesnput pricesnput pricesnput prices input price decreases input price increases technologytechnologytechnologytechnology technology improves --- ppppricesricesricesrices ofofofof substitutessubstitutessubstitutessubstitutes in productionin productionin productionin production price of substitute in production decreases price of substitute in production increases nnnnumber of firms in marketumber of firms in marketumber of firms in marketumber of firms in market firm enters market firm exits market eeeexpected future xpected future xpected future xpected future pricespricespricesprices sellers expect future price to decrease sellers expect future price to increase Price Market Daily Quantity Demanded Market Daily Quantity Supplied Market Outcome $0 240 0 shortage of 240 sweatshirts $20 200 80 shortage of 120 sweatshirts $40 160 160 EQUILIBRIUM $60 120 240 surplus of 120 sweatshirts $80 80 320 surplus of 240 sweatshirts $100 40 400 surplus of 360 sweatshirts $120 0 480 surplus of 480 sweatshirts SDQ*Q*Q*Q*P*P*P*P*P40 80 120160200240280320360400440 Q102030405060708090100110120Spring 2015Spring 2015Spring 2015Spring 2015 ~ ECON:1200~ ECON:1200~ ECON:1200~ ECON:1200 Principles of Macroeconomics ~ Chapter 3Principles of Macroeconomics ~ Chapter 3Principles of Macroeconomics ~ Chapter 3Principles of Macroeconomics ~ Chapter 3 Lecture ExampleLecture ExampleLecture ExampleLecture Examplessss PPPPaaaaggggeeee 2222 ooooffff 2222 DSQ*P*PQDSQ*P*PQDSQ*P*PQDSQ*P*PQ 1. In the market for bologna, an inferior good, consumer income increases. 2. In the market for cars, sellers expect price to increase in the future. 3. In the market for DVDs, DVD players, a complement, become cheaper. 4. In the market for baby diapers, the price of adult diapers, a substitute in production,


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