Econ 202 1st Edition Lecture 10 Outline of Last Lecture I Market Supply Curve II Factors that affect market supply III Market Equilibrium IV Change in equilibrium Outline of Current Lecture I Change in equilibrium Continue II Elasticity III Finding Elasticity Current Lecture I Change in Equilibrium a Equilibrium is where the supply curve and demand curve cross In other words when supply and demand for a given price are equal to each other b 3 step process set of 3 questions used to identify how a change in the market demand and supply curve would affect equilibrium i Will the change affect the supply or demand curve ii How will the change affect the curve iii What happens to equilibrium 1 Example one refers to the example given in the previous lecture It measures the quantity of sodas supplied and demanded in a month over 2 seasons summer JuneAugust and the rest of the year Figure 1 Showing the effect of the change graphically for Example One a Demand Before refers is the demand supply curve for the rest of the year b Now following the 3 step process determine what happens to equilibrium when summer comes along i Demand is effected because it will be hot and people would want more soda ii Curve shifts up or to the right iii Equilibrium price goes up and quantity goes up 2 Example two what would happen to the market if price of aluminum decrease a Following the three steps determine that i The decrease in aluminum price would affect the supply curve because the input of price of the supplied product will decrease ii That would cause the supply curve to shift to the right down because supplies would increase Figure 2 Graphically the change in iii Equilibrium price would decrease illustrate Example Two while equilibrium quantity would increase see Figure 2 3 What would happen to Equilibrium if those changes happened together Refer to Figure 3 and 4 a In Figure 3 i Demand Curve Price increase Quantity increases ii Supply Curve Price decreases Figure 3 Supply and Quantity increase demand curve change iii When they both occur Price decreases Quantity increase 1 However imagine if the demand curve extended further than the supply curve then Prices will increase and quantity will increase as well 2 Result quantity increases for sure but we don t know if prices would increase or decrease for the market equilibrium II Elasticity a Two ways to think about elasticity i Formula that gives us a number 1 Price elasticity of demand for the test only worry about this one 2 Income elasticity of demand 3 Cross price elasticity of demand 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 4 Price elasticity ii Shape of a curve b Price of elasticity of demand i p percentage change in quantity demanded over the percentage change in price change in quantity change in price ii Ex p 2 use absolute value so p 2 1 If price increases by 1 quantity demanded decreases by 2 a Ex price increases by 5 quantity demanded decreases by 10 III Finding Elasticity prices 30 20 10 0 0 a Same sum of the sides i Ex Point 15 15 30 b What is the price elasticity of demand at 10 20 i p change in quantity change in price 5 10 15 20 25 30 ii change in quantity 1 20 19 20 20 Quantity 5 iii change in price 1 10 1 10 10 10 iv p 5 10 c Drive general formula i P1 the price on the demand curve at which we calculate elasticity 1 Ex P1 10 ii Q1 the quantity associated with price 1 Ex Q1 20 iii P2 the price at the comparison point on the demand curve 1 Ex P2 11 iv Q2 the quantity associated with P2 11 v p 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