Change in Q Demanded v. Change in DemandChange in price causes movement along the curve…a change in Q demandedChange in something else…like, income… causes the entire curve to shift…change in Demand1st demand shift factor: A change in incomefor most goods, an increase in income mans an increase (shift right) in demand“normal” goodsfor a few goods, an increase in income means a decrease (shift left) in demand“inferior” goods2nd demand shifter: A change in the prices of related goodsa change in the price of one good, Good X, can cause a change in the demand for Good Y…complementssubstitutes3rd demand shift factor: A change in tastes and/or preferencestastes change…something becomes more popular…demand for the good will increase—shift righttastes change…something falls out of fashiondemand for the good will decrease—shift left4th demand shifter: A change in expectations (price)expect the price to be higher in the future, demand shifts right (increase) as you demand more todayexpect the price to be lower in the future, demand shifts left (decreases) as you wait for that lower price5th demand shifter: Population and Demographicscould also be considered “number of buyers”as overall population increases, demand increasesas specific populations increase (examples: over 55, Hispanic) demand for specific goods/services increaseWhat can cause a shift in demand?change in incomechange in the price of other goodschange in tastes/preferenceschange in expectationschange in population/demographicsA change in price causes a movement along the supply curvechange in quantity suppliedA change in something else causes whole supply curve to shiftchange in supply1st supply shifter: change in technologya positive technology changea new way of making somethinga technological “break through”supply curve will shift right (increase)Negative technology shockA negative technology shock (your factory blows up) shifts supply to the leftA decrease in supply2nd supply shifter: change in the price of inputsif prices of the input goes up, supply is going to shift to the left3rd supply shifter: change in expectationExpectations about prices affect supply in exactly the opposite way that they affect demandRecall: with demand, if you think prices will go down in the future you will demand less todayWith supply, if you think prices will go down in the future you supply more today4th supply shifter: change in the number of (firms) sellersan increase in the number of firms (sellers) will increase the supply…shifting it to the righta decrease in the number of sellers shifts the supply curve to the left5th supply shifter: change in prices of substitutes in productionfarmer in Western Kansas, has 400 acrescurrently grows (and supplies) wheatcould (if he wanted to) supply soybean insteadprice of soybeans sky-rocketsfarmer stops supplying wheat, starts supplying soybeanssupply of wheat decreased, shifted leftWhat can cause a shift in supplychange in technologychange in the prices of inputschange in expectationschange in the number of sellerschange in the prices of other goods (substitutes in production)Ch. 4Consumer surplusDifference between price consumer has to pay and price consumer would be willing to payMeasuring consumer surplus: (pg. 104)Changes to Consumer SurplusShifting either curve—or both curves—can affect the value of consumer surplusIf consumer surplus increases, consumers (as a whole) are better offIf consumer surplus decreases, consumers (as a whole) are worse offProducer Surplus (pg. 105)Difference between lowest price a firm would accept and the price it actually receivesDeadweight loss – reduction in economic surplus that results when the market isn’t efficientPrice ceilingA level above which the price cannot riseUnder normal circumstancesIf price is below market price and quantity demanded exceed quantity supplied…price will be “bid-up” toward equilibrium priceIn case of price ceiling, no “bidding up” can occurPrice floorA level below which the price cannot fallUnder normal circumstancesIf price is above market price and quantity supplied exceeds quantity demanded, price will be reduced toward equilibrium priceIn case of price floor, no such reduction can occurCh. 1Opportunity cost:The value of the thing you didn’t doCh. 2Market economy v. centrally-planned economy (pg. 9)Productive efficiency v. allocative efficiency (pg. 11)Ch. 3Market Forces:Set of buyers (demand) and sellers (supply)..whose actions affect the price of a product or serviceLaw of Demand: (pg.71)At lower prices, larger quantity will be demandedAt higher prices, smaller quantity will be demandedAs price changes the quantity demanded will changeAll else held equal (ceteris paribus) (pg. 71-72)Demand Curve: (pg. 71)Change in priceA change in price causes a movement along the demand curveThis is a “change in the quantity demanded”(pg. 71)Substitution EffectIncome EffectWhen the whole curve shifts, it’s a change in demandChange in price causes movement along the curveThat’s a change in Q demandChange in something else..like, income…causes the entire curve to shiftThat’s a change in DFirst Demand shift factor:A change in income (pg. 73)For most goods, increase in income means an increase (shift right) in demand“normal” goodsFor a few goods, increase income means a decrease (shift left) in demand“inferior” goodsSecond demand shifter:A change in the prices of related goodsA change in the price of one good, Good X, can cause a change in the demand for Good y..ComplementsThings we buy together to use togetherHot dogs & hot dog bunsChips and salsaSubstitutesThings we buy instead of each otherDiet Coke & diet PepsiNook & kindleThird demand shift factor: (pg.74)A change in tastes and/or preferencesTaste change…something becomes more popular…demand for the good will shift right (increases)The Atkins Diet falls out of tasteFourth demand shifter: (pg. 73)A change in expectations (price)Expect the price to be higher in the future, demand shifts right (increases)…you demand more today before the price goes upexpect the price to be lower in future, demand shifts left (decreases) as you demand less todayCh. 1Economists believe that an individual or firm should continue any activity until:Marginal benefit is equal to marginal costPositive economic statement:If minimum wage rates rise, then unemployment will riseEconomic capital:BulldozerThe principle of opportunity cost