ECON 103 1 23 12 Office Hours Monday and Wed 10 12 1 4 Tuesday and Thurs 9 12 Always email for times incase of meetings Grades Essay 20 Moodle Discussions and Assignments 10 Discussion Sessions attendance and part 10 Homework APLIA 10 drops lowest five Exams 50 One midterm One Final ECON 103 1 25 Read chap 1 4 Always asks Vocab with matching on exam Consumers make choices based on preference or constraints income Model 1 Production Possibilities Guns Butter 55 000 0 50 000 10 000 40 000 20 000 25 000 30 000 0 40 000 Law of Increasing Opportunity Cost If more people came to work it would expand the production and shift to the right ECON 1 30 2012 Determinants of Demand items 1 Price if price goes up and down what impact does that have on your demand for 2 Tastes and Preferences want you like better than something else will make you want to buy that product Income more income I have the more I ll demand for it and vice versa 3 4 Price and Availability of other goods and services demands for A1 sauce depends on your demand for steak compliments 5 Expectations if the price goes up in the future you want to get as much as possible now current demand goes up if the price goes down in the future you want to wait to get the produce current demand goes down 6 Number of customers local people are going to want local goods Refer to Figure 3 1 in Krugman and Wells Law of Demand demonstrated When drawing a graph on an exam identify the axis if numbers are provided place in the correct vertices label the curve drawn from the graph Ceteris Paribus all things being equal when drawing a graph the only thing that varies is the price everything else is held constant observing how changes in price affect that particular demand for that product Refer to Figure 3 3 in Krugman and Wells Movement Along the Demand Curve vs Shift of the Demand Curve demonstrated Changes in Demand causes a movement along the Demand curve Changes in Quantity demanded is a shift in the Demand curve one of the determinants of demand causes the demand curve to shift out or in ex Income goes up demand curve goes out you demand more of a certain product and vice versa Refer to Table 3 1 for Factors that Shift Demand in Krugman and Wells work through examples with pen and paper May be asked on exam Individual Demand Market Demand Determinants of Supply DO NOT NEED TO KNOW FOR EXAM definition for reference Aggregate Demand demand for things the country wants 1 Price the higher the price the more producers are willing to supply of the product so they can make more money possibility of profit increases 2 Input Costs if they go down then that may increase your willingness to increase your output because potential profits are going up 3 Price of Related Goods and Services higher price more potential for product 4 Technology Is the technology available will it change a lot 5 Expectations if you don t think you can sell youre product because of a down economy then you re not going to expand production in a recession nobody has any money why would I expand output if theirs no demand for the product 6 Number of producers the more producers there are the more stuff will be produced ECON 2 6 Consumer and Producer Surplus ch 4 Changing the Quantity Lowers Total Surplus Market Equil Maximizes Total Surplus It allocates consumption of the good to the potential buyers who value it the most as indicated by the fact that they have the highest willingness to pay It allocates sales to the potential sellers who most value the right to sell the good as indicated by the fact that they have the lowest cost It ensures that every consumer who makes a purchase values the good more than every seller who makes a sale so that all transactions are mutually beneficial It ensures that every potential buyer who doesn t make a purchase values the good less than every potential seller who doesn t make a sale so that no mutually beneficial transactions are missed 1 2 3 4 5 Dead Weight Loss what we lose in total surplus creates inefficiency ECON 103 2 8 Non Price Intervention Alternatives 1 Rent Control 2 Subsedies let market set price and people who can only afford a certain amount the government will pay the difference 3 Government housing builds house apts buildings and rents them out Price Ceiling price can t go above ceiling that was imposed Price Floor price can t go below floor that was imposed Powerpoint to refer to for this set of notes Krugman Chapter 4 PP begins with the lucky sock ECON 2 13 NO CALCULATORS ON EXAMS Price Elasticity of Demand Law of Demand states there s an inverse relationship between Price and Quantity Demanded Price falls demand goes up vice versa Elasticity measures the sensitivity of Demand to price changes Essentially we re measuring the percentage change in quantity demanded percentage change in price EX 2 1 2 How do we categorize elasticity Take the absolute value of elasticity 2 2 The higher the number the more elastic it becomes The closer the number is to zero the more in elastic it is Elastic Demand sensitive when the elasticity of demand is greater than one Inelastic Demand insensitive when zero is less than or equal to E and less than one Unit Elastic Elasticity of demand 1 What determines price elasticity 1 Availability of Substitutes if theres a lot of substitutes around the price of one of the products goes up people will switch to the other product 2 Time the longer the time after the price increases then you more likely to forget about the product 3 Proportion of income you spend on the good the greater proportion of your income the more elastic it will be EX Price of housing goes up 10 it may impact where you rent the price of snickers goes up 10 it wont affect you buying it Midpoint Calculation How well find the change in quantity change in price Change in quantity quantity 1 quantity 2 change in price price 1 price 2 Market for Granola Bars 5000 35000 10 2 10 14285 04761 3 01 3 01 3 01 Slope doesn t change for a line but elasticity does towards the bottom is inelastic demand while up top it is elastic demand in the middle somewhere it ll equal one A vertical line indicates perfect inelasticity E 0 A horizontal line indicates perfect elasticity E infinity An curve facing outward resembles unit elasticity Elasticity Continued 2 15 Relatively Inelastic change in quantity has to be smaller percentage change in price Relatively Elastic change in quantity has to be larger percentage change in price Why do we care what