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ECON 103 1/23/12Office Hours:Monday and Wed. 10-12 1-4Tuesday and Thurs 9-12Always email for times incase of meetingsGrades: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 1/25Read chap. 1-4(Always asks Vocab, with matching on exam)Consumers make choices based on preference, or constraints (income)Model 1: Production PossibilitiesGuns 55,000 50,000 40,000 25,000 0Butter 0 10,000 20,000 30,000 40,000Law of Increasing Opportunity CostIf more people came to work, it would expand the production, and shift to the right.ECON 1/30/2012Determinants of Demand1. Price – if price goes up and down what impact does that have on your demand for items2. Tastes and Preferences – want you like better than something else will make you wantto buy that product3. Income – more income I have, the more I’ll demand for it and vice versa4. 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 curveChanges in Quantity demanded is a shift in the Demand curve (one of the determinants ofdemand 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 -(DO NOT NEED TO KNOW FOR EXAM, definition for reference, Aggregate Demand – demand for things the country wants)Determinants of Supply1. Price – the higher the price, the more producers are willing to supply of the product (sothey can make more money, possibility of profit increases)2. Input Costs – if they go down, then that may increase your willingness to increase youroutput, because potential profits are going up3. Price of Related Goods and Services – higher price, more potential for product4. Technology – Is the technology available, will it change a lot5. 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 producedECON 2/6Consumer and Producer Surplus (ch. 4)Changing the Quantity Lowers Total SurplusMarket Equil. Maximizes Total Surplus (***)1. 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.2. 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.3. 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.4. It ensures that every potential buyer who doesn’t make a purchase values the goodless than every potential seller who doesn’t make a sale, so that no mutually beneficial transactions are missed.5.ECON 103 2/8 Dead Weight Loss - what we lose in total surplus; creates inefficiencyNon-Price InterventionAlternatives:1. Rent Control2. Subsedies – let market set price and people who can only afford a certain amount, the government will pay the difference3. Government housing – builds house/apts buildings and rents them outPrice Ceiling – price can’t go above ceiling that was imposedPrice Floor – price can’t go below floor that was imposedPowerpoint to refer to for this set of notes: Krugman Chapter 4 PP – begins with the lucky sockECON 2/13***NO CALCULATORS ON EXAMS***Price Elasticity of DemandLaw 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 changesEssentially we’re measuring the percentage change in quantity demanded/percentage change in price.EX: -2%/1% = =2How do we categorize elasticity?Take the absolute value of elasticity (-2=2)The higher the number the more elastic it becomesThe closer the number is to zero, the more in elastic it isElastic 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 oneUnit Elastic – Elasticity of demand = 1What 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 product2. Time – the longer the time after the price increases then you more likely to forget about the product3. 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 itMidpoint CalculationHow 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| = 3.01Slope 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 oneA vertical line indicates perfect inelasticity (E=0)A horizontal line indicates perfect elasticity (E=infinity)An


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