Ch 3 4 Lesson Notes 1 Demand buyer consumer side Model has wants and needs and will exchange for goods Qd quantity demanded willing and able to buy at a price P price All quantities demanded and possible prices is the demand curve Slope of the curve is elasticity Marginal benefits Qd 0 choke point Demand is also marginal benefit curve Over time willingness and ability to buy goods changes based on other factors Substitution effect substituting goods when price goes up Time partial equilibrium increased income personal preferences Demand increases the curve shifts right Demand decreases the curve shifts left 2 Supply seller producer Model has good and will sells goods for Willing and able to sell at a price Qs Quantity supplied P price All prices and all quantities supplies is the supply curve Slope is elasticity Everypoint on the curve is minimum opportunity cost Flatter curve is more elastic Steep curve is inelastic Supply changes over time Increase in supply the curve shifts right Decrease in supply the curve shifts left 3 Equilibrium is market clearing price D S Easier to obtain in less socialist economies 4 Disequilibrium D S Market does not clear Misallocation of resources Price comes from the interactions of buyers and sellers in the market place More socialist economy results in more disequilibrium price is too low D S causes shortage bad for producers less sales profit unemployment bad for consumers unmet wants needs lower standard of living black markets rationing shoddy quality nepotism Price ceiling maximum legal price causes shortages free market economy restores equilibrium shortage resolved price too high D S causes surplus free market economy restores equilibrium surplus resolved Price floor subsidy minimum legal price causes surplus Both price ceilings and price floors are inefficient 1 I Income after taxes Ability Taxes I D T Technology Reduces cost per unit N Number of Buyers Size of Market N D E Expected future price E D E Expected future price G Gov t Policy Taxes and Subsidies R Related A Advertise Increase T N Goods Price Subs D Com D A D N Number of Sellers P Physical factors of manufacturing good Good P S Bad P S C S T S E S Taxes S Subsidies S N S new equilibrium price Pe new equilibrium quantity Qe Ch 3 4 Lesson Notes 5 Change in Equilibrium Demand shifts Results in Supply shifts Shifters For Demand and Supply Demand Increase shifts right Decrease shifts left T Tastes and Preferences Willingness T D Supply Increase shifts right Decrease shifts left C Cost of Production Scenarios A If D then Pe and Qe Examples of increase in D reality TV tattoos and piercings HD TV DVDs iPods and iPhones healthcare fish due to mad cow disease beef due to Atkins diet fad medicines cosmetic surgery B If D then Pe and Qe Examples of decrease in D C If S then Pe and Qe Examples of increase in S whale oil replaced by kerosene phonograph records replaced by 8 tracks then cassettes then CDs VHS tapes replaced by DVDs Western shows or sitcoms replaced by Reality TV SUVs gas guzzling cars doughnuts due to Atkins diet fad spinach in 2008 due to e coli scare tax cut on businesses decreased regulations technological progress advances in production of HD TVs Sony walkmans in 70s was 489 last year was 12 smart phones electric hybrid cars decrease costs of oil reduce terrorism subsidy on corn ethanol increased number of sellers competition good weather good for crops D If S then Pe and Qe Examples in decrease in S business tax increase higher wages higher oil energy cost Hurricane Katrina other natural disasters terrorism less competition fewer sellers government regulations unintended effect minimum wage decreased Research and Development oil embargo OPEC 2