ECON 203 1nd Edition Lecture 5Outline of Last Lecture I. consumer demand cont.a. demand curve shiftsb. ceteris paribus conditions effect on demand curvei. incomeii. price of goodsiii. all other “x-vectors”II. SupplyOutline of Current Lecture I. Supplya. Marginal costb. First law of Supplyc. Ceteris paribus conditions for supplyII. Market StatisticsCurrent LectureI. Supplya. Marginal costsupply curve (AKA. Marginalcost curve)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.Marginal cost- specific cost associated with a particular unit’s productionTo find a price of unit 8 in production, take the total cost of all 8 units and subtract the total cost to produce 7 units. Marginal cost is the most important cost to consider for producers.Profit(Π)- total revenue- total cost of production. a business’s goal is to maximize profitAssert Decision Rule-producers will create a unit so long as the marginal cost of that unit does not exceed the price to make it. Producers will produce up to the point when price= marginal costPrinciple of rising marginal cost- as production rates increase, additional units cost more to make than previous ones. (i.e. the higher the rate of production, thehigher the marginal cost of producing an addition unit of output)b. First law of Supply- holding all other relevant factors constant, the higher the price of a good, the greater the quantity suppliedas the price of good x increases, the quantity supplied of good x also increases. (i.e. producers will only produce expensive products so long as the price of the productis high enough)Changes in quantity supplied is caused by changes in a goods priceChange in supply is caused by changes in ceteris paribus conditionsAn increase in supply-caused by anything that lowers marginal cost. (fallen input cost, lower laborcost, technological innovation, etc.)Increase in supply also means a decrease in marginal costA decrease in supply-caused by anything that raises per unit cost caused by an increase in marginal costFactors affecting the supply curve will always be cost based!!!!c. Ceteris paribus conditions for supplyi. Input prices1. Rise in input prices2. Fall in input pricesii. Technology (anything that lowers production cost)-technological innovation refers to anything that can use the same inputs to create moreoutput or any change that allows less inputs to be used for the same amount of outputs1. Increases in technology2. Decreases in technologyiii. “Z vector”-everything else (labor cost, etc.)II. Market StatisticsMarkets seek equilibrium Q*= equilibrium: Qs-Qd: #units consumers want=#units availablePH=supply is much higher than demand-surplus of unitsPL=more units desired than supplied-shortage of
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