ECON 221 Lecture 4 Outline of Last Lecture I. OptimizationII. Opportunity CostsIII. Define and calculate Marginal Costs and Marginal BenefitsOutline of Current Lecture I. Supply and DemandII. Market SystemsIII. How prices are determinedCurrent Lecture- Supply and demand model- Market system- some collection of buyers and sellers who exchange goods and services for payment. * doesn't have to just be a physical market * o Good way for society to allocate resources - Alternatives to markets - capitalism o Grow and build everything for oneself o Government allocates resources- Competitive markets - consists of many buyers and many sellers who are all selling an identical good. Ex. Various agricultural markets (cotton, corn, sugar, etc.) Not perfectly competitive - restaurants, cell phone providers, utilities o All buyers and sellers are price takers - just have to accept the price Price and quantities 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. When deciding how much to buy- weigh max benefit compared to cost - Demand curveo Quantity demanded on x axis o Price on y axis - Law of demand - as price goes up, the quantity demanded goes down. o Should always have downward sloping demand curves. - Demand curve o Quantity interested in buying falls as price gets higher and higher o Price you are willing to lay for an additional unit goes down when you've already consumed a lot - Diminishing marginal benefito Individual demand curves capture the relationship between P and Q for one person. *Add those up to get market demand curves - Demand o Quantity demanded - amounto Demand - refers to overall relationship between price and quantity demanded- Law of Supply - as price goes up, quantity supplied goes up. o Supply curve should slope upwards - Two interpretations o Quantity you are interested in selling goes up when prices go upo Price you are willing to accept rises with the number of units you are selling o Because as you expand your operations, it becomes costlier to produce additional units.- Supply and demand o Ultimately, we're interested in price and quantities that will actually rise o Markets move towards equilibrium - In markets, the equilibrium will be the one point where Qd = Qs o Surplus - Qs > Qd o Shortage - Qs < Qd - Equilibrium - prices will always be pushed back to the one point were Qd = Qs- At that point, there will be no incentive for anyone to change their
View Full Document
Unlocking...