ECON 221 Lecture 5 Outline of Last Lecture I. Supply and DemandII. Market SystemsIII. How prices are determinedOutline of Current Lecture I. Supply CurvesII. Demand CurvesIII. Curve ShiftsCurrent Lecture- Recap - where do demand curves come from? Weigh benefits and costs of buying one more thing. - Demand curve and also marginal benefit curve - Supply curve - price goes up, supply goes up - For firms – o Benefit of producing stuff = Revenue o Marginal benefit = price - Cost of producing stuff = cost that goes into ito Lowest price you are willing to accept as a firm in your cost - Plotting supply curves o As price goes up, Qs goes up. o As Qs goes up, MC goes up. - We have consumers making "optimal" decisions... Deciding how much to consume at every possible price -> demand curve - Equilibrium - MC of producing the last unit is exactly the same as MB it provided from the last unit consumed. - Changes in equilibrium - prices don't stay the same forever o Outside events might change the relationship between price and quantities supplied - What does shift the demand curve? o Change in price of related goods Substitute goods - price of substitute increases -> demand increases Complement goods - price of complement increases -> demand decreaseso Change in income - if income changes, that can also impact demand. 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. Normal goods - income increase -> increase in demand Inferior goods - income increase -> decrease in demand o Change in taste - trends o Change in expectation - waiting for a sale o Change in number of consumers - What does not shirt the demand curve? - change in price of good in question. - Supply curve shifts o Change in input priceso Technology - introduction of assembly lineo Price of related goods - substitutes and complements in production Substitutes - change factory to produce boots vs. belts depending on market profitability. Complements - cheese, as the price of "good looking" cheese goes up, the price of cheese shavings and curds will go up as well o Expectations o Number of producers - supply is going to be high in places with lots of producers making the same product - Decrease in price of tea -> decrease in demand for coffee -> Decrease in equilibrium price and quantity of coffee - Simultaneous shifts - It's possible that two shifts occur at the same time, but it's harder to make predictions: o When S & D move in the same direction, effect on price is ambiguous o When S & D move in opposite directions, effect on quantity is ambiguous. o Ultimately depends on magnitudes of changes - Examples from end of the book - Supply and demand o Equilibrium meaning Shifts in curves Impacts on equilibrium price and
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