ECON 2105 1nd Edition Lecture 2 Outline of Last Lecture (module 5) I. Supply and Demand Model II. HousingOutline of Current Lecture (module 6) III. Supply Curve IV. Movement vs Shift V. Supply ShocksVI. Scenarios Current LectureIII. Supply CurveSupply curve- the firms are price takers in a perfectly competitive market - Supply of credits - Supply of money - Supply of labor The Supply Curve- is a function showing the quantity of goods or services that suppliers would be willing to sell at a different price - Last time supplier- selling things on eBay- Part time job- supplying labor - Ex. Oil Supply cost to drill $10 sell for? More than $10 to make a profit The supply curve is upward sloping. Why? Increasing opportunity cost of production – law of supply Supply CurveThese 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.- How much suppliers are willing to pay and able to sell at each price - The minimum price suppliers are willing to sell at a given price - Price is greater than or equal to marginal cost IV. Movement vs Shift Change in production due to change in the price of the product (price related, movement along the curve) Change in production due to anything but price is a (shift on the curve) What determines the supply? - Cost of production goes up, companies respond by changing levels of productivityo Productivity- change in technology V. Supply Shock (non-price factors) - Technology innovations productivity up - Change in price of inputs cost of production - Taxes and subsides cost of production - Expectations - Wages cost of production - Union powers cost of production - Entry or exit producers not related - Change in government regulations cost of production - Change in property rights cost of production - Government regulations cost of production - Cost of environmental protection cost of production VII. Scenario Assume US was initially supplying 60 million barrels of oil when the price was $40per barrel - Government imposes $10 tax per barrel - How much is now required to produce 60 million barrels? $50 per barrel Equilibrium- quantity demand is equal to quantity supply there can be equilibrium price and equilibrium quantity - Some markets cant have equilibrium Surplus occurs when current price is greater than equilibrium price - Market prices will bring down the quantity suppliesShortage occurs when current price is less than equilibrium price - In shortage prices go up, excess
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