ECON 1202 1st Edition Lecture 5 Outline of Last Lecture I. Market System II. Free MarketIII. Role of Entrepreneur IV. Common Misconceptions to AvoidV. Determinants of Price of TabletsVI. Demand Side of the MarketVII. Changes in DemandOutline of Current Lecture I. Supply Side of the MarketII. What would cause change in supply?III. Change in Supply vs. Change in Quantity SuppliedIV. Surplus, Shortage, EquilibriumCurrent LectureI. Supply Side of the Market a. Supply Schedule: table showing how many of a product will be available for purchase at various prices.b. Supply Curve: graphical representation of supply schedule.i. Price on y-axisii. Quantity demanded on x-axisc. Law of Supply: as price changes, quantity supplied changed in the same direction, ceteris paribusi. Implication: supply curve slopes upwardThese 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. Will be tested on thedeterminants of demand (quiz 3)d. A change in something other than price that affects supply causes the entire supply curve to shift.i. A shift to the right is an increase in supplyii. A shift to the left is a decrease in supplyII. What would cause a change in supply? Determinantsi. Price of inputs1. Inputs: things used in the production of good or service2. i.e. inputs for tablets: labor, computer processor, etc.3. An increase in the price of an input decreases the profitability of selling the good, causing a decrease in the supply.4. A decrease in the price of an input creases the profitability of selling the good, causing an increase in supplyii. Technological change1. A firm may experience a positive or negative change in its ability to produce output given a fixed amount of inputs.2. i.e. a new more productive variety of wheat would increase the supply of wheat. (Shift to the right)3. i.e. governmental restrictions on land use for agriculture might decrease the supply of wheat. (Shift to the left)4. Changes raise or lower firms’ costs, hence their supply of the goodiii. Prices of substitutes in production1. Many firms can produce and sell more than one product.a. i.e. An Illinois farmer can plant corn or soybeans. If the price of soybeans increases, he will plant (supply) less cornand more soybeans.iv. Number of firms in the market1. More firms in the market will result in more product available at a given price (greater supply)a. Fewer firms-> supply decreases v. Expected future prices 1. If a firm anticipates the price of its product will be higher in the future, it might decrease its supply today in order to increase it in the future.a. What types of goods could be stored like this?i. Non-perishable goods2. i.e. Release timing of Collateral Damagea. Was originally scheduled to be released on Oct. 4, 2001b. Film contained plot elements about terroristsc. Production thought it would do better if it didn’t show right after 9/11d. Delayed the release a yearIII. Change in Supply vs. Change in Quantity Supplieda. A change in the price of the product being examined causes a movement along the supply curve (This is a change in quantity supplied)b. Any other change affecting supply causes the entire supply curve to shift (This is a change in supply)IV. Surplus, Shortage, Equilibriuma. Surplus graphically represented by the area between the quantity supplied and quantity demanded at a specific price (ABOVE equilibrium)i. Sellers will drop the price to get rid of excess goods (sales)ii. Adam Smith: Invisible Hand—The market adjusts automatically b. Shortage graphically represented by the area between quantity supplied and quantity demanded at a specific price (BELOW equilibrium)i. Sellers can increase the price and still sell as many tablets, so price will risec. Equilibrium is where quantity demanded= quantity suppliedi. No reason for the price to change if at equilibriumIn a real market, demand and supply are constantly changing becausedeterminants are constantly changing, and consequently, so are