ECON 1202 1st Edition Lecture 6Outline of Last Lecture I. Supply Side of the MarketII. What would cause change in supply?III. Change in Supply vs. Change in Quantity SuppliedIV. Surplus, Shortage, EquilibriumOutline of Current Lecture I. Simultaneous shifts in Supply and DemandII. Supply and demand shifts over timeIII. Common MisconceptionsIV. Consumer Surplus and Producer SurplusCurrent LectureI. Simultaneous shifts in Supply and Demanda. Suppose supply and demand both increase.i. Supply increases price decreases and quantity increasesii. Demand increases price increases and quantity increasesiii. So we can be sure equilibrium quantity will rise; but the effect on equilibrium price is not cleariv. Effect on price depends on how far each curve movesII. Supply and demand shifts over timea. Over time it is common for both supply and demand to shiftb. The stronger of the two effects will determine the overall change in price and quantityc. How can we tell? Because we know the price feel; if the demand effect were strong, the price would have risen III. Common Misconceptionsa. Terminology: the movement along the curve (caused by price change) vs. shiftingthe curve (caused by other changes)b. Not moving curves far enough to be able to illustrate changec. Shifting a curve, then shifting another curve due to the resulting price changeThese 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.i. The price change doesn’t cause a further shift in demand or supplyChapter 4: Economic Efficiency, Government Price Setting, and TaxesIV. Consumer Surplus and Producer Surplusa. Surplus: something that remains above what is used or needed (extra)b. Economists use the idea of surplus to refer to the benefit that people derive fromengaging in market transactions c. Consumer surplus refers to the dollar benefit consumers receive from buying goods or services in a particular marketi. CS measures the net benefit to consumers from participating in a market rather than the total benefitii. CS in a market is equal to the total benefit received by consumers minus the total amount they must pay to buy the good or service d. Producer surplus refers to the dollar benefit firms receive from selling goods or services in a particular marketi. Difference between the lowest prices firm would accept for a good or service and the price it actually receives 1. Lowest price a firm would accept for a good or service: the marginal cost of producing that good or service 2. Marginal Cost: addition cost to a firm or producing one more unit of a good or
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