Lecture 6 ARE 1150 1nd Edition Outline of Last LectureI. Economic systemsa. Differ based onb. Market systemc. Command systemII. Key characteristics of the Market SystemIII. Read from TextbookIV. The curious case from Cubaa. NPR radio storiesOutline of Current Lecture I. Determinates of DemandII. Supplya. Law of SupplyCurrent Lecture I. Determinants of demanda. Factors that shift the demand curve to the right or to the lefti. Other things that were help equal (or constant) when drawing demand curveii. For example, what if the income level in an economy goes up? Will people buy more of a commodity at a given price? b. When the price declines people are likely to buy more in quantityi. With additional money they are likely to buy a higher quantity even if they are the items are the same priceii. With more income the demand curve shifts to the right c. Income is a factor that determines demandi. If income decreases they will buy a smaller quantity shifting the curve to the leftii. If income increases they will buy a larger quantity shifting the curve tothe right d. Shift in demand is also called change in demand (as opposed to change in quantity demanded)i. Change in quantity demanded – happens when you are on the same demand curveii. Change in demand – happens when you are on a different curve or shifting demand curve ARE 1150 1nd EditionLecture 6 e. Consumer tastes (or preferences)f. Number of buyersg. Incomei. Normal (or superior) and inferior goods ii. Example: used cars – if the income goes up people stop buying used cars and buy new cars. This is an example of inferior goodsiii. Example: higher level of income make people more interested in environmental issuesh. Price of related goodsi. Substitutes1. Ex. Tea and coffee are substitutes – if the price of coffee increases the price of tea decreases so the demand for tea shifts to the right ii. Complementsiii. Unrelated (or independent) goodsi. Consumer expectations (about future prices, income, etc.)II. Supplya. Law of supply = other things equal, as price rises the quantity supplied risesi. Common sense – if price increases they want to supply more of commodityb. Example: increasing marginal costi. Sandwich shop can hire more and more people 1. Second person being hired so more things can get done and more sandwiches can get made – together they can produce more sandwiches 2. Hiring too many people can become a problem because there are too many people and not everyone has a job to do and the marginal cost increases. 3. The marginal output decreases and the marginal cost of labor increases 4. The more sandwiches you try to make the marginal cost you increases c. Supply schedule and supply curved. Quantity that producers are willing and able to sell at a given pricei. “Other things equal” assumptionii. Individual supply vs. market supply ARE 1150 1nd