ECON 1100 1nd Edition Lecture 7 Outline of Last Lecture I. AOLII. Review Demand CurveIII. Supply CurveOutline of Current Lecture 9/20I.Supply CurveCurrent LectureI. Supply CurveDemand = relationship between price & quantity demandedSupply = relationship between price & quantity suppliedEquilibrium = when demand & supply come together; how much gets bought & sold at what priceBuyers & sellers negotiate to reach agreement – equilibriumEconomic equilibrium = stableAble to be stable because it’s affected by the forces that come from people’s behaviorLooking at it graphically: Scenario 1 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.If there is excess supply, the sellers will probably drop the price to make some kind of profit instead of having the products just sit on the shelf. Thus movement P1 to P2People call this a ‘buyer’s market’When price drops there are more buyers, thus the supply decreasesPrice will adjust till the equilibrium is reached; in this case, the price will decreaseLower prices usually causes more people to buy thus less supply becomes availableLooking at it graphically: Scenario 2If there is excess demand, the sellers will probably drop the price to make more supply available. Thus movement P1 to P2People call this ‘seller’s market’When price increases, more supply is available, thus meeting the high demandPrice will adjust till the equilibrium is reached; in this case, the price will increaseIf something else were to change there would be a new equilibriumMore info next weekLife Example:SymbolsP= monthly rentQ= # apartmentsPc= government placed ‘cap’Price cap is when the government says that rent can’t be above a set priceIf a cap is present then the supply will drop and demand increaseSuppliers get out of market because it’s not worth it for them, they can make a greater profit doing something elseDemanders like the low price, thus more enter the market When this happens there is much greater demand than supplyResults of a capLower qualityForming of black marketDiscrimination about how gets the supplyI. 3 QsWhat gets produced? -> What people are willing to buy at a set priceWho gets what? -> Those who are willing to payWho produces? -> Those for whom it’s cheapest to produce & make profitII. EquilibriumThere are markets for everything (w/in legal limits most of the time)Households selling time & patience, some resources as wellFirms buy from households to produce goods (labor)Customers buy to fulfill needsDon’t need to know OPEC section of the book for the examPrices convey a lot of infoNeed to follow supply & demandPrice drops = more supply thus it’s more abundantPrice increases = less supply thus it’s more scare and a signal to conserveIs equilibrium good or bad & under what conditionsEquilibrium = equalizing of supply & demand at an amount & priceIII. Consumer SurplusA = Price was $22, thus made $18B = Price was $19, thus made $21Buyer’s winnings = valuation – priceConsumer surplus is the maximum willingness to pay – price actually paidEx. Willing to pay $60 for item Y but the price is $70, don’t buy it because it’s too expensive for what willing to payEx. Willing to pay $125 for item Z but the price is $100, buy because end up saving $25 for something elseCompanies experiment with prices to determine the demand curve of the customers First item bought give the surplus, not lastIV. Producer SurplusC = Price was $22 thus made $12D = Price was $18 thus made $8Seller’s winnings = price received – costProducer’s surplus = price received – costProducer surplus is $/unit *
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