Economics 1: Principles of microeconomicsWednesday, April 11, 2012Lecture 4Review- Demando Law of Demando Change in Demand vs Change in QD Change in QD: Law of Demand caused only by a change in products Change in Demand: shift of the entire curvePreview- "Alleged" violations of Law of Demand- Evidence Law of Demand holds- Giffen good- Supplyo defineo QS vs. supply- Market supplyAlleged Exceptions:1. Luxury goods P (of Rolce Royce) Q/yeara. 'ooohhh' effect $300,000 1 $15,000 0 Not same satisfaction for driving a car that everybody else is drivingNot everything is held constant2. Prices changing Coffee costs: Quantity/monthJan. $10/lb 1April $18/lb 4June $25/lb3. Qualitya. freshnessprice expectations changeEconomics 1: Principles of microeconomicsWednesday, April 11, 2012Lecture 4b. ownershipDay old bread ($1/loaf) Fresh Bread ($4/loaf) P Q/day P Q/day 1 20 4 120Similar to selling a year old Cadillac for $300 compared to someone else selling a year old Cadillac for $30,000.People do not want to pay discount price for a counterfeit good. P 4.00 1.00 Demand Curve Q/dayEvidence of Law of DemandActivity Couples w/o children Couples w/ children-Movies 80% 20%-Plays 20% 80%Couples w/o children Couples w/ childrenMovies $25 +$40 in babysitting = $65Plays $100 +$40 in babysitting = $140Opportunity cost of one play = 4 movies Opportunity cost of one play = 2 moviesRelative cost of play is cheaper for couple with children.Giffen GoodEconomics 1: Principles of microeconomicsWednesday, April 11, 2012Lecture 4Example: Village in China that ate rice daily and majority of their income for food went towards buying riceThey were given a rice stipend to see what the villagers would do if the rice was cheaper for themInstead of buying even more rice because it was cheaper, the villagers bought different varieties of foods instead of the riceSUPPLY-relates the amount producers are willing and able to bring to the market at various pricesAs $ increases, the quantity also increases P Q/t$ Supply Curve Q/t**There is no law of supply***Other Supply Curve graphs:$ S $ S $ S 2.00 Q/t 2 Q/t Q/tThis is the supplycurve we deal with the most$10$25$50$100150100200Original Picasso painting;no matter the $, there will only be one paintingChicken noodle soup at Ralphs will always be 2.00no matter what quantity you get at different timesBusinesses withvery large costsEconomics 1: Principles of microeconomicsWednesday, April 11, 2012Lecture 4Change in Q S-Caused by a change in the product's current own price and we move along an existing Supply curve P Supply Curve 2 10 Q/tChange in Supply-Caused by a factor other than the product's current own price that affects the amount producers are willing and able to payP -increase in supply -decrease in supply P1 Ŝ1 S1 Š1 Q/t1. Change in price of inputs ($ increases, shifts left)2. Change in technology (increases in technology, shifts right)3. Changes in government policy-Tax policy (decrease taxes in production, shifts right; increases taxes in production, shifts left)-Subsidy (increases of subsidies, shifts right; decreases in subsidies, shifts left)Market supply curve will shift:-Change in # of products (increase in producers, shifts right for market