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Econ Week 4-5

by: Cheyenne Thorpe

Econ Week 4-5 Econ 201

Cheyenne Thorpe
GPA 4.0

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About this Document

Notes include day 7, 9, and 10 and discussion (8 was the midterm)
Introduction to Microeconomics
Econ, Economics, micro, Microeconomics, ECON201
75 ?




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This 7 page Bundle was uploaded by Cheyenne Thorpe on Tuesday January 26, 2016. The Bundle belongs to Econ 201 at University of Oregon taught by Waddell in Winter 2016. Since its upload, it has received 69 views. For similar materials see Introduction to Microeconomics in Economcs at University of Oregon.


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Date Created: 01/26/16
Classes 7-10 Notes Class 8: Midterm Discussion canceled Econ 201- Microeconomics- Glen Waddell Class 7 Suppose that you have 8 units of a good and I have none: Unit Purchased – My MV- Your MV- Unit Sold 1 $6 $3 1 nd nd 2 5 4 2 3rd 4 5 3 4th 3 6 4 ….etc…. • When its between something like $3 and $6 there is room for someone like “Wal-Mart” or a middleman to come in and say they will give you $4 for it (and to sell it in bulk) and then sell it for $5. So everyone is better off o The middleman plays as a matchmaker in exchange for part of the marginal value differential. • Supply: doesn’t follow that ownership of a good implies consumption of a good. • As price goes up you or more willing to give up goods to someone else o Owners choose less of their own good for personal consumption • Exhaustion of mutual benefit occurs at the price where Qs= Qd (market equilibrium) Efficiency: Supply Surplus: • “Trade occurs because some people have too much of some goods” – consistent with marginal willingness to pay • Can an individual be made worse off by having the option to trade? No, there is no Normative implication in the statement. The option to trade simply dominates not having the option, no one is made worse off because its just an option Econ 201- Microeconomics- Glen Waddell Class 9 Look for the Extra Credit- if you try you will get credit even if you’re wrong Supply and Demand Determinants and changes in them: • Changes in Demand: o How does an increase in projected snowfall change the demand for snowboards? Increases, Graph shifts to the right o How does the change in law allow for the medical use of marijuana change the demand? Increases, Graph shifts to the right o How does a decrease in what we expect gas prices to be next week change the demand for gasoline today? Key word “Expectation,” Decrease in demand, Graph shifts to the left • Re cap: o Normal good is a good for which demand increases as income increases o Income elasticity: % change in quantity of x/ % change in income Item Income elasticity Medical Services 0.22 Automobiles 3.00 Rental Housing 1.00 Owner Occ. Housing 1.20 Gasoline 1.06 Coffee 0.51 Weed 0.00 Gambling 1.00 o How does a decrease in the price of an acoustic guitar change the market for guitar strings? Substitutes, Demand increases o How does a decrease in price of Larrivee guitars change the equilibrium price and quantity of Lowden guitars? Substitutes • Cross Price Elasticity: % change in quantity of x/ % change in y Item Cross Price elasticity Qd of Butter and P of margarine 1.53 Qd of electricity and P of natural gas 0.50 Qd of coffee and P of tea 0.15 Qd of hard liquor and P of beer -0.11 • Changes in Supply o How does FDA approval of bovine hormone change the supply of milk? Increase in supply, Graph Shift Right o Tax on cigarettes of $1 per pack- price goes up about 50 cents because demand is downward sloping, shift left (up), (parallel shift on the supply curve) (area of box on the graph is the quantity, tax revenue) o A change in one market spills over into other markets o “The price of crude oil on the world market went up due to the decrease in supply” o US market for SUVs- Gas is now more expensive, and gas and SUV are complements Econ 201- Microeconomics- Glen Waddell Class 10 Price Controls • Price floor: a government imposed limit on how low a dollar price can be charged o Imposed above (below) the equilibrium price is effective… surplus (ineffective... it doesn’t change anything) § Agriculture price supports § Dairy price supports § Federal minimum wage (higher minimum wage, higher unemployment) • Price Ceiling: a government imposed limit on how high a dollar price can be charged o Imposed below (above) the equilibrium price is effective (ineffective) § Insurance and utility rates § Gas § Food § Prescription drugs § Rent controlled apartments § Tuition • Black markets- suppose that a city imposes an effective price ceiling. o What is the marginal value of the next -available unit • Assar Lindbeck (Swedish economist) - “in many cases rent control appears to be the most efficient technique presently known to destroy a city -except for bombing” o Such price controls which supposedly help impoverished tenants actually do the opposite Questions: • Farmers can plant either corn or soybeans in their fields. Suppose tha t the first decade of the 21 century, a new technology for converting corn into liquid furl increases the demand for corn. What will happen? o The supply of soybeans will decrease • In May of 1996 a Value Jet airliner crashed in Fl orida. Allegations were made that cost cutting by Value Jet had led to reduce safety measures. On the day following the crash, airline stock rallied. UAL gained 6 to 214, AMR gained 2.5 to 92 and Delta air rose 3.375 to 85.657 o Anticipated behavior changed so stock prices rose bec ause everyone wanted a piece of the other airlines (demand for airline stock increase - prices adjust upward) • Suppose that over time, technological innovations act to lower the cost of music piracy. What would you expect to happen in the retail market for r ecorded music? o Demand in the retail sector falls and prices adjust downward… fewer units are exchanged o Long run predictions: if the market is segmented and those with a higher willingness to pay - retail prices should increase • The wall street journal repor ts that crude oil prices soared after the U.N. froze the Iraqi oil pact that was to permit Iraq to resume sales of oil on the world market. Why should oil prices rise when Iraq was not selling oil at the time? o Expectations –demand adjusts o Prices adjust upward o Quantity increases Cost and Production: • econ comics • What should we produce? How? For whom? • Productions Possibilities Frontier : The combinations of various goods that can be produced given available resources and technology o Don’t produce inside your frontier o Go up and to the right - more of everything • Absolute Advantage: if that individual can produce more than others in the same time or the same amount as others in less time o California (red) can produce more Butter and Guns than Texas (blue) • Comparative Advantage : if the individual can produce the good at lower cost than others Econ 201- Microeconomics- Glen Waddell Discussion Week 4 Price Floor/ Ceiling • When you put a price floor below the equilibrium price you’re going to get less of it • Above= more sellers than buyers Alcohol- price floor.. . minimum price you can sell it for ß Shortage • A minimum wage is a price floor o Higher minimum wag à employers will higher less employees, people will get laid off because employers would be paying them too much o Argument- or… if people have more money ($15 minimum wage,) people will buy more things, and employment will raise because they need people to make and sell those things • You can limit a quantity too… The Government limited the number of taxis allowed in New York o Loop hole: Uber (Substitute) Surplus • Tutor: $10 an hour Time Benefit Price/ Hour Price Net Benefit 1 30 10 10 20 2 45 10 20 25 3 60 10 30 30 4 70 10 40 30 5 75 10 50 25 • With 3 hours of Tutoring you get the same Net Benefit as 4 hours of tutoring • Total Surplus= Consumer Surplus + Producer Surplus Consumer Surplus: Producer Surplus: Green: Consumer Surplus Blue: Producer Surplus Red: Government revenue


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