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Week 2 notes for EC 201

by: Iman Usmani

Week 2 notes for EC 201 EC 201

Iman Usmani

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Supply and demand, two variable charts and movement in the economy.
Bobby Puryear
Class Notes
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This 3 page Class Notes was uploaded by Iman Usmani on Thursday January 7, 2016. The Class Notes belongs to EC 201 at North Carolina State University taught by Bobby Puryear in Spring 2016. Since its upload, it has received 15 views. For similar materials see Microeconomics in Economcs at North Carolina State University.

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Date Created: 01/07/16
EC 201 Bobby Puryear Week 2 notes 1/22/2016  A movement along a demand curve is referred to as change in quantity demand, or an increase (or decrease) in the quantity demanded. o A shift in the demand curve occurs due to a change in some variable other than price. A shift is referred to as a change in demand, an increase (or decrease) in demand, or a rightward (or leftward) shift in demand. o If I change the price, then there will be movement along the curve.  Variables that shift market demand o Income:  Normal good – a good for which the demand increases as income rises and decreases as income falls.  The more income = the more investment in products (it can jump start the economy)  Inferior good – a good for which the demand increases as income falls and decreases as income rises o Prices of related goods:  Substitutes – goods and services that can be used for the same purpose  What replaces something else  Complements – goods and services that are used together  Ex: iPods and iTunes o Tastes for a particular product or service – what is popular? o Population and demographics – who are you selling to?  Ex: pizza delivery near a college campus o Expected future prices  Graphs: o The curve shifts to the right when something gets more popular o Shifts to the right when something loses popularity  Note: if the price goes down, there would be a leftward shift for demand  Supply schedules and supply curves o Very similar to demand o Supply schedule – a table that shows the relationship between the price of a product and the quantity of the product supplies  Quantity supplied – the amount of a good or service that a firm is willing and able to supply at a given price. o Supply curve – a curve that shows the relationship between the price of a product and the quantity of the product supplied.  Quantity supplied vs. price  Not the same as the demand since it’s a positive relationship (upward slope)  For demand – as price goes up, the quantity demanded goes down. o As price goes down, the quantity demanded goes up.  For supply – as price goes up, the quantity demanded goes up. o As price goes down, the quantity demanded goes down.  Change in the price means that you move up and down the curve.  Law of supply – the rule that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied. o Occurs if some other variables (other than price) are changed  Movement along a supply curve is referred to as a change in the quantity supplied, or an increase (or decrease) in the quantity supplied. o A shift in the supply curve occurs due to a change in some variable other than price. A shift is referred to as a change in supply, an increase (or decrease) in supply, or a rightward (or leftward) shift in supply. o Variables that shift market supply:  Price of inputs – if there is a change in the price of the components that create the product  Ex: if there is a change in the price of rubber that makes tires  Technological change – a positive or negative change in the ability of a firm to produce a given level or output with a given quantity of inputs.  Ex: negative change in technology is if there is a more efficient kind of technology that can’t be used due to regulation.  Prices of substitutes in production – alternative products that a firm could produce are called substitutes in production  Number of firms in the market  When there are less firms, there is a leftward shift  Expected future prices  This is in both in supply and demand o Note: a decrease will cause a shift in the opposite direction o If there is a higher price in the market place, the companies will want to supply more. o For any price, there will be less quantity in the next curve. More money is the second curve means there is less quantity. o Rightward shift means that there is a positive change.  Equilibrium is where the buyers and the supplies meet (when they are in agreement) o They always have some place they meet in the middle since firms and consumers have opposite interests o What does it take to get out of equilibrium?  When the marketplace is not competitive anymore  When the government gets involved  When there is a short run shock to the system – when something jolts the system  Market equilibrium – a situation in which quantity demanded equals quantity supplied o With many buyers and many sellers, this is referred to as a competitive market equilibrium o Demand and supply are important – the interaction of demand and supply determined the equilibrium price. Neither consumers nor firms can dictate what the equilibrium price will be. No firm can sell anything at any price unless it can find a willing buyer and no consumer can buy anything at any price without finding a willing seller.  Surplus – a situation in which the quantity supplied is greater that the quantity demanded. o Occurs when the price is above equilibrium  Shortage – a situation in which the quantity demanded is greater than the quantity supplied o When the price is below equilibrium o Prices are increased to move along the curve in order to make it to equilibrium o Prices can be bid up by the consumers or by the firms o TEST QUESTION: quantity supplied > quantity demanded – producers will put the production on sale which results in moving along the curve until the surplus is eliminated.  The effects of shifts in supply o If the number of firms went up o If there is a positive change in technology o If there is a decrease in the price of inputs o If there is a decrease in the price of substitution in production


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