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Econ 201 Week 3

by: Cheyenne Thorpe

Econ 201 Week 3 Econ 201

Cheyenne Thorpe
GPA 4.0

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Week 3, includes class lecture notes, in class examples, ad midterm practice questions
Introduction to Microeconomics
Class Notes
Economics, Econ, Econ 201, Wadell
25 ?




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This 6 page Class Notes was uploaded by Cheyenne Thorpe on Sunday January 24, 2016. The Class Notes belongs to Econ 201 at University of Oregon taught by Waddell in Winter 2016. Since its upload, it has received 54 views. For similar materials see Introduction to Microeconomics in Economcs at University of Oregon.


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Date Created: 01/24/16
Econ 201- Microeconomics- Glen Waddell Class 5 Consumer Theory, Part 2 • Why do we see inflation? (When prices rise) o Scarcity- competition o The law of demand says that the marginal value of any good falls as the quantity of this good increases relative to other goods o If one unit of some good x has a price of $45, then the price of $45 is one unit of x o The supply of this good increase and the dollar price fell to $30 § the price of the dollar increases to 1/30 of a unit o Suppose that the quantity of money increases relative to the amount of goods available, § the price of money will fall in terms of x and the price of x will rise in terms of money o If there are currently 20 million packs of cigarettes sold in a week, how much revenue will a new $.25 per pack tax generate for the government? § Will they still sell 20 million after the tax is imposed § Probably less than $5 million (20x.25) • The price-elasticity of demand measures the responsiveness in quantity demanded to change in price o An individual who is more (less) responsive to a given change in price is said to be more (less) elastic o Price-elasticity of demand: (%change in quantity of x) / (%change in price of x) o What determines the responsiveness of an individual’s choice of quantity demanded to a change in price? § The availability of close substitutes, ex: cigarettes, prescription drugs- steep slope § The fraction of income spent on the good § The unit of time: with the passage of time, the response to a given change in price becomes greater (2 law of demand) o Consider the elasticity of demand for illicit drugs, what does the demand curve look like? –steep, “less elastic,” inelastic (think: a super steep slope looks like an I for Inelastic) o What might you expect to happen to drug related crime if the supplier of such drugs were kept from supplying their product to market? –crime will go up because prices will raise so more illegal activity (competition) will happen • Equilibrium o An increase in demand increases equilibrium price and quantity o Normal Good: A good for which demand increases as income increases o Inferior Good: response to income increases o Substitutes: two goods for which the demand of one good increases as the price of the other good increases § MacBook pro à Dell Latitude § Econ major à Business major § Beer à Spirits? o Complements: two goods for which the demand of one good increases as the price of the other good decreases § CDs ßà CD players § IPod ßà ITunes § Coffee ßà Cream Econ 201- Microeconomics- Glen Waddell Class 6 • If we add a fixed transportation cost t to the existing prices of two goods, what happens to their relative prices? o The theorem is so named due to the empirical observation that supermarkets in apple-importing areas have a higher proportion of high-quality apples than do supermarkets in apple-growing areas o If premium apples are relatively cheaper in Tucson the relative demand for premium apples in Tucson should be greater. The orchard will want to ship the premium apples to Tucson and stock their local stands with standard apples. o Also Seen in: § Christmas trees § Wine § Clothing “seconds” § Beef § Avocado o Why is it more likely that a couple will go out for dinner and a concert than run errands when they have to pay a babysitter to watch their children? § The added fixed cost of babysitting has lowered the price of more expensive activities relative to less expensive activities o Suppose that a choice sear at a college football game costs $40 while a standard seat costs $20. With fans traveling from out of town, who sits where? § People coming from Portland get better seats at Duck games because they are willing to pay more for seats relative to what they have to pay for traveling/ hotel o If the ducks average 5 yards per running play and 4 yards per passing play, the team will tend to run more often than pass. Should the ducks run more or pass more when they have a play to run? § Suppose rainfall decreases average yardage for both running and passing by 2 yards. § Although running still has the same 1 yard advantage the relative advantage has increased- 3yards versus 2 yards § Running is now 50% more productive rather than only 25 percent more productive § The Ducks should run even more when it rains. o (more demand theories..) How many died from the 9//11 terrorist attack? § 1) establish why one should care o life value $6-8million o lost productivity o lost companionship § Positive: 3000 immediate, plus the people that contracted cancer after because of it, § Normative: plus the people that went to war after because of it (opinion based on whether or not it’s a reason to go to war) § 1250 traffic deaths in the year following…2170 total traffic deaths in the years following • (can road travel accidents after 9/11 be included in the death count because it pushed people to avoid air traveling?) • its all about price. o Suppose the legal drinking age is lowered to 19. What changes would you expect in the market for beer? § The equilibrium quantity of beer should increase and its price should increase § (increase in demand) o Two goods are substitutes. When it’s demonstrated that one of them may cause cancer, which should happen in the market of the other? § The equilibrium price will go up o What will happen to the market equilibrium of Gap jeans when the price of J crew jeans increases? § Increase in demand-increase in price § Price goes up, Quantity will rise ‘ • Voluntary Exchange: o What is the basis of trade (why does it exist?) § Voluntary exchange is based on mutual benefits § Everything depends on free choice § Are you willing? Forced? § The only way you can back out value is if the situation was forced/coerced, the rules change Econ 201- Discussion 2 Side Econ story: If you hit someone in China with your car and you injury them you have to pay for the medical bills and you have to pay them a little bit every month for the rest of their lives, so if someone would hit someone then they would usually turn back and hit them again to kill them for a lesser punishment The unemployment rate is too high -Normative statement because it is an opinion The unemployment rate is 3% -Positive, no opinion about it Costs Value Pizza $10 Cheese $8 +Meat $2 Pepperoni $15 ++Veggies $1.50 Sausage $16 “The Max”- $23 Pep&Sausage $18 Sausage&Onion $18 Anchovy $3 The Max $40 Add Olives $3 Pineapple $15 -If Max has $12 what should he get to maximize his money §Sausage (valued at $16 but costs only $12) -If Max has $14 what should he get §Sausage, Add Olives (Valued at $19 only costs $13.50) -Is the marginal benefit of going to pepperoni +sausage if you have pep Greater, less than or equal to the marginal benefit of going sausage+ pep if you have sausage § Greater Ingredient that are complements- § (your utility is greater when they’re together rather than separate) § Pepperoni and Sausage Substitute: § Pepperoni and Pineapple Butter Coffee (Blue 1, Red 2) Coffee is an inferior good. Your income went up (line shifted to the right) When wealth goes up and consumption goes down à inferior good When consumption goes up and wealth goes down à Inferior good I see 3 movies every week and they each cost $2, the price went down to $1, now I see 7. Is my appreciation for movies elastic and inelastic? General definition of elasticity: % change in quantity >1 à elastic % change in price <1 à inelastic


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