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ECN212 Week 03 Note

by: Phoebe Chang

ECN212 Week 03 Note ECN 212

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Phoebe Chang
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Demand and Supply
William Foster
Class Notes
Microeconomic, demand, supply
25 ?




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This 5 page Class Notes was uploaded by Phoebe Chang on Wednesday January 27, 2016. The Class Notes belongs to ECN 212 at a university taught by William Foster in Spring 2016. Since its upload, it has received 40 views.


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Date Created: 01/27/16
ECN212DemandandSupply SpringSEMESTER2016 Professor:Dr.WilliamFoster EliteNotetaker:Phoebe( 1. The Law of Demand ○ In Words ■ aka​Ceteris Paribus ■ Negative relationship (↑ Price / Demand ↓) ● The more expensive, the less likely people are going to buy the good or decrease the purchase amount ● The cheaper, the more likely people are going to buy the good or increase the purchase amount ○ Graphically ■ X-axis: Quantity ■ Y-axis: Price ■ Downward slope ○ Numerically ■ The change of quantity / the change of price < 0 ■ Inverse relationship 1 2. Movements and Shifts of Demand ○ Change in price leads to change in quantity demand ■ Positive shifts = Rightward / Outward ■ Negative shifts = Leftward / Inward ○ Income ■ Goods are defined depending on different people ■ Normal Goods ● Positive relationship ● Change of Quality / Change of Income > 0 ● ↑ Income = ↑ Goods ● E.g. Steakhouse dinner, etc ■ Inferior Goods ● Negative relationship ● Change of Quality / Change of Income <0 ● ↑ Income = ↓ Goods ● E.g. Cheap cup noodles, Bud Light, etc ○ Price of alternative good ■ Substitutes ● Same products but different brands ● Cheaper brand has higher demand ● Positive shift ● Change of Quality / Change of Price > 0 ● E.g. CocaCola vs Pepsi, Popeye’s vs KFC ■ Complements ● Different products but sold together ● Price increase in one result in lower demand for both ● Negative shift ● Change of Quality / Change of Price < 0 ● E.g. Hot dog and bun, DVD with DVD player, etc ○ Tastes and Preferences ■ ↑ Desire = ↑ Demand / ↓ Desire = ↓​Demand ■ Positive relationship ■ Scarcity gives items values ■ E.g. Baseball cards, Beanie Babies, Red Bull etc 2 ○ Expectation ■ Prices ● ↑ Expectation = ↑ Demand ■ Income ● ↓ Expectation = ↑ Demand 3. Cost and the Output of Producers ○ Purchase resources → Produce output ○ Opportunity cost = All the costs of all resources required for the production ○ In business = covering the all cost and opportunity cost ○ Do better than alternative = making profit 4. Economic / Accounting Cost ○ Economic Cost ■ All cost of the resources used for production ○ Accounting Cost ■ Ignores opportunity co​wned​ by the company ■ E.g. The firm’s equity capital ■ E.g. Prisoning (oppt cost: working salary, not helping society, etc) ○ Tax ■ Not a benefit or cost ■ Net value = 0 5. Profits and Losses ○ Profits ■ Reward earned ■ Revenues > Costs ■ Price > Opportunity cost of production ■ Value of resources increases in marketplace ○ Losses ■ Penalty imposed ■ Revenues < Costs ■ Price / Income < Opportunity cost of production ■ Value of resources decreases in marketplace 3 6. The Law of Supply ○ In Words ■ aka​Ceteris Paribus ■ Positive relationship (↑ Price / ↑Supply ) ● The higher the price is, the more likely firms are going to offer more products at the higher prices ● The lower the price is, the less likely firms are going to offer the products at the lower prices ○ Graphically ■ X-axis: Quantity ■ Y-axis: Price ■ Upward slope ○ Numerically ■ The change of quantity / the change of price > 0 7. Movements and Shifts of Supply ○ State of Production Technology ■ What can we do with certain energy? ■ Efficiency of production technology / farming ■ Shifted outward ● Same price, more supply, more advanced technology ● Tragedy events makes people richer after surviving, leads to revolutions of society (lesser people) 4 ■ Shifted inward ● Natural disastedestroy everything ● War​ itself ruins everything ○ Price of An Input ■ ↑ Price = ↓Supply ■ Shifted inward ● Same prices, less supply, higher price for production ○ Producer Expectation ■ ↑ Expectation = ↓ Supply ■ Shifted inward ● Same prices, less supply, expecting the price to rise later ○ Number of Sellers ■ ↑ Sellers = ↑ Supply ■ Shifted outward ● Any prices, more supply ○ Taxes and Subsides ■ ↑ Taxes = ↓ Supply ■ Shifted inward ● Same prices, less supply, higher taxes 8. Producer Surplus ○ Area below the actual price, above supply curve ○ Example ■ Price of phone: $500 ■ Price you paid: $750 ■ Price you would have paid: $1000 ■ Producer surplus: 750-500=$250 ■ Consumer surplus:1000-750=$250 5


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