Exam 1 Lectures 4-6
Exam 1 Lectures 4-6 Econ 2020
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This 0 page Class Notes was uploaded by Karlee Castleberry on Friday January 29, 2016. The Class Notes belongs to Econ 2020 at Auburn University taught by William M. Finck in Spring 2016. Since its upload, it has received 52 views. For similar materials see Principles of Economics: Microeconomics in Business at Auburn University.
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verbatim what he went over in class!!
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Date Created: 01/29/16
Econ 2020 Exam 1 Lecture 4 de nition formula relationships between variables Factors that shift the supply curve 0 1 Inputresource prices input prices and supply move opposite ex how would an increase in the price of leather an input affect the supply of shoes an fm Sl orange line decrease in quantity 0 Other factors 2 Technology how we go about inputs to produce outputs the production process of changing economic resources into goods and services when technology improves 0 when improves purple line 3 Taxes taxation and supply move opposite 4 Expectations of future prices expected future price changes and current supply move opposite good must be durablestorable 5 Number of sellers usually the number of sellers in a market changes as pro ts change rms will enter when pro t is high and exit when it is low 0 only the number of sellers affect supply 0 Know lists and relationships 0 Market Model Equilibrium price price at which the market clears Quantity supplied Quantity demanded Equilibrium no tendency for change Surplus If you set price too high quantity demanded goes way down Surplus at prices above Pe Qs gt Qd o Qs Qd o Surpluses put downward pressure on prices until the surplus is eliminated Shortage At prices below Pe Qd gt OS o Qd Qs o Shortages put upward pressure on prices until the shortage is eliminated o Surpluses and Shortages will go away automatically New model graph table ll in or interpret demand schedule and supply schedule nd equilibrium price amp basic math he sets this equal to this amp you solve Ex solving for Pe and Qe 0 OS 2 2P 0 Qd 20 4P 0 Find equilibrium price and quantity 1 Set equal to eachother QsQd 22P20 4P 6P18 Pe3 Plug quot into P to recheck Qe22320 43 Qe 8 units 0 Price rationing allocation of goods among consumers using pnces economists believe it s the most ef cient method of allocating goods and services every consumer willing to pay at least equilibrium price will get to have the good 0 the demand curve is comprised of people 0 people willing to pay the most are at the topbeginning but if every other quotdotquot person on the demand curve get the good that is price rationing 0 people at the left and right of the curve get the good not only the people willing to pay the most 0 Market analysis most important thing on test test Q examples 0 What happens to the market for SUVs when the price of gas a complement falls 1 Draw graph There was an increase in demand shortage of price increase in equilibrium price increase in equilibrium quantity Example of an answer Demand increases which causes Pe to rise and Qe to rise 9quot l39 39 E gas 33 50 Lecture 5 0 what happens to the market for SUVs when the price of steel an input falls Draw pic Draw new curve C gtUUl 39 Quantity supply increases l Surplus at the old price Pe falls Qe rises o demand didn t change because an increase in the quantity of demanded 0 only 2 questions on market analysis on test one factor that changes is on both curves two analyze 2 markets at once 3 goods directly or indirectly related 0 Steel is an input in SUVs SUVs and gas are complements What happens to the market for gas when the price of steel falls 0 1 Analyze market for SUVs 0 take change in price a compare it to market of gas 0 fall in price of steel 1 supply for SUVs increases and 2 price of SUVs goes down 0 we already worked the problem 0 3 Demand for gas increases 4 Pe rises 5 Qe rises 0 what happens to the market for gas when we expect higher future prices Higher future prices demand goes up buy b4 expensive As a seller your supply decreases 1 Demand increases 2 Supply decreases 3 Pe rises 4 You can put idk for equilibrium quantity AQe Price Controls 0 Legal restrictions on prices Types 1 Price ceiling a maximum legal price 0 for consumers ex Natural disasters need plywood generators an effective price ceiling is set below the 0 test Q if price set at pc what will happen 0 Consequences of price ceilings o 1 Shortages o 2 Inefficient allocation among consumers nding who will pay the most 0 3 Wasted resources 0 4 Low quality 2 Price floor a minimum legal price 0 for producers to protect them usually 0 also to help for example Agricultural prices for farmers minimum wage for workers 0 An effective price floor is set above the 0 Very little demanded 0 We have a surplus Consequences of price floors 0 1 Surpluses o 2 Inefficient allocation among producers o 3 Wasted resources 0 4 Protection from imports 0 Test Q ex he takes 2 lists that are similar in notes asks quotpick consequences of price ceilings and whyquot 0 price controls have no effect on the market price if they aren t set properly 0 price ceiling set above Pe or a price floor set below won t change the behavior of producers and consumers the market remains in equilibrium test q don t assume this will cause a shortage it might not as long as its legal that s the price they ll charge 1 what effect would a price ceiling of 27 have on this market Shortage of 90 50 40 units 2 What effect would a price floor of 27 have on this market 0 None The market remains in equilibrium 0 Mnemonic device The house must be upsidedown to have an impact upside down house on the last graph Surplus floor Shortage ceiling 0 Chapter 4 Consumer and producer surplus 0 Consumer surplus Consumer39s willingness to pay minus amount paid 0 Test q o if it s a table calculate consumer surplus o if it39s a graph nd area on graph that represents consumer surplus Willingness to pay max price at which a consumer will buy a good 17 26 3450 44 SWMBO 72 What is consumer surplus if the market price of a good is 350 0 Cross out 6 amp 7 0 Total wiing 7 5 450 4 350 24 0 Total paid 350 5 1750 0 Consumer surplus 24 1750 650 On a graph consumer surplus is the area above the price but below the demand curve 10 0 Price and consumer surplus move opposite 0 Producer surplus Amount received minus willingness to accept Willingness to accept the minimum price at which a producer will sell a good 1 50 2 1 3 150 4250 6 4 7 5 0 for 1 they are not willing to sell for less than 50 6 amp 7 will not make a sale We cross them out o What is producer surplus is the market of the price of the good is 350 0 Total received 350 5 1750 0 Total willing 5 1 15 25 35 9 0 Producer surplus 1750 9 850 hi On a graph producer surplus is the area below the price but above the supply curve 0 Price and producer surplus move together 11
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