Week 2 Notes
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This 3 page Class Notes was uploaded by Cheyenne Hunt on Saturday January 30, 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 26 views. For similar materials see Principles of Economics: Microeconomics in Business at Auburn University.
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Date Created: 01/30/16
Chapters 1 and 2: Introduction to Economics Jan 25 Supply Curve Factors that Shift: o Input/Resource Prices Input prices and supply move opposite How would an increase in the price of leather (an input) affect the supply of shoes? o Technology The production process of changing economic resources into goods and services When technology improves, supply increases o Taxes Taxation and supply move opposite o Expectations of Future Prices Expected future price changes and supply move opposite Good must be durable/storable o Number of Sellers Usually the number of sellers in a market changes as profits change Firms will enter when profit is high and exit when it is low Surplus At a price above the equilibrium price, where quantity supplied is greater than quantity demanded Qs-Qd units Puts downward pressure on prices until the surplus is eliminated Shortage At a price below the equilibrium price, where quantity demanded is greater than quantity supplied Qd-Qs units Put upward pressure on prices until the shortage is eliminated Solving for Pe and Qe Qs= 2+2P At Qe, Qs=Qd 2+2P=20-4P 2+2(3) = 8 Qe= 8 units Qd=20-4P Pe is the P where Qs=Qd 6P=18 Pe=$3 20-4(3) = 8 Price Rationing The allocation of goods among consumers using prices The most efficient method of allocating goods and services Every consumer willing to pay at least Pe will get to have the good Jan 27 Market Analysis What happens in the market for SUVs when the price of gas (a complimentary good) falls? 1. Supply decreases 2. Shortage at the old Pe 3. Pe rises 4. Qe decreases What happens in the market for SUVs when the price of steel (an input) falls? 1. Supply increases 2. Surplus at the old Pe 3. Pe falls 4. Qe increases Steel is an input for SUVS. SUVs and gas are complements. What happens in the market for gas when the price of steel falls? 1. Supply of SUVs increases 2. Price of SUVS falls 3. Demand for gas increases 4. Price of gas increases 5. Qe of gas increases What happens in the market for gas when we expect higher future prices? 1. Demand increases 2. Supply decreases 3. Pe increases 4. Change in Qe is indeterminate Jan 29 Price Controls Legal restrictions on prices Types: o Price ceiling- a maximum legal price, below Pe o Price floor- a minimum legal price, above Pe Consequences: 1. Shortage/surplus 2. Inefficient allocation among consumers/producers 3. Wasted resources 4. Low quality goods/ protection from imports