ECN 150: Week 3 Notes
ECN 150: Week 3 Notes ECN 150
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This 4 page Class Notes was uploaded by Alexis Ibarra on Friday February 5, 2016. The Class Notes belongs to ECN 150 at La Salle University taught by Francis Thomas Mallon in Summer 2015. Since its upload, it has received 18 views. For similar materials see Macroeconomics in Economcs at La Salle University.
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Date Created: 02/05/16
WEEK 3 NOTES 2/1/16 Price vs Cost Price: What you have to expend in order to buy the product in the market place. Cost: What needed to be incurred to make the product available for sale in the market place. A supplier’s cost per unit will depend on the efficiency of their operation. Simplifying assumption 1: As long as the market price exceeds the supplier’s cost per unit, the supplier will elect to produce and sell the product. Simplifying assumption 2: The greater the positive differential between price and cost per unit, the greater the quantity of product the supplier will elect to produce and sell will be. Example: Supplier: A B C D Cost/unit: $7 $9 $3 $37.50 Selling Price A B C D Quantity $10 4 2 9 0 15 $8 2 0 8 0 10 $6 0 0 5 0 5 (If the selling price exceeds the cost the supplier will spend, the supplier will sell the product.) (The larger the positive differential, the greater the quantity that the supplier will produce.) A change in quantity supplied: There’s a change in the market price of the good which causes a MOVEMENT along an existing supply curve. (Change in quantity supplied, not supply!) Outside variables that can affect the cost per unit, will affect the supply of the good. When the cost decreases: The price decreases. When the cost increases: The price increases. 2/3/16 Demand: Inverse relationship between quantity and price! Quantity demanded decreases, price increases. Quantity demanded increases, price decreases. Downward slope Supply: Direct relationship between quantity and price! Quantity willingly supplied decreases, price decreases. Quantity willingly supplied increases, price increases. Upward slope A change in supply: When there is a change in an outside variable capable of influencing the supply of the good, there is a SHIFT of the entire curve. Downward to the right: increase in supply Upward to the left: decrease in supply Example: If a sweater company loses 25% of their raw material during the process of making sweaters, the sweaters might have a market price of $9. If they improve the process of making sweaters, and only lose 5% of their raw material, the market price of the sweaters will go down. (Maybe $7 per sweater now). Equilibrium: Point where supply and demand are the same. It is the price where the quantity willingly demand=quantity willingly supplied. Efficient Surplus: When quantity willingly supplied exceeds the quantity willingly demanded, a surplus comes to exist. Occurs when the market price is set above equilibrium. Suppliers will then advertise a SALE. (downward pressure on market price) Quantity willingly supplied decreases Quantity willingly demanded increases **This will continue until equilibrium is achieved!! Shortage: When the quantity willingly demand exceeds the quantity willingly supplied, a shortage comes to exist. Occurs when the market price is set below equilibrium. Suppliers will then RAISE the price Quantity willingly demanded increases Quantity willingly demanded decreases **This will continue until equilibrium is achieved!! 2/5/16 A variable that can change but is NOT an outside variable: Price Price change can only be an outside variable when it’s the price for a complimentary or substitute good. Example: A change in the price of gasoline (a complimentary good of automobiles) will decrease the demand for automobiles. This would cause a shift in the demand curve for automobiles. This would result in a lesser price for cars. Step by Step Sequence: Has an outside variable changed? (excellent growing conditions of grapefruit) If so, which curve is effected by this outside variable (supply or demand)? (Supply) Does the effected curve increase or decrease? (increase) Given the shift of the effective curve, is there immediately a surplus or a shortage created? (surplus) Given the presence of a surplus or shortage, what will be the natural workings of the marketplace to restore equilibrium? (sale: price decrease) Step by Step Sequence (Example 2): Has an outside variable changed? (it is a warm winter) If so, which curve is effected by this outside variable (supply or demand)? (demand) Does the effected curve increase or decrease? (decrease) Given the shift of the effective curve, is there immediately a surplus or a shortage created? (surplus) Given the presence of a surplus or shortage, what will be the natural workings of the marketplace to restore equilibrium? (sale: price decrease)