Week 4 Notes
Week 4 Notes ECN 222 - 005
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This 5 page Class Notes was uploaded by Abigail Johnson on Friday February 5, 2016. The Class Notes belongs to ECN 222 - 005 at University of North Carolina - Wilmington taught by Adam Talbot Jones in Spring 2016. Since its upload, it has received 19 views. For similar materials see Macroeconomics in Economcs at University of North Carolina - Wilmington.
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Date Created: 02/05/16
2/5/16 7:59 PM MONDAY FEB 1 10 Principles covered in previous Week 2 and Week 3 materials. A model of aggregate supply and aggregate demand GDP (Gross Domestic Product= Ch.10) Measure the quantity and price of everything • Price Level (average price of everything) o CPI (Consumer Price Index= Ch.11) • Consumption à Aggregate Demand o Investments, Individuals buying things, Corporations buying things, Government buying things • (pretty standard supply and demand graph) with long-run and short-run aggregate supply lines. o Long-run aggregate supply line = steady supply levels (Ch.12) § Depends on labor, capitol, resources, and technology § (yn= natural rate of output quantity) § Yn; Full employment output; Natural rate of output; Potential output (all the names for the same thing) § Vertical line; independent of the price level § Independent of price because resources don’t just increase, the labor (population) doesn’t just suddenly increase with higher prices, and technology doesn’t suddenly increase with higher prices either. They are independent of price levels. o Short-run aggregate supply (Ch.20) § Normal supply line we’re familiar with Supply and Demand is a graphic way to explain what’s happening in markets • Why is there a line outside of a store? • Market = a group of buyers and sellers interacting with each other through prices Perfectly competitive markets = lots of buyers and lots of sellers of the same good. Demand: what buyers will buy at any given price. Law of Demand: as the price of a good falls (becomes cheaper), people will purchase more. Inverse relationship. How to remember a list: create insane, extreme stories to remember lists • 1=run • 2=shoe • 3=tree What determines demand? • Demand of a snickers bar? –cost, hunger, income, substitutes or alternatives?, compliments? (milk or soda), etc. Non-Price Determinants st 1 shifter= Population, number of buyers • Number of buyers shifts demand curve, more buyers = more demand (curve shifts right) o Reduce population à curve shifts left nd 2 shifter= income • increase in income normally increases demand, curve shifts right • Normal Goods: as income increases, demand increases o Steaks, organic fruits/veggies, restaurant visits • Inferior Goods: as income increases, demand decreases o Cafeteria food, Ramen noodles, Spam rd 3 shifter= price of related goods • Substitutes: two goods where the price of one leads to a demand in the other o ramen noodles with spaghetti; spam with beef; cheap alcohol with top shelf alcohol • Compliment: two goods where the increase in the price of one leads to a decrease in the demand of the other o Need both together o Peanut butter and jelly; computers and software; printers and ink WEDNESDAY FEB 3 th 4 shifter= Tastes and preferences • taste= Atkins diet (no carbs); the fad changed the preferences of those on the diet • an event must change taste/preferences • Marketing to shift preferences 5thshifter= Expectations • buy now or later • news à changes expectations (ex: expect rain, buy umbrella) Terminology Matters! • Change in Quantity Demanded: a movement along a fixed D curve, occurs when P changes. Quantity demanded allocates along Demand Curve according to a change in price. Only Price Changes! • Change in Demand: when the whole D curve shifts because of “non- price determinant” changes. Demand Curve shifts left or right because of external factors, so at all prices, buyers either buy more (right shift) or less (left shift) than before the shift. • Demand curve questions o Price of satellite radio decreases, what happens to music downloads? –substitutes, demand curve shifts left o Price of phones decreases, what happens to music downloads? –compliments, demand curve shifts right The Supply Curve • Terms o The quantity supplied of any good is the amount that sellers are willing and bale to sell. o Law of Supply: the claim that the quantity supplied of a good rises when the price of the god rises, all other things equal. o Supply Curve: a graph of the r’ship between price and quantity supplied. • A change in the price causes a movement along the supply curve Non-Price Determinants • Changes in determinants, other than price, shift the supply curve o Input Prices § Increase in input prices supply shifts in/left o Technology § How much of each input is required for a unit of output. § How to produce goods/services § Increases in tech. means fewer inputs per unit of output (higher efficiency) o Number of Sellers § Increase # of sellers, supply shifts out/right o Expectations § Can shift either way § 1) Oil co. in West Texas (desert, on land), a hurricane is coming up through the gulf and oil prices may increase in the future. So, TODAY, you send less product to market, hold off, stock up, and sell more when it gets more expensive. Supply curve shifts in/left. Change in Quantity Supplied: movement along a fixed S curve, occurs when P changes. No other changes. Price increases, supply increases. Change in Supply: a shift in the S curve. Non-price determinants causes a shift left/right. Scenarios • Supply of coffee when wage increases for coffee workers to $20 o Supply curve shifts left (decreases) • Supply of coffee when the price of coffee bean falls o Supply curve shifts right (increases) • Supply of coffee when a bagel shop drops the price of their tea o Supply curve stays the same. Change in quantity supplied only. (IF anything, DEMAND curve changes) Equilibrium • At equilibrium, Q =S (suDply=demand) • Surplus= when Q exceeds Q , when price exceeds equilibrium S D price • Shortage= when Q exceedD Q , when priSe is less than the equilibrium price.
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