ECON 142: Week 2 Notes
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This 4 page Class Notes was uploaded by Cindy Nguyen on Friday February 5, 2016. The Class Notes belongs to ECON 142 at Kansas taught by Dr. Brian Staihr in Spring 2016. Since its upload, it has received 169 views.
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Date Created: 02/05/16
Chapter Three Page 71-72 Demand is “everywhere” Law of Demand At a lower price, a larger quantity is demanded At a higher price, a smaller quantity is demanded As the price changes, the quantity demanded will change All else is held equal (ceteris paribus) Remember! The demand curve slopes DOWN. When the price changes, it causes movement ALONG the curve; “change in quantity demanded” Page 75 A change in something else, like income, cause the ENTIRE curve to shift right or left Demand shift factors: Page 72 1. Income – an increase in income means an increase in demand (shifts right) for most goods or “normal” goods For few goods, increase income means a decrease in demand (shifts left) for “inferior” goods For an individual, from market to market, and/or for an entire country Page 73 2. A change in the price of related goods A change in price of one good, X, can cause a change in the demand for the other good, Y Substitutes – things we buy instead of the other. i.e. Diet Coke vs. Diet Pepsi If price of item A goes up, then demand for item B shifts right Complements – things we buy together to use together. i.e. Hot dogs and hot dog buns If price of item A goes up, then demand for item B shifts left Page 74 3. A change in tastes and/or preferences More popular items shift right Less popular/out of season items shift left Page 75 4. A changes in expectations (price) If one expects higher price on an item in the future, then the demand for it shifts right (increases) You demand more today before the price goes up If one expects a lower price in the future, the demand shifts left (decreases) You demand less today because you know the price will go down; plan to buy tomorrow Page 74 5. Population & Demographics Number of buyers As the overall population increases, the demand will also increase As specific populations increase, specific goods/service demands will also increase So, what can cause a shift in demand? Changes in income, prices of other goods, tastes/preferences, expectations, and demographics Now let’s talk about the Supply Curve The supply curve slopes UP A changes in price causes movement ALONG the supply curve; “change in quantity supplied” A change in something else causes the whole supply curve to shift; “change in supply” Supply shift factors: Page 80 1. A change in technology A positive technology change will shift the supply curve right (increase) Technology “breakthrough” 2. A change in price of inputs If a price of one input increase, then the supply will shift left (decrease) 3. A change in expectations (different from demand) This will do the opposite to a supply curve If a seller thinks that prices of an item will go down in the future, then they will supply MORE today 4. A change in number of (firms) sellers An increase in number of firms will shift the supply curve right (increase) A decrease in the number of sellers will shift the supply curve left (decrease) 5. A change in the price of substitutes production So, what causes a shift in supply? Changes in technology, prices of input, expectations, number of sellers, and prices of other goods (substitutes in production) To remember how to differentiate the two curves when looking at a table: if the price gets smaller and the quantity gets bigger, then it’s a demand curve. Equilibrium Page 82 Market equilibrium is a situation where the quantity demanded is equal to the quantity supplied If the market price is ever ABOVE the equilibrium price, then temporarily there will be EXCESS SUPPLY Suppliers will lower the price to eliminate excess supply until the price decreases down to equilibrium price Page 85 If the market price is BELOW the equilibrium price, then temporarily there is EXCESS DEMAND Supplier will increase prices to eliminate excess demand
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