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Eco 110-Week 3

by: Frankie Bjork

Eco 110-Week 3 ECO 110

Frankie Bjork
UW - L

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About this Document

These are all the notes on supply and demand that will be covered on the first quiz and exam.
Microeco & Pub Pol
Amena Khandker
Class Notes
Economics, Microeconomics, Eco 110
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This 5 page Class Notes was uploaded by Frankie Bjork on Friday February 12, 2016. The Class Notes belongs to ECO 110 at University of Wisconsin - La Crosse taught by Amena Khandker in Spring 2016. Since its upload, it has received 9 views. For similar materials see Microeco & Pub Pol in Economcs at University of Wisconsin - La Crosse.


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Date Created: 02/12/16
Eco 110: 2/09-2/11 Chapter Three The Market Forces of Supply and Demand Out of one consumer dollar Housing: 33 cents Food: 21 cents Transportation: 13 cents Entertainment: 7 cents Medicare: 11 cents Clothing: 6 cents Others: 11 cents Item Consumption per capita Beer 32 gallons Wine 2.5 gallons Milk 28 gallons Eggs 298 Beef and Veal 130 pounds Pork 62 pounds Potatoes 121 pounds Coffee 9.4 pounds Cigarettes 3104 Refrigerator 1 per 38 persons Television sets 1 per 14 persons Automobiles 1 per 17 persons Gasoline 476 gallons 1500 pounds of food per year per person Affluent Teenagers (% of U.S. teenagers own these items) Camera86% Stereo 66% Television 34% Telephone 21% Auto 16% Stocks, Bonds 14% Computer 12%  Demand: willingness and ability to buy o Demand for a specific product is determined by:  Price (of this good)  Tastes (desire for this and other goods)  Desire: when you want to buy something but don’t have the money for it  Income (of the consumer)  Prices of other goods  Expectations (for income, prices, tastes)  Number of buyers o Price change and movement along the demand curve  Ceteris Paribus: “other things being equal”  Quantity demanded: the amount of a good that buyers are willing and able to purchase at a given price  Law of Demand: the quantity demanded of a good falls when the price of the good rises and vice versa, cp.  Demand Schedule: table that shows the relationship between quantity demanded and price An individual buyer’s demand for corn (hypothetical situation) Price per bushel (dollars) Quantity demanded per week 5 10 4 20 3 35 2 55 1 80  Individual demand curve: a graph showing the relationship between the price of a good and the quantity demanded o Movement along the curve when only price changes 6 5 4 3 Price (dollars) 2 1 0 10 20 35 55 80 Quantity Demanded (QD) Market Demand: sum of all individual demand curves Quantity Demanded Price per First buyer Second Third buyer Total (dollars) bushel buyer (dollars) 5 10 12 8 30 4 20 23 17 60 3 35 39 26 100 2 55 60 39 154 1 80 87 54 221  Shift of the Demand Curve: change in quantity demanded at any given moment o Change in tastes in favor or against the commodity o Change in income  Normal good: increase in income increases demand  Inferior good: increases in income decreases demand o Change in the price of related good  Substitute: when price of one falls, demand of the other decreases  Complementary: when price of one falls, demand of other increases o Change in expectations o Change in number of buyers  The supply of a product is determined by: o Price (of the product) o Technology o Resource costs o Taxes and subsidies o Prices of other goods o Expectations o Number of sellers  Price change and movement along the supply curve o Quantity supplied: amount of a good the sellers are willing and able to sell at a given price, cp. o Law of Supply: the quantity supplied of a good rises as the price of the good rises and vice versa, cp. o Supply Schedule: a table that shows the relationship between quantity supplied of a good and it’s price An individual producer’s supply of corn (hypothetical situation) Price per bushel (dollars)Quantity supplied per week 5 60 4 50 3 35 2 20 1 2  Market Supply Curve: sum of all individual supply curves o Shift in the supply curve: change in the quantity supplied at any given price  Technology: improved technology increases supply  Resource prices: rise in resource prices reduce supply  Taxes (subsidies): higher taxes (and lower subsidies) reduce supply  Prices of other goods  Expectations  Number of sellers: higher the number, higher market supply o Market equilibrium: a situation where, at a market price, quantity demand equals quantity supplied Market Supply and Demand for corn (hypothetical situation) Price (dollars) Quantity Quantity Surplus (+), supplied demanded Shortage (-) 5 12,000 2,000 +10,000 4 10,000 4,000 +6,000 3 7,000 7,000 0 2 4,000 11,000 -7,000 1 1,000 16,000 -15,000 Changes in equilibrium: a. A shift in the demand curve is called “change in demand” and a shift of the supply curve is called “change in supply”. b. A movement along a fixed demand curve is called a “change in quantity demanded” and movement along a fixed supply curve is called a “change in quantity supplied”. Changes in demand and supply: a. Increase (decrease) in demand increases (decreases) price and quantity. b. Increase (decrease) in supply decreases (increases) price and increases (decreases) quantity. Changes in both supply in demand: where demand and supply both change


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