Week 3 Notes of Micro-economics
Week 3 Notes of Micro-economics ECON 2022
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This 4 page Class Notes was uploaded by Paige Holub on Sunday February 14, 2016. The Class Notes belongs to ECON 2022 at University of Colorado Denver taught by Brian Duncan in Winter 2016. Since its upload, it has received 42 views. For similar materials see Principles of Microeconomics in Economcs at University of Colorado Denver.
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Date Created: 02/14/16
Paige DeWitt-Holub “Lecture #4: I. Supply A. Law of Supply B. Determinants of supple II. Equilibrium A. Excess supply B. Excess Demand C. C. Equlibrium P+ and Q+ III. Shift in supply and demand I.Supply- is a schedule of prices and quantity, holding everything else constant. 1 Law of supply – all else equal, firms want to sell more of something as its price increases.” As the supply goes up more is sold, similar to the law of demand -Theoretically should always increase at an incline, rationally speaking, but this doesn’t actually happen so it never alters the cost, only the amount sold Also, markets change with variable members, based on logical margins of profit Intensive Margins-how much more w/in a firm sold Extensive Margins-how much in a market -can test on a graph as what is the lowest and/or highest price (>>> = lowest) quantity demand goes from _ to _?, shifting right is an increase in price -the separation between cost of labor inputs and technology/production function process -substitutes = prices of other goods the firm could produce “B. Determinants of Supply- 1. Price* -> is a determinant of quantity supplied 2. Prices of inputs 3. Prices of other goods the firm could produce 4. Technology 5. Capacity 6. Expectations” II. Equilibrium graph – (QS>QD) not a competitive market, not forcing anyone to do anything, so only one thing would be sold in correlation to the 1 quantity demanded (QD) and the 5 quantity supplies (QS), with supply and demand crossed (demand going down) and that is excess supply when it’s sold cheaper/surplus —the question is the price (originally $14), and another seller is selling it for cheaper in the market (9$), a surplus might be the reason why the price went down (…prediction that price is decreasing) 1 Please note everything under footnotes has been taken from the board of Professor Duncan -***center point on a graph is considered to be stable -also can’t force the sellers to buy things they don’t want to ! (theoretically..) -shortage in consumers?/excess demand in correlation to not enough supply ultimately leads to a shortage(QD > QS) -Finally, the seller will only sell to the point where only one price is agreed upon by the customer and in this graph, QD=QS (Quantity Demanded = Quantity Supplied) equal price* of $12 and the quantity of 3 always -IF there is a NEGATIVE amount of what was there (natural disaster, etc.) SUPPLY goes down, or maybe the price goes up and the quantity goes does and so supply goes up because there is not stability in the factors -ex. Ecoli will make the demand shift left/go down, quantity should then go down, and finally price would not go up because it is not how businesses work to make a profit ex. Chipotle (prices didn’t necessarily go down every where, which is actually kind of scary that Americans like Chipotle that much) – destroying all of something is very detrimental to equilibrium shift left in the quantity equals a decrease in supply IF there was also a decrease in demand, then both price and quantity go down If there is only a decrease in demand, then price goes down and it’s parallel to the first demand line Market for demand of vitamin water and then there is an initiative trying to sell more and then there is a huge increase in demand this line will shift parallel to the right & supply actually goes up -Slope of a Supply Curve = elasticity (of supply and demand), some good where suppliers increase the price where suppliers want to increase the price will appear more steep -2/10 “Lecture #5 I. Elasticity of supply and demand II. Two ways to calculate elasticity A. The arc elasticity formula B. The point elasticity formula III. Elasticity along a linear demand” I. change in price could be a change in quality, varies – -elastic = moveable quantity (in the first graph example has a steep slope but really there is more to this than that), inelastic = few small or no shift in quantity -what numbers do you specifically need to factor into elasticity and obviously you can’t change the measure on a whim to determine elastic vs. inelastic ->>>>>>> ratios formulas: slope= change in price/ change in quantity -inverse of the slope is almost what elasticity: elasticity = %quantity changed/%some given price define elasticity by its percent Ex. Gas doesn’t usually affect the quantity purchased, might sell your car or move if it’s that bad Elasticity – Elasticity of demand = percent change in quantity demanded / percent change in price Percent change in the quantity demanded = (will be) whatever the elasticity of demand it x (multiplied by) the change in price -by increasing the price, quantity goes down ^^ always going to be negative numbers Ed (Elasticity of Demand) (always neg) (always pos) Es (Elasticity of Supply) -------------------------(-1)------------------------0------------------------- 1------------------------------ Elastic Unit Elastic (-1) inelastic (-1 to 1) Unit Elastic (1) Elastic -1/3 is bigger than -2 *remember this rule of negative numbers Elasticitys of demand that are either great than -1, less than, or equal So “Ed > -1 % change of quantity demanded = - %(-1/2) change in price called inelastic Ed = -1 % change of quantity demanded = - % change in price called the unit elastic E< -1” percent change of quantity demanded = -2 % change in price elastic All this turned around is essentially supply change -what is the actual number amount for the difference that signifies elasticities Calculating Number formulas: A. the Arc elasticity formula B. the Point elasticity formula -demand curve line graph, considered to be a straight line going down but may not necessarily be -Elasticity of demand = percent change in quantity/percent change in price what is the percent change in quantity 2 / 4 = 50% increase 2/6 = 33% decrease to calculate the percentage increase of two points where the quantity changes, divide by midpoint The Arc elasticity formula: Divide by midpoint always, so between 6 and 10 on the x axis is Ed = (change in quantity) divided by (quantity 1 + quantity 2) divided by 2 Over (wholly divided by) change in price divided by (price 1 + price 2) divided by 2 Take the reciprocal or flip fractions when dividing them Only pay mind to the negative if the answer is going to be negative (i.e. the line it going down to the right) 4/5’s is inelastic The Point Elasticity Formula is calculating a point on a line, the change at a point, which would really be the number of a limit in elasticity -limit reaches a convergent point between two points at point B The Point elasticity formula: Elasticity of Demand = % change in quantity / % change in price Percentage change in quantity divided by change in quantity / quantity % change in price = change in price / price Ed = (change in quantity divided by quantity)/(change in price divided by price) Ed= (change in quantity / quantity)(change in price / price) Ed = (change in quantity / quantity)(change in price / price) Ed = (1/slope ) (P / Q) What you will need to be able to do: plug in numbers and calculate correctly after/before drawing on a graph, areas from day 1 All the prices lower than 3 are inelastic and higher are elastic, even if they are also negative For one example, the point that is the unit elastic is also the very middle or midpoint of the line (3), always this point, this rise / run or ½ rise / ½ run always leads to this at the midpoint Elasticity of demand(only at the midpoint) is 1/ slope and slope = -1 Non-liner DEMAND CURVES: slope is still very simple, plug in a a non-linear function, calculate the line that is tangent to this line – arc elasticity formula otherwise it is calculus < - could do this graphically with lines going down one over whatever amount needed, etc. II. Elasticity along a linear demand
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