Econ Notes 3
Econ Notes 3 ECON 2010
Popular in Principles of Microeconmics
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This 4 page Class Notes was uploaded by Leah Barton on Thursday February 18, 2016. The Class Notes belongs to ECON 2010 at Western Michigan University taught by Kim in Summer 2015. Since its upload, it has received 29 views. For similar materials see Principles of Microeconmics in Economcs at Western Michigan University.
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Date Created: 02/18/16
Econ 2010 Notes 3 Supply -The amount of a good that a firm could and would sell at all possible prices, given the environment. Q: What determines how much is supplied to the market? -Free markets determine how much is supplied. -The price! (Important for supply and demand) Supply Schedule -A table that shows the relationship between the price of a good and the quantity supplied. Law of Supply -As the price goes up, quantity supplied goes up -Opposite of the law of demand. -So it is positively related -As a seller, you want to make as much profit as possible. Q: What is the slope of the Supply Curve? -The curve will have a positive slope and increase. Market Supply vs. Individual Supply -The quantity supplied in the market is the sum of the quantities supplied by all sellers at each price. -Just add to get the total quantity supplied! -They are also positively related. Determinants of Supply: 1. Price of the good 2. Prices of Inputs 3. Technology 4. Number of Suppliers 5. Expectations of future prices Price decreases Quantity supplied decreases -Just like demand you MOVE ALONG THE SUPPLY CURVE Q: What is the ultimate goal in doing business? -To make a profit! -Profit = total revenue-total cost -Price x quantity A change in supply -Opposite of a change in demand An increase in supply =The entire SC shifts to the right (out) A decrease in supply =The entire SC shifts left (in) Q: What determines cost of production? -if a firm can produce the good cheaper then it will want to produce more of the good at all possible prices. Input prices -The cost of production. -What is used in order to create the output! -Wages cost of machines, rent, raw materials, and workers. Ex: Illegal immigrants are willing to work for low wages. This means less cost of production and the supply will increase. The supply curve will shift to the right because we are supplying more! Technology -Better technology makes firm more efficient = more output for some amount of input. Q: What other factors that effect supply? Number of suppliers -If there are more firms in a industry, then more will be supplied at any price Expectation -Future prices -If you are a seller, you expect the price will go up in the future. Do you sell now or later? You sell later! You will make maximize your profit! -Opposite of demand expectations Ex: Suppose there is an increase in the price of steel. We would expect the supply curve for steel beams to____ -Shift to the left -Price of inputs goes up -Cost of production goes up -Supply goes down -Therefore shifts to the left Equilibrium Price -Where price has reached the level where quantity supplied equals quantity demanded. -On the chart, the demand line and the supply line cross at this point. -A perfect market! Disequilibrium -Shortage (=excess demand) Qs < Qd -Surplus (=excess supply) Qs > Qd Three Steps to Analyze Changes in Equilibrium 1. Decide whether event shifts supply curve, or the demand curve, or both, 2. Decide in which direction curve shifts (left or right?) 3. Use supply-demand diagram to see how the shift changes price and quantity. What happens when both supply and demand shifts at the same time? -Supply increases, Demand increases Price ?, Quantity rises -Supply decreases, Demand deceases Price ?, Quantity falls -Supply increases, Demand decreases Price falls, Quantity ? -Supply decreases, Demand increases Price rises, Quantity ?
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