EC 101 (Textbook & Lecture Notes) - Week 3
EC 101 (Textbook & Lecture Notes) - Week 3 EC101 (Economics, Manove, INTRODUCTION TO MICROECONOMICS)
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This 6 page Class Notes was uploaded by Candace on Saturday September 24, 2016. The Class Notes belongs to EC101 (Economics, Manove, INTRODUCTION TO MICROECONOMICS) at Boston University taught by Manove in Summer 2016. Since its upload, it has received 51 views. For similar materials see Introductory Microeconomic Analysis in College of Arts and Sciences at Boston University.
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Date Created: 09/24/16
MICROECONOMICS (EC101) WEEK 3 NOTES TEXTBOOK NOTES (Pgs. 55-60) 1. Chapter 3 – Demand, Supply, and Market Equilibrium A. Supply in Product/Output Markets 1. Price and Quantity Supplied: The Law of Supply a. Quantity supplied – amount firms are willing and able to offer for sale at particular price during given period of time. b. Supply schedule – shows how much of a product firms will sell @ various other prices c. Law of supply – positive relationship between price/quantity of good supplied *Increase/decrease in market price = increase/decrease in quantity supplied d. Supply curve – graph of relationship between price and quant. supplied 2. Other Determinants of Supply a. The Cost of Production -Depends on factors: *Available technology *Prices/quantities of inputs b. The Prices of Related Products -Price fluctuates depending on prices of related products 3. Shift of Supply vs. Movement along a Supply Curve a. Movement along a supply curve -Change in quant. supplied due to change in price b. Shift of Supply Curve -Change corresponding to new relationship between quant. supplied and price of specific good; shift = change in original conditions *Change in costs, input prices, technology, price of related goods 4. From Individual Supply to Market Supply a. Market Supply -Sum of all supplied by all producers of specific product each period *Positive of market supply curve depends on position/shapes of individual firms’ supply curves *Also depends on number of firms producing in specific market B. Market Equilibrium 1. Excess Demand (Shortage) a. Quantity demanded is greater than quantity supplied at current price b. Price rationing - prices rise until quant. demand/supply are equal again 2. Excess Supply (Surplus) a. Quantity supplied exceeds quantity demanded at current price b. Prices fall to decrease quant. supplied, increase quant. demand equilibrium 3. Changes in Equilibrium a. Example: -Freeze (bad weather) in Brazil/Colombia decreased supply of coffee beans price increase due to higher demand than what is supplied LECTURE NOTES 1. Consumer Surplus, Production, and Supply A. Willing to Pay (WTP) 1. Max amount consumer pays for goods/services Ex: Trump Mask *Willingness to pay $60 *Price: $12 *Consumer surplus = $60 - $12 = $48 (CS = WTP – price) B. The Production Process 1. Series of transformations *Primary inputs/factors – provided by households to transform to final goods -Use for consumption -Use as tool further production *Intermediate inputs/goods/services – used to create final goods/services -Labor services – human work -Capital services – capital goods (tools) *Physical *Human *Social -Land services – resources provided by nature C. Availability of Primary Factors 1. Determined by both non- & economic forces Ex: Labor depends on: *Working age population *Labor-force participation rate Ex: Land *Mostly depends on nature (EXCEPT human-built lands; ex: Back Bay) 2. Capital formation *Results from availability of capital goods *Economic process over time *“Sacrifice now, have more later” -Most important for poor countries rich Ex: Rabbit hunter *W/o tools not effective minimal catches per week eats raw *CAPITAL FORMATION -Makes sling (physical capital) becomes expert (human capital) -Investing time to learn to make/use -Sacrifice already low consumption -Complete sling a catch per day & extra meat (returns to capital) D. Production and Supply 1. Supply determined by: *Amount of primary & intermediate inputs needed to produce desired quantities of output *Opp. cost = primary & intermediate inputs used Ex: Milk Production *Uses services of primary factors (Farmland, dairy cows, barns, milking machines, etc.) *Intermediate inputs (Grain to feed cows, fuel/electricity, etc.) *Quantity of milk determined by: -Quantity of inputs diff amounts of milk -Opp. cost = inputs E. The Supply Schedule 1. Specifies how much firm sells @ various given prices in list form F. Supply Curve 1. Graph of supply schedule 2. Always upward/positive slope *Higher prices using more expensive inputs to increase production G. Market Demand 1. Total quantity of a good demanded by ALL buyers @ any given price H. Market Demand Curve 1. Graph = individual demand 2. Price (independent variable) = y-axis 3. Quantity demanded (dependent variable) = x-axis I. Market Supply 1. Total quantity offered by ALL sellers at various prices 2. Market Equilibrium, Demand and Supply Shifts A. Market Equilibrium 1. Quantity supplied = quantity demanded @ market price *Equilibrium price – price in market equilibrium *Equilibrium quantity – quantities supplied/demanded 2. Above Equilibrium Price (Quant. supplied > quant. demanded) *Excess supply 3. Below Equilibrium Price (Quant. supplied < quant. demanded) *Excess demand 4. Price change move along curve B. Demand Curve Shift 1. Changes that affect quant. demands @ EVERY price -Following can change position of demand curve: *Consumer preferences *Income of consumers *Price of other goods *Expectations about future -Usually does not affect supply curve C. Changes in Consumer Preferences 1. New info 2. Fashion 3. Experience D. Incomes and Demand 1. Affected by households’ incomes *Normal goods – income increases; demand increases *Inferior goods –income decreases; demand increases E. Substitutes 1. Two goods – can use one in place of other 2. Demand for A increases when $ of sub. B increases consume more of A @ every price F. Complements 1. Two goods normally used together 2. Demand of A decreases when $ of B increases b/c B is too expensive so A is less useful G. Supply-Curve Changes 1. Changes that can affect quants. supplied @ every price *Price of inputs *Technology *Economic environment -taxes -gov’t regulations -weather
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