9/20 and 9/22 notes
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This 4 page Class Notes was uploaded by HD on Saturday September 24, 2016. The Class Notes belongs to CDAE 061 at University of Vermont taught by Joshua Farley in Fall 2016. Since its upload, it has received 6 views.
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Date Created: 09/24/16
9/20/16 Imperfect Free Market or Capitalist Economic Systems o Individual choices determine Which career we pursue Products to buy Who gets what Etc. o BUT Consumer choice is individual preferences weighted by purchasing power No money = no choice What is a market? o Consists of all buyers (or potential buyers) and all sellers (or potential sellers) of a good/service o Future participants can’t participate in todays market (i.e. future generation) *iclicker* According to mainstream theory, which of the following statements about the supply curve is false? o A: True answers = It is curve or schedule showing the quantity of a good that sellers wish to sell at each price It is upward sloping It is determined by marginal opportunity costs It shows that it costs more to produce each additional unit of a good or service Supply curve o Why are marginal opportunity costs increasing? Human costs and comparative advantage Ecological costs Extraction costs o Are the costs always increasing? More detail later o Hamburgers in NYC supply curve example Marginal cost = sellers reservation price = lowest amount at which seller will produce good o What’s the supply curve for land in NYC? *iclicker* Which of the following statements about the demand curve is true? o A: Either C or D?? Demand Curve o A schedule/graph that tells us the quantity of a good that buyers wish to buy at each price o As price of a good/service goes up, what happens to the amount you want to buy? It goes down Unless it’s stock o Demand curve is downward sloping Consumption (use) vs. speculation (exchange to sell later) Law of Demand? o Other things remaining the same, if the price of a good rises ???????? Why do buyer’s purchase greater quantity @ lower prices and vice versa? o Substitution effect Change in quantity demanded of a good that results because buyers switch to/away from substitutes when the price of the good changes Do substitutes always exist? o Epipens don’t have them o Income effect Change in the quantity demanded of a good that results because a change in the price of a good changes the buyer’s purchasing power *iclicker* Which of the following is true? o Headline: Survey = US gas price drops 27 cents over 3 weeks A: all of the above The income effect will induce people to buy more gasoline The substitution effect will lead people to buy more gasoline The substitution effect could lead people to ride their bikes less The income effect could lead people to buy nicer bikes Supply and demand together o Chart Surplus + shortage o Chart 9/22/16 Supply and Demand Part 2 *iclicker* When unemployment rates increased due to the 2007-2009 recession, so did enrollment in universities. What best explains this? o A: shift in the demand curve Distinguishing between o Change in quantity demanded Movement along demand curve that occurs in response to change in price o Change in demand Shift of the entire demand curve or more demanded at any price Example: due to new information about the good More is demanded at any price Predicting/Explaining Changes in Prices and Quantities o Change in quantity supplied Movement along supply curve that occurs in response to a change in price o Change in supply Shift of entire supply curve Example: due to a new technology or lower input Shifts in demand o Complements An increase in the price of one causes a decrease in the demand of the other If a decrease in supply of an unpriced good leads to a decrease in demand for a market good or vice versa o Substitutes Two goods are substitutes in consumption if an increase in the price of one causes an increase in demand for the other If increase in supply of an unpriced good leads to a decrease in demand for a market good and vice versa Example: water and water bottle o Shifts in demand = Changes in demand NOT the same as change in quantity demanded An increase in the demand for a good will shift the demand curve to the right What might cause a change in demand? o Change in income Normal good One whose demand increases when the incomes of buyers increase Inferior good One whose demand decreases when the incomes of the buyer increase Think slums Factors that cause an increase in demand o Decrease in price (or increase in supply) of complements to the good or service o An increase in the price (or decrease of supply) of substitutes for the good or service o Increase in income (for a normal good) o Advertising o Increased preference by demanders for goods or service o An increase in the population of potential buyers o An expectation of higher prices in the future speculative demand and stocks o Increase in value of national currency o ANY OF THESE WILL CHANGE PRICE AND CAUSE A CHANGE IN QUANTITY SUPPLIED OF MARKET GOOD, NOT NON-MARKET GOOD *iclicker* Which of the following would be likely to cause a decrease (downward shift) in demand? o A: Decrease in income (for a normal good) Determinants of Supply o International markets o Expectations o Weather o Number of sellers o Subsidies o Cartels What determines supply of natural resources? o Non-renewables New discoveries Rate of extraction o Renewables Rate of replenishment Rate of extraction Pollution, etc. o Ecosystem services Ecosystem health Factors that cause increase in supply o A decrease in the cost of materials, labor, or other inputs used in the production of the good or service o An improvement in technology that reduces the cost of producing the good or service o New Subsidies o An improvement in the weather, especially for agricultural products o An increase in the number of suppliers (e.g. foreign countries) o An expectation of lower prices in the future o Devaluation in the currency of an exporting country o ANY OF THESE WILL CAUSE A CHANGE IN PRICE, AND A CHANGE IN QUANTITY DEMANDED
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