Econ 110 notes week 4
Econ 110 notes week 4 Econ 110
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This 4 page Class Notes was uploaded by Sydney Clark on Tuesday September 27, 2016. The Class Notes belongs to Econ 110 at Brigham Young University taught by Kearl in Winter 2016. Since its upload, it has received 105 views.
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Date Created: 09/27/16
Econ 110 notes week 4 Assume all individuals are o 1.) Rational o 2.) Optimizers/ Maximizers Behavior 1.) choose activity level (“Q”) o So MC=MB o So that…. (MBa/MCa)=(MBb/Mcb)=………. A: all consumed 2.) Ignore sunk costs Prescriptive Descriptive Assume that you WANT to optimize Assume this and this must be true If MB> MC means… Q Must describe situation and outcome If MB < MC means… Q Assume you’re optimizing For any economy you need a PRICE and self interesting o “a Little government.” Define and enforce property rights Enforce contracts Where do the price come from? o 1.) government announce price (AB @ price 41) o 2.) Cultural norms (currency) o 3.) Markets that bring together selfinterested people 1.) Have money, want goods, services inputs “demanders” 2.) Have goods, want money “suppliers” Market is a set of related transactions o o QTY/unit of time “Q” Dollars may not tell us if the relative price changes Cetaus Parabus: All else= if everything else and we can measure the relative price change o Quantity demanded exceeds quantity supplied “excess D” o Qp>Qs exceeds D o Both sides of market would prefer different prices Buyers would rather buy something than nothing Predict P* or equilibrium Demanders: Have $ and want goods o Inverse relationship between price and quantity Substitution o Demand curve is a picture of an idea 1.) (MBa/ Pa)= (MBb/ Pb) o Point of a demand curve you can always substitute Prices are determined by the marginal buyer Demand curve us a picture of diminishing marginal willingness to pay Consumer surplus o o Markets produce surpluses Value willing to pay o Price isn’t the only thing that matters 1.) income 2.) price of other goods 3.) transaction costs 4.) expectations What happens when income increases?? If Pb QTa =substitute If Pb QTa =complements If you follow transaction costs you’d be willing to pay more If expected price tomorrow goes up the demand curve would shift up Can everybody expect prices to go up?? o The expected price today has to be the same as tomorrow