Week Two- Chapter 3 Notes
Week Two- Chapter 3 Notes Econ 1011
Popular in Principles of Economics: Microeconomics
verified elite notetaker
Popular in Economcs
One Day of Notes
verified elite notetaker
verified elite notetaker
verified elite notetaker
Alice Wei Tian
verified elite notetaker
verified elite notetaker
verified elite notetaker
This 6 page Class Notes was uploaded by Alex on Sunday September 13, 2015. The Class Notes belongs to Econ 1011 at George Washington University taught by Henry Terrell in Spring 2015. Since its upload, it has received 61 views. For similar materials see Principles of Economics: Microeconomics in Economcs at George Washington University.
Reviews for Week Two- Chapter 3 Notes
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 09/13/15
Econ 1011 Supply and Demand 9815 Chapter 3 I Introduction A To most people quotsupply and demandquot is a phrase for quotthe laws of the marketplace at workquot B To economists the concept of supply and demand has a precise meaning it is a model of how a market behaves ll Supply and Demand A Model of a Competitive Market A Market a group of producers and consumers who exchange a good or service for payment B Competitive Market a market in which there are many buyers and sellers of the same good or service 1 No individual s actions have a noticeable effect on the price at which the good or service is sold a This is not an accurate description of every market C Easier to model competitive markets D Supply and Demand Model a model of how a competitive market behaves 1 Five key elements a Demand curve b Supply curve c Set of factors that cause the demand curve to shift set of factors that cause the supply curve to shift d Market equilibrium including the equilibrium price and equilibrium quantity e The way the market equilibrium changes when the supply or demand curve shifts Ill The Demand Curve A Example How much natural gas will Americans want to buy in a given year 1 Depends upon the price of natural gas 2 When the price of natural gas falls consumers will generally use more natural gas B In general the amount of any given good or service that people want to buy depends upon the price 1 The higher the price the less of the good or service people want to purchase 2 The lower the price the more they want to purchase IV The Demand Schedule and the Demand Curve A Demand Schedule table showing how much of a good or service consumers will want to buy at different prices B Quantity Demanded the actual amount consumers are willing to buyout some specific price 1 As the price rises the quantity demanded falls C Demand Curve graphical representation of the demand schedule 1 Shows relationship between the quantity demanded and price D Demand curve slopes downward 1 Reflects the inverse relationship between price and the quantity demanded a Higher price reduces the quantity demanded b Lower price increases the quantity demanded As price falls we move down the demand curve and quantity demanded increases As price increases we move up the demand curve and the quantity demanded decreases G In reality demand curves almost always slope downwards 7quot Econ 1011 Supply and Demand 9815 Chapter 3 H Law of Demand the proposition that a higher price for a good other things equal leads people to demand a smaller quantity of that good V Shifts of the Demand Curve A Shift of the Demand Curve change in the quantity demanded at any given price represented by the change in position of the original demand curve to a new location B Movements Along the Demand Curve changes in the quantity demanded of a good arising from a change in that good s price C Quantity demanded can also rise when the price is unchanged if there is an increased demand a rightward shift of the demand curve D The demand for X increased or the demand for Y decreased means that the demand curve for X or Y shifted 1 The quantity demanded did not rise or fall because of a change in price Vl Understanding Shifts of the Demand Curve A Increase in demand means a rightward shift of the demand curve 1 At any given price consumers demand a larger quantity of the good or service than before B Decrease in demand means leftward shift of the demand curve 1 At any given price consumers demand a smaller quantity of the good or service than before C Principe factors that shift the demand curve for a good or service 1 Changes in the prices pf related goods or services 2 Changes in income 3 Changes in tastes 4 Changes in expectations 5 Changes in the number of consumers D When the quantity of a good or service demanded falls as its price rises other things equal we are saying that the factors that shift demand are remaining unchanged Vll Changes in the Prices of Related Goods or Services A Substitutes a pair of goods in which the rise in price of one good makes consumers more likely to buy the other good 1 Usually goods that in some way serve a similar function a Ex Heating oil and natural gas B Complements a pair of goods in which the rise in price of one good makes consumers less willing to buy another good 1 Usually goods that in some sense are consumed together a Ex Computers and software Vlll Changes in Income A Normal Goods the demand for them increases when consumer income increases B Inferior Goods goods for which demand decreases when income rises 1 A good that is considered less desirable than more expensive alternatives a Bus ride vs taxis C Fall in income shifts the demand curve to the right IX Changes in Taste A People have certain preferences that determine what they choose to consume and these tastes can change 1 Changes due to fads beliefs cultural shifts etc B Change in taste has a predictable impact on demand Econ 1011 Supply and Demand 9815 Chapter 3 1 When tastes change in favor of a good more people buy it at any given price a Demand curve shifts right When tastes change against a good fewer people buy it at any given price a Demand curve shifts left 2 X Changes in Expectations A B C XI Ch A B C When consumers have a choice about when to make a purchase current demand is often affected by expectations about its future price Expectations of a future drop in price lead to a decrease in demand today 1 Expectations of a future rise in price are likely to cause an increase in demand today Expected changes in income also can lead to changes in demand anges in the Number of Consumers Individual Demand Curve shows the relationship between quantity demanded and price for an individual consumer Market Demand Curve shows who the combined quantity demanded by all consumers depends on the market price of the good 1 Horizontal sum of the individual demand curves of all consumers in that market An increase in in the number of consumers leads to an increase in demand XII The Supply Curve A XIII A Quantity Supplied the quantity that producers of a good or service are willing to produce and sell 1 Depend on the price they are offered The Supply and Schedule and the Supply Curve Supply Schedule shows how much of a good or service would be supplied at different pnces Supply Curve shows the relationship between quantity supplied and price 1 Normally a higher price leads to a higher quantity supplied Supply curves usually slope upwards the higher the price being offered the more of any good service producers will be willing to sell Shifts of the Supply Curve Shift of the Supply Curve change in the quantity supplied at any given price Movements Along the Supply Curve changes in the quantity supplied arising from a change in price The quantity supplied can also rise when the price is unchanged if there is an increase in supply a rightward shift of the supply curve XV Understanding Shifts of the Supply Curve A B C XVI A Increase in supply means a rightward shift of the supply curve 1 At any given price producers supply a larger quantity of the good than before Decrease in supply means a leftward shift of the supply curve 1 At any given price producers supply a smaller quantity of the good than before Shifts of the supply curve are a result of five main factors 1 Changes in input prices 2 Changes in the prices of related goods or services 3 Changes in technology 4 Changes in expectations 5 Changes in the number of producers Changes in Input Prices To produce output you need input Econ 1011 Supply and Demand 9815 Chapter 3 B Input any good or service that is used to produce another good or service 1 Inputs have prices an increase in the price of an inout makes the production of the final product more costly for those who produce and sell it a This makes producers less willing to supply the good or service at any given price 1 Supply curve shifts left supply decreases 2 Fall in the price of an output makes the production of the final product less costly for sellers a This makes producers more willing to supply the good or service at any given price 1 Supply curve shifts right supply increases XVII Changes in the Prices of Related Goods or Services A When a producer sells several products the quantity of any one good it is willing to supply at any given price depends on the prices of its other coproduced products XVIII Changes in Technology A Improvements in technology enable producers to spend less on inputs yet still produce the same amount of output 1 Supply increases and the supply curve shifts to the right XIX Changes in Expectations A When suppliers have a choice about when they put their good up for sale changes in the expected future price of the good can lead a supplier to supply less or more of the goodtoday B There is a decision of whether to sell the product now or to store it for later sale C An increase in the anticipated future price of a good or service reduces supply today 1 Supply curve shifts left D A decrease in the anticipated future price increases supply today 1 Supply curve shifts right XX Changes in Number of Producers A Individual Supply Curve shows the relationship between quantity supplied and price for an individual producer B Market Supply Curve shows how the combined total quantity supplied by all individual producers in the market depends on the market price of that good 1 Horizontal sum of the individual supply curves of all producers C An increase in the number of producers leads to an increase in supply and a rightward shift of the supply curve XXI Supply Demand and Equilibrium A Markets moving towards equilibrium is a principle in which no individual would be better off taking a different action A competitive market is in equilibrium when the price has moved to a place at which the quantity of a good demanded equals the quantity of that good supplied Equilibrium Price price that matches the quantity supplied and the quantity demanded Equilibrium Quantity the quantity bought and sold at that price MarketClearing Price the price that quotclears the marketquot by guaranteeing that every buyer willing to pay that price finds a seller willing to sell at that price XXII Finding the Equilibrium Price and Quantity A Found by putting the supply and demand curves on the same diagram B The price at which two curves cross is the equilibrium price 07 W90 Econ 1011 Supply and Demand 9815 Chapter 3 XXIII Why Do All Sales and Purchases in a Market Take Place at the Same Price A There are some markets in which the same goods and services can be sold for different pnces 1 Ex Tourist destinations because tourists don t know which shops offer the best deals and don t have time for comparison shopping B In a market where the buyers and sellers have been around for some time sales converge at a uniform price 1 The market price XXIV Why Does the Market Price Fall If It Is Above the Equilibrium Price A Surplus excess supply B Surplus offers an incentive for those frustrated sellers to offer a lower price in order to poach business from other producers and coax more consumers to buy 1 The result is to push down the price until it reaches the equilibrium price C The price of a good will fall whenever there is a surplus XXV Why Does the Market Price Fall If It Is Below the Equilibrium Price A Shortage excess demand B There are frustrated buyers who want to purchase a good but cannot find willing sellers at the current price either buyers will offer more than the current price or sellers will realize that they can charge higher prices 1 The result drives up the current price C The price of the good will rise whenever there is a shortage XXVI What Happens When the Demand Curve Shifts A When demand for a good of service increases the equilibrium price and the equilibrium quantity of the good or service both rise B When demand for a good or service decreases the equilibrium price and the equilibrium quantity of the good or service both fall C An increase in demand leads to a rise in both the equilibrium price and the equilibrium quantity a decrease in demand leads to a fall in both the equilibrium price and the equilibrium quantity XXVII What Happens When the Supply Curve Shifts A When supply of good or service increases the equilibrium price of good or service falls and equilibrium quantity of good or service rises B When supply of good or service decreases the equilibrium price of good or service rises and equilibrium quantity of good or service falls C An increase in supply leads to a fall in the equilibrium price and a rise in the equilibrium quantity a decrease in supply leads to a rise in the equilibrium price and a fall in the equilibrium price and in the equilibrium quantity XXVIII Simultaneous Shifts of Supply and Demand A When demand decreases and supply increases actual quantity bought and sold goes either way depending on how much the demand and supply curves shift B When supply and demand curves shift in opposite directions we can t predict the ultimate effect on the quantity bought and sold 1 We can conclude this a Demand decreases and supply increases equilibrium price falls but the change in the equilibrium quantitv is ambiguous b Demand increases and supply decreases equilibrium price rises but the change in the equilibrium quantitv is ambiguous Econ 1011 Supply and Demand 9815 Chapter 3 C When supply and demand curves shift in the same direction we can predict the change XXIX in quantity bought and sold but the change in price is ambiguous 1 We can conclude this a Both demand and supply increase equilibrium quantity rises but the change in eduilibrium price is ambiguous b Both demand and supply decrease equilibrium quantity falls but the change in eduilibrium price is ambiguous Competitive Markets And Others When a market is competitive individuals can base decisions on less complicated analyses than those used in a noncompetitive market
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'