Week 1 notes
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This 5 page Class Notes was uploaded by Taryn manciu on Friday October 2, 2015. The Class Notes belongs to Econ201 at University of Oregon taught by Keaton Miller in Fall 2015. Since its upload, it has received 206 views.
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Date Created: 10/02/15
Week 1 Tuesday HW1 due every Tuesday Economics study of choice specifically choices to allocate scarce resources How consumer makes deacons How they respond to incentives What role does the Gov play in the economy 1 Policy Model Data Organized around the First Welfare Theorem FWT stamen of efficiency of economy Mathematical statement req assumptions Look at implications and why assumptions weren t satisfied 7th edition textbook Demand for textbooks is inelastic relatively insensitive to price Price of text in small cost of overall cost of school Need to buy it because students need it Firms have their own incentives to set high prices Economic market 1 AUCTIONS important to market Treasury bills cell phone spectra ect Can be single or double sided Single only buyers or sellers submit bid hwy const seller art auction buyer Double sided more rare allow both buyer and sellers to submit bids Different levels of information available to participants sealed bid or open outcry Sealed bid bidders have one chance to make bid others cant see bids Open outcry bidders keep going up if someone outbids bids are seen The classic auction is single sided open outcry you can see everyone and everything they have bid on and how much they might be willing to bid to judge how much you should bid on an item Experiment 1 Reservation price is 80 each seller has wholesale price winner goes to lowest bid No one knows bid no one knows cost Make a profit GREAT W1 his cost 60 Bid 40 OWES 20 W2 his cost 65 Bid 66 WON 1 W3 his cost 70 Bid 55 OWES 15 Experiment 2 Seller knows everyone s cost but do not know the bids Wl 2 bid 74 W2 2 bid 75 W3 bid 7299 What is the sale price with one bidder cost 70 bid 80 buyers reservation price is 80 with only one bid you can bid the max and win the sale Experiment 3 Collusion cost is 70 reservation price is 80 3 people decide together place individual bids Wl 80 W2 80 All split the profit W3 80 Collusion enables monopoly or near monopoly profit even when there are multiple firms in the market Colluding to fix prices is illegal in the US and more other countries Electricity auction in UK Uses independent system operator to determine who wins 1 Receives offers to sell from suppliers I will see 10 megawatthours for 25 from 11001130quot Sees forecast of demand Picks Price Quantity and Who Rules Sort s bids by price set price equal to last need to meet demand Uniform price auction 9195 When demand is high it result in a high price Week 1 Thursday Supply and Demand Midterm Nov 3 Electricity auction ideas is that they use an independent system operator collects bid and see a forecast of demand then picks the price quantity and who has the contracts to produce for each 30min period RULE sort bids by price set price equal to last price needed to meet demand quaintly 6 each supplier provides one need 6 suppliers best strategy is to bid closest to your cost If you bid more than your cost chance the system price will be higher than your cost but you will not be in your bid only determines ifyou re in or out Ifyou bid more than your costyou re notgoing to grt more money you re going to reduce the chance that you are a supplier If you make a lower bidyou could not only be in the bid but potentially make a profit but its better to be out of the market than to lose money therefore bid closest to your cost Competitive market a market in which there are many buyers and many sellers so that the behavior of an individual buyer or seller has a negligible impact on the market price EX Market for ipads not competitive because there is only one seller of ipads Market for tablet computer is more completive because there are Apple Samsung and Microsoft there are more sellers in this market which makes it more competitive Supply Demand side of corn market Quantity supplied amount sellers are willing and able to sell Depends on the price of corn If the price is higher more farmers willing to plant corn Might also depend on other things Price of inputs Quantity demanded amount buyers are willing and able to purchase Depends on the price of corn If the price is higher fewer people want to buy corn Price Qs Qd 0 0 0 Supply 50 1 8 100 2 6 150 3 5 200 4 4 Equilibrium 250 5 3 300 6 2 350 7 1 Demand 400 8 0 Equilibrium occur when quantity demanded equals quantity supplied Actions of buyers and seller tend to move market toward equilibrium even if there are temporary shortages or suppliers EX Auto dealers buy too much 2015 stock 9 endofyearsales to clear out inventory Ex Drought causes shortage in water 9 import water from outside their region to fill demand In general we will the market is in equilibrium We are concerned with how the equilibrium moves with changes in the supply and demand Changes represented by shifts in the curves Determinants of demand 1 price a movement along a demand curve note its not a shift P implies Qd law of demand 2 Prices 0 other goods are affected if prices for gas go up the demand for more bikes might increase 3 income the more money you have the more you are willing to buy spend 4 Number of buyers the more people participating in a market the more people willing to buy for particular price after baby boom demand for everything went up because the population escalated quickly 5 Consumer tastes when you re watching TV and you see an ad for an iPod you say man I want thatquot and because of what you say you go out and buy it MA 25 are demand shifters Demand shift gt ame quantity lower higher price 5 for 3 9 5 for 7 Same price high quantity 3 for 5 9 3 for 7 Other demand shifter Income Normal Goods when income goes up demand increases curves shifts to the right 9 cars computers TVs most goods Inferior Good when income goes up demand decreases curve shifts to the left 9 ramen noodles cant afford other food buy lots of ramen when you have more money you never buy them again Goods can be normal for some ranges of income and inferior for other ranges Number of buyers population boom the number of buyers in market increases dramatically shifting demand to the right Consumer tastes apple has successful ad campaign suddenly everyone wants apple products Determinants of supply Own price movement along the supply curve Shifters prices of everything used to produce the good the inputs Labor materials equipment ex If immigrant cuts price of farm labor Number of sellers ex Wheat farmers switching to corn Technology ex New seeds or fertilizer invented Suppose UO invents disease proof cookies Sometimes both curves will shift at the same time 1 Suppose the price of oil goes up oil and corn are substitutes demand shifts up and to the right
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