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Week 2 Lecture Notes - Microeconomics

by: Claire Notetaker

Week 2 Lecture Notes - Microeconomics ECON 201

Marketplace > University of Oregon > Economcs > ECON 201 > Week 2 Lecture Notes Microeconomics
Claire Notetaker
Principles of Economics: Microeconomics
Bekah S

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About this Document

These are my detailed typed lecture notes from week 2. I try to keep them very organized, easy, and detailed. I hope these notes are helpful!
Principles of Economics: Microeconomics
Bekah S
Class Notes
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This 22 page Class Notes was uploaded by Claire Notetaker on Tuesday October 20, 2015. The Class Notes belongs to ECON 201 at University of Oregon taught by Bekah S in Fall 2015. Since its upload, it has received 20 views. For similar materials see Principles of Economics: Microeconomics in Economcs at University of Oregon.

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Date Created: 10/20/15
Class 3 Supply and Demand Claire Dimmick Markets TRADE IS GOOD an economy where buyers and sellers can come together with little government interference Assumptions we can make about markets 0 Types of goods 0 Number of buyer and sellers 0 Market power Competitive Markets vs Market Power are composed of a sufficiently large number of buyers and sellers that market power is small Is little to no market power to influence output and market price 0 The goods sold in competitive markets are usually very homogeneous they have little to no differentiation a market with exactly one firm Supply and Demand In any market there are people who desire a good demand and people who already have or produced it supply the additional value a person places on the next good consumed the total valuation of all the goods consumed Suppose we have the following values Amount of Total Value Marginal Value Coffee lbs TV MV 1 20 2 15 3 10 4 50 5 50 Suppose the price of coffee per pound was 35 0 How much coffee would you buy 0 Suppose the price of coffee per pound was only 10 0 How much would you buy You buy it only if you value it at least as much as the price Marginal Value Rule You want the next pound of coffee only if the marginal value of consuming it is no lower that its price MV 2 P Price Amount of Total Value Marginal Value Coffee lbs TV MV 2O 1 20 20 15 2 35 15 10 3 45 10 5 4 50 5 the price a person is willing to pay for a certain amount of a good reflects the marginal value for that amount Demand the amount of a good that people desire at a give price Notated qd as the price for a good increase ceteris paribus quantity demanded falls visa versa shows the quantity demanded for each price Individual demand for coffee Price of Coffee Pounds of Coffee per pound Demanded per month 25 20 15 10 5 0 mbwwi O Graph 2 5 Coffee lbs H 4 Market Demand the sum of all the individual quantities demanded by each buyer in the market at each price notated Q Q qlq Ex Imagine there are two individuals in a market for salmon namely Meredith and Derek 0 At a price of 20Ib neither Meredith nor Derek want fish c734 0 and q 0 Together the market demand is the sum of their demand ozq q 000 When the price is 15lb Meredith wants 2 pounds and Derek wants 1 pound qW 2 and q 1 quffqu2lz3 akulating Make Demand hit a column Doroh39c do Aland hound Code W p0 pound pot mouth pot not demand 2000 0 1750 500 1250 1000 5 750 S 500 S 750 S 000 ONOJwto 10 2 HUHHd OO Ou vw Pua m m lpu pound poo pound cwpm 510 250 no 9 351m 310 0 6 8390 00 0W A A nunm 0mm Quantity 1 z Quamy pout pa pounds par 9 pct mdn mm mm 0000 w outlaw Mort Donad EX 2 Class Demand for the new iPhone 65 Map of price P to how many would buy Q At 200 9 162 would buy At 400 9 97 would buy At 600 9 40 would buy At 800 9 9 would buy At 1000 9 4 would buy Class Demand for iPhone 63 12C0 lUL U ECO 393 600 c 400 2C0 0 C39 20 40 60 80 100 120 14 160 180 Q181th As price increase fewer people want an iPhone so quantity demanded decreases o Follows law of demand Even though you would only usually buy 0 or 1 iPhone as an individual the small market demand follows the law of demand Shifts in Demand When we change price we move along the demand curve 0 change in quantity demanded Things that affect how much of a good people desire 0 Income Changes in tastes and preferences Price of related goods Expectations over future price Number of buyers Ceteris paribus 0 When we change these other things we need to hold other things constant including price a type of good that buyers want more of as income increase What happened to demand for a normal good with an increase in income 0000 Price of Coffee Pounds of Coffee New Demand per pound Demanded per month 320 0 1 15 1 2 10 2 3 5 3 4 0 4 b P DI 02 0 o 02 03 62 An increase in income shifts the demand curve for a normal good to the right a type of good that buyers want less of as income increases V P2 p What influence your preference for a type of good 0 Some things make you want it more 0 For every price you would demand more of the good 0 Shift to the right 0 Some things cause you to want the good less 0 For every price you would demand less of the good 0 Shift to the left Occasionally the demand we have for a good changes when there are changes in other goods 0 EX PB ampJ 0 Suppose peanut butter becomes more expensive what happens to jelly 0 We tend to eat peanut butter with jelly o If you are eating less peanut butter do you think you would eat less jelly goods that tend to be consumed together 0 As the price of a complement ex jelly increases we demand less of it 0 We also would want less peanut butter because we want less jelly o Shift left in the demand for peanut butter 0 As the price of a complement increases the demand for a good decreases Goods that tend to be consumed in replacement of the other 0 Ex coffee and tea 0 If prices of tea were to dramatically increase due to popularity coffee would be cheaper For every price of coffee the quantity demanded in now higher a Right shift in the demand curve for coffee 0 As the price of a substitute increases the demand for the good increases D103 When you expect prices to fall in the future your demand today decreases When you expect prices to rise in the future your demand today increase gt17 Suppose we are looking at the market demand for Big Macs o McD just opens up new store o What happened to market demand when there are now more buyers of Big Macs At every price there are more people who want things This leads to a shift to the right L 7 Burgers mil Class 4 Supply and Demand Cont 102015 1016 PM the additional cost to a supplier to produce the next good The price that a supplier is willing to take to produce a good is exactly to the marginal cost of producing that good Quantity supplied the amount of a good produced by a supplier at a given price 0 Notation qu Law of Supply as the price of a good increases the quantity supplied increases Supply Schedule Suppose we look at the market for bananas Price of Bananas Quantity Supplied per pound pounds per month 010 100 020 150 030 200 040 250 050 300 P 050 IESupply D I 040 c I E 030 B E 5 S 020 39 quot A E E 010 quot I E E E E qs 100 150 200 250 300 Market supply In competitive markets there are almost always a very large number of suppliers Shifts in Supply 0 Quantity supplied of a good changes when it price changed ceteris paribus What if we hold price constant and change something else 0 This would lead to a shift in supply 0 What affects the supply of a good 0 Cost of inputs Technology or production process Taxessubsidies Number of firms Price expectations 0 Orange juice One year half of the crops are wiped out o Oranges are the primary input in orange juice 0 For each quantity supplied the marginal cost is now higher because the input cost is higher 0 The price that a firm is willing to sell that many goods at is now higher 0 Or for any given price the firm is willing to sell fewer units 0000 Sn L p ya O Q 0 as the price of an input increases the supply of a good decrease shifts left 0 Suppose that there is an improvement in technology to make a good 0 What would happen to the supply of that good 0 Holding price constant would there be more or less quantities suppHed What happens when a technology is eliminated 5 51 0 Consider a case where the gov intervenes and decides to taxt a particular producer 0 Assume for simplicity that this is a flat tax of t dollars per unit produced 0 What happens to the marginal cost of producing each unit 0 Suppose our original supply curve was 51 MC Our new supply curve would be SQ MC t S q S 3 q 75 Suppose the gov decides to give a subsidy to another producer of s dollars per unit produced 0 What happens to the marginal cost for this producer to make the same number of goods Suppose our original supply curve was 51 MC The new supply curve becomes 52 MC s I I JUUJIU Ull PlUUU LIUVl 51 MC Sg MC S qS S Taxes effectively decrease supply shift left Subsidies increase supply shift right Suppose we are looking at a market for soda 0 If new firms decide to produce soda what would happen to the amount sold at any particular price 0 As the number of firms increases holding price constant quantity supplied increases S 7 51 0 If the price of a good is expected to increase in the future holding current prices constant quantity supplied today decreases If the price is expected to decrease in the future quantity supplied today increases 0 Ex Christmas trees 51 L I S c v Q Full Market 0 Consumers want fewer goods as the price increases Suppliers will produce more goods when the price increases L I Equilibrium What price and quantity would make both suppliers and consumers satisfied 0 Full Market Ihe Salmon Market Price l per pound Surplus at a price of 1500 1500 lt 1000 500 4 Y Shortage at a price 0 500 250 560 750 Quantity pounds per month equilibrium occurs when quantity demanded is exactly equal to quantity supplied a condition when quantity supplied is less than quantity demanded due to lower than equilibrium price a condition when quantity supplied exceeds quantity demanded due to higher than equilibrium price Changes in the Market What happens to equilibrium price and quantity when supply and or demand changes Situation 1 Increase in demand no change in supply k 39 h I I I I I I D I I h I I I I I DI I I I I I I 1 1 q 11 2 Situation 2 Increase in supply no change in demand i Q Ht J Situation 3 Decrease in demand no change in supply 72 CH Situation 5 Decrease in supply increase in demand move in different directions 0 There is an unambiguous increase in the price increased demand P decreased supply T P 0 There is an ambiguous change in quantity however increased demand A q decreased supply l q qi qu Situation 6 Decrease in demand decrease in supply move in the same direction 0 There is an unambiguous decrease in quantity decreased demand v q decreased supply i q 0 There is an ambiguous change in price however decreased demand V P decreased supply A P p Q I 102015 10 16 PM


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