Principles of Economics
Principles of Economics ECON 2102
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This 95 page Class Notes was uploaded by Abraham Schoen on Sunday October 25, 2015. The Class Notes belongs to ECON 2102 at University of North Carolina - Charlotte taught by Hui-Kuan Tseng in Fall. Since its upload, it has received 38 views. For similar materials see /class/229019/econ-2102-university-of-north-carolina-charlotte in Economcs at University of North Carolina - Charlotte.
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Date Created: 10/25/15
Chapter 03 Supply and Demand Learning Objectives 0301 Know the nature and determinants of market demand 0302 Know the nature and determinants of market supply 0303 Know how market prices are established 0304 Know what causes market prices to change 0305 Know how government price controls affect market outcomes Market Participants Four different groups participate in our economy Consumers Business firms Government International participants Market Participants All participants for the most part are trying to obtain the maximum return from the scarce resources they have Consumers maximize the utility satisfaction of unmet wants they can get from available incomes Businesses maximize profits by selling goods that satisfy while keeping costs low Government maximize the general welfare of society These motives explain most market activity The Two Markets Factor markets Any place factors of production eg land labor capital are bought and sold Product Markets Any place finished goods and serVices are bought and sold The Circular Flow Goods and services mduc demanded markets 7 x 7 Goods and services supplied H u Business Consumers Firms Factors of production suppIIed V 1 r u r e Factors of Factor productlon demanded markets The Circular Flow International Goods and services Product partlmpa ts demanded ma rkets Goods and services supplied IConSumers lt I I I I I I IG39overnmentsI I I I I I I I D Business Firms Fatth 7 A Factors of production supplied production demanded I nternationa markets participants 39 Demand Analysis A Law of Demand The quantity ofa good demanded in a given time period increases as its price falls ceteris paribus Implies relationship between price and quantity demanded of a good B Demand Curve 1 def A demand curve shows the relationship between the quantity demanded of a good and its price in a given time period holding other things being constant Demand Schedule Price of Tutoring per hour S50 45 4o 35 30 25 20 15 10 Quantity of Tutoring Demanded hours per semester 1 Price of Tutoring per hour 50 0 O 1 Quantity of Tutoring hours per semester Demand Schedule and Curve Demand Schedule Quantity Demanded PRICE Price 40 35 30 20 15 10 0 2 4 6 8101214161820 Quantity The market demand curve I 0 4 12 20 28 36 Quantity Demanded C Difference Between Quantity Demanded and Demand The term quantity demanded refers to the amount consumers are willing and able to buy at a particular price The term demand refers to the entire relationship between the price of the good and quantity demanded ofthe good ie the various amounts ofa good consumers are willing and able to buy at various prices Demand Schedule Quantity Pnce Demanded 50 1 45 2 4O 3 35 5 45 30 7 25 9 20 12 30 1 5 15 1 O 20 l 44 Quantity Demanded Demand Schedule P Quantity quotce Demanded P 50 1 45 2 4o 3 35 5 45 30 7 25 9 20 12 30 r 15 15 i 1O 20 15 I D I 39 O 7 Q D Difference Between Change in Demand and Change in Quantity Demanded 1 Change in demand a in the entire demand curve implies EXAMPLE S45 A rightward shift in demand curve implies consumers are willing and able to buy at prices stated as there is an increase in demand A left shift in demand curve implies consumers are willing to buy at prices stated as there is a an in H WEat causes the shift 39 A shift in a demand curve is caused by a change in determinants of demand Determinants of Demand Tastes If any of these factors Income change demand curve shifts Prices of other goods Increase in demand Substitutes shift the curve right Complements Decrease 1n demand shift the curve left Expectatlons Number of buyers 393 Determinants of Demand Tastes EXAMPLE Tastes ampPreferences Slimfast 0 Oprah loses 50 pounds on a Slimfast diet Demand for Slimfast DI D 0 Q oi slimiast Determinants of Demand Income normal goods vs inferior goods What is a normal good Any good for which there is a direct relationship between changes in income and its demand ie income increases demand increases income decreases demand What is an inferior good Any good for which there is an inverse relationship between changes in income and its demand ie income increases demand decreases income decreases demand 393 Determinants of Demand Income EXAMPLE Normal GoodAir Travel 0 Income Increases 0 Demand or income decreases demand decreases Q Air Travel Determinants of Demand Income EXAMPLE V V DI D In erior GoodRamen Noodles 0 Income Increases 0 Demand or income decrease demand increases 0 Q oi Ramen Noodles Determinants of Demand Prices of Related Goods Substitute vs complementary goods goods What are substitute goods Goods that substitute for each other for consumer purchases complementary goods Goods that are consumed in combination with another good 393 Determinants of Demand Prices of Related Goods EXAMPLE Substitute aood for coffee tea 0 An increase in the price of tea 0 Demand for coffee DI D 0 Q oi coiiee Determinants of Demand Prices of Related Goods EXAMPLE Com Iementar ood or geanut butter jelly 0 An increase in the price of tea 0 Demand for coffee DI D 0 Q oi ieanut butter Determinants of Demand Expectations of buyers EXAMPLE Beef consumers expect the price of beef to soon 0 the current demand for beef decreases 393 Determinants of Demand of Buyers EXAMPLE of Bakers Mexican food 0 Increase in immigration from Mexico 0 Demand for Mexican food DI D 0 Q oi Mexican iood Leftward or rightward shift in the demand curve Change in a determinant 2 Change in quantity demanded a along the demand curve implies Movement Along the Demand Curve p 45 quot i I I 53039quot l I I I I I i D I 0 2 7 Q a downward movement along implies consumers are willing and able to buy at price stated as quotthere is a an in II an upward movement along implies consumers are willing and able to buy at price stated as quotthere is a decrease in quantity demanded f I W 77 quot Ii in quantity J demanded in quantity J demanded 1 l movement along J movement along the demand curve the demand curve Tennis balls and tennis rackets are commonly used together A decrease in the price of tennis balls will result in AAn increase in the demand for tennis balls BA decrease in the demand for tennis rackets CAn increase in the quantity demanded for tennis balls DAn increase in the quantity demanded for tennis rackets Supply Analysis A The Law of Supply 1 def Other things being constant the quantity of a good supplied in a given time period increases as its price increases ceteris paribus and Vice versa 2 Implication relationship between price and quantity supplied of a good B Market Supply Curve 1 Def The supply curve shows the relationship between the quantity supplied of a good and its price holding other things being constant Supply Schedule Price of Tutoring per hour 50 45 4O 35 30 25 20 15 10 Quantity of Tutoring Supplied hours per semester 148 PRICE per hour sagasasa O Market Supply Quantin supplied Increases as prloe rlses 10 20 30 40 50 60 70 80 90 100110120130140150160 QUANTITY SUPPLIED hours per semester C Difference between Supply and Quantity Supphed D Difference between Change in Supply and Change in Quantity Supplied 1 Change in supply a in the supply curve implies A rightward shift in supply curve implies sellers are willing to sell a larger quantity at prices stated as there is an increase in supply A leftward shift in supply curve implies sellers are willing to sell a quantity at prices stated as there is a an in II Wgat causes the shift A shift in a supply curve is caused by a change in determinants of demand Determinants of Supply Number of sellers in the market Technology Factor Costs Taxes and subsidies Expectations of producers Prices of other goods and services the firm could produce If any of these factors change supply curve shifts Increase in supply shift the curve right Decrease in supply shift the curve left quot Determinants of Supply number of sellers EXAMPLE orange A severe drought destroys the orange crop the supply of oranges 0 Q oi oranie l Deteriants of Supply Technology EXAMPLE 5 Automobiles New methods of producing automobiles reduce production costs 0 Supply of automobiles 0 Q oi Automobiles Determinants of Supply Factor Costs EXAMPLE 5 Automobiles An 21 in the wage rate 0 Supply of automobiles increases 0 Q oi Automobiles Decrease or increase in supply Leftward or rightward shift in the supply curve 2 Change in quantity supplied a along the supply curve implies an upward movement along implies sellers are willing sell at price stated as quotthere is an increase in quantity supphed a downward movement along implies sellers are willing sell at price I stated as quotthere is an a in P r 50 5 2 M555 movement along movement along the supply curve the supply curve Market at Work 1 Market Equilibrium A Concept when Qd QS market is Cleared no shortage nor surplus Price Determination EQUILIBRIUM p Equilibrium Price and Quantity The equilibrium price is the price at which the quantity demanded equals the quantity supplied The equilibrium quantity is the quantity bought and sold at the equilibrium price Equilibrium Price uantit uantit Pr39ce guppliezl ngandzd 50 148 5 45 140 8 40 130 11 35 114 16 30 90 22 25 62 30 20 39 equilibrium 39 15 20 47 10 10 57
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