slides-class4 (handout) (1).pdf

# slides-class4 (handout) (1).pdf - Microeconomic Principles...

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Microeconomic Principles Discussion for ECON 102 Andr´es Ham ECON 102 2/13/2015 Andr´es Ham (ECON 102) Microeconomic Principles 2/13/2015 1 / 32

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This week in one slide 1 Supply 2 Equilibrium 3 Practice problems Andr´es Ham (ECON 102) Microeconomic Principles 2/13/2015 2 / 32
Supply Supply Deﬁnition Supply expresses the relationship between the quantity we sell of a good and its price Usually, as prices increase (all else staying the same) do want to sell more or less of an item? This is called the law of supply : when prices we get paid go up, we want to supply more Andr´es Ham (ECON 102) Microeconomic Principles 2/13/2015 3 / 32

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Supply An example As with demand, we may express a supply schedule in a table: Table 1: Supply schedule for a rose Price Quantity supplied 10 10 15 20 20 30 25 40 30 50 35 60 40 70 Andr´es Ham (ECON 102) Microeconomic Principles 2/13/2015 4 / 32
Supply An example We may also graph it: 100 200 300 400 Price 0 2000 4000 6000 8000 Quantity Andr´es Ham (ECON 102) Microeconomic Principles 2/13/2015 5 / 32

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Supply As with demand We have the same two details: 1 What changes as own price changes? Quantity supplied 2 What changes when other other factors besides own price differ? Supply In graphical terms, which way represents an increase in supply? What about a decrease ? Now, let’s see what causes these shifts Andr´es Ham (ECON 102) Microeconomic Principles 2/13/2015 6 / 32
Supply Changes in supply There are 5 things which change supply: 1 Changes in the prices of related products (to the one being produced) 2 Changes in input prices or costs 3 Changes in technology 4 Changes in expectations 5 Changes in the number of producers Andr´es Ham (ECON 102) Microeconomic Principles 2/13/2015 7 / 32

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Supply Changes in the prices of related goods: complements and substitutes in production 1 If two goods are substitutes in production , you may choose to provide one or the other Rule of thumb : A change in the price of the substitute moves supply in the opposite direction 2 If two goods are complements in production , then the production of one entails that of the other Rule of thumb : A change in the price of the complement moves supply in the same direction Andr´es Ham (ECON 102) Microeconomic Principles 2/13/2015 8 / 32
Supply Changes in input prices and costs If the price of an input increases , then costs increase Since it becomes more expensive for us to produce the same good, then supply will decrease . If the price of an input decreases , then costs decrease Since it becomes cheaper for us to produce the same good, then supply will increase . Rule of thumb : Changes in input prices and costs change supply in opposite directions Andr´es Ham (ECON 102) Microeconomic Principles 2/13/2015 9 / 32

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Supply Other factors which affect supply Changes in technology What happens to supply if technology makes it easier (less costly) to produce that good?
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