L11 - Economics 101:Principles of Microeconomics Professor...

Info icon This preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Economics 101:Principles of  Microeconomics Professor Jo Hertel Lecture 13: Finishing up consumer choice: foundations of demand Producer choice – Inputs and costs The production function. Cost curves – average and marginal, short-run and long-run. Technology and economies of scale.
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
2 Price changes & foundations of demand As the price of drinks increases, the consumer changes his consumption – he decreases the amount of soft drinks he consumes drinks sandwiches p S I q D q D ’’ q D Now we know how consumption of soft drinks changes as the price changes – we know the consumer’s demand for soft drinks!
Image of page 2
3 Price changes of related goods As the price of drinks increases, the consumer may increase or decrease his sandwich consumption – depending on whether he views them as substitutes (e S,D >0) or complements (e S,D <0) drinks sandwiches p S I q S q S ’’ q S
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
4 Income and consumption:  Normal  goods Rooms in your house Restaurant Meals 40 8 I=$1200/mo 16 80 I=$2400/mo An increase in income leads to an increase in both the size of housing and the number of restaurant meals. We call both these goods normal goods since consumption goes up (down) when income goes up (down): e Y >0.
Image of page 4
5 Income and Consumption:  An  Inferior Good Quantity of Second-Hand Furniture Restaurant Meals 40 I=$1200/mo 80 I=$2400/mo An increase in income lead to a decrease in 2 nd hand furniture consumption. This is an example of an inferior good since consumption moves inversely with income: e Y <0 for 2 nd h.f.
Image of page 5

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
6 Prices and consumption: Giffen goods  (very rare!) 2 nd hand furniture Meals In this example, the price of 2 nd hand furniture increases, but the quantity demanded does as well. This is an example of a ‘Giffen good’. R 1 R 2 M 1 M 2
Image of page 6
7 Producer choice In this section, we look at where the supply curve comes from: technology input prices To see how much a seller in an industry will find it optimal to produce at any point in time. And: whether sellers want to enter or exit an industry in the long run. The long run is not quite the same as the short run as there are more choices in the long run.
Image of page 7

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
8 The short and the long run Think about the complete list of inputs for a producer (buildings, land, machinery, labor, materials, electricity, water, stationery...) the quantity of any input can be adjusted, but some take longer than others to adjust the amount of time needed to adjust all inputs is
Image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern