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Unformatted text preview: Click to edit Master subtitle style Lecture 1 Economics 101 Microeconomics University of Michigan Winter 2010 Lecture 12 Lecture 1 22 Lecture 1 Announcements n Today’s reading: n Reading on CTools: “Supply and Demand Functions” n Chapter 6 n Problem set 7 available on CTools Lecture 1 33 Lecture 1 Supply Functions We will work primarily with linear supply functions in this course Simple case: price is the only explanatory variable QS = a + b P n b : inverse of the supply curve slope n Always positive Lecture 1 44 Lecture 1 Qs = 10 + 5 P Q P 10 40 6 Slope = 1/5 Lecture 1 55 Lecture 1 Qs = 10 + 5 P Q P10 20 6 Slope = 1/5 Lecture 1 66 Lecture 1 Infinitely elastic supply Q P P0 Slope = 0 Q1 Q2 Supply function is undefined Lecture 1 77 Lecture 1 Relatively elastic supply Q P Slope = ΔP/ΔQ = 1/ belastic > 0 Q1 Q2 Qs = a + belastic P P1 P2 ΔP ΔQ Lecture 1 88 Lecture 1 Relatively inelastic supply Q P Slope = ΔP/ΔQ = 1/ binelastic > 1/ belastic Q1 Q2 Qs = a + binelastic P P1 P2 ΔP ΔQ Observe: 0 < binelastic < belastic Lecture 1 99 Lecture 1 Perfectly inelastic supply Q P Slope is not defined a Q2 Qs = a P1 P2 Lecture 1 10 10 Lecture 1 Supply as a function of many Example: Qs = 100 + 2 P + 10 x – 12 y n + 2P : quantity supplied increases as P increases n i.e. supply curve is upward sloping n Every $1 increase in price > 2 unit increase in quantity supplied n Coefficient is a measure of sensitivity of quantity supplied to Lecture 1 11 11 Lecture 1 Supply as a function of many Example: Qs = 100 + 2 P + 10 x – 12 y n + 10 x : quantity supplied increases as x increases n Increasing x will shift the supply curve to the right n Coefficient is a measure of sensitivity: a large coefficient > large shift in the supply curve n What might x be? n Productivity index n Measure of technology n Index of some favorable environmental factor n Level of training for workforce etc. Lecture 1 12 12 Lecture 1 Supply as a function of many Example: Qs = 100 + 2 P + 10 x – 12 y n12 y : quantity supplied decreases y increases n i.e. supply curve shifts leftward as y increases n Coefficient is a measure of sensitivity: a large coefficient (in magnitude) > large shift in the supply curve n What might y be?...
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 Winter '08
 Gerson
 Microeconomics, Supply And Demand, P Supply

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