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ECON 2010 - {haptet 3 gates Where ”Prices fioeae times...

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Unformatted text preview: {haptet 3 gates: Where ”Prices fioeae times: The interaction of Seaweed and Soppiy. Shifts in flemarad ,. 0 Quantity Demanded-- The amount ofa good or service that a consumer is wiiling and able to P’l‘ @Dé; - The Law of Demand-— The Inverse or negative, relationship between the price of the product purchase at a given demanded and the quantity of the product demanded. 0 Holding everything else constant (Ceteris Paribus), as Price increases Quantity Demanded decreases, and vice versa. _0 Demand Curve4 Graphical representation ofthe relationship between price and quantity demanded. WM”? ”‘70?”— Stat? riffs: I‘\/‘ or“ 3E3 450 ’ ,I \ ., E Ram .“ m 7 ‘ ' ”Mm-t.“ ‘ ‘h. - I a.- ’ - j g _. I00 \50 ) ii Why Bees the Law of Eemaeé Reid? 0 Substitution Effects-{he change' In price makes the good more or less expensive other goods that are substitutes. o A change in' CO‘g-E 1? xi) 1 o lfthe price of Coke rises relative to Pepsi :3. The relative price of Pepsi has fallen => ‘—- This wil! cause an increase in the quantity demanded for Pepsi. ' I 0 Income Effect«~The change' In the quantity demanded of a good that results from the effect ofa Ehange In the good 5 price on consumer? purchasing power. 0 Purchasing Power4The amount of goods a consumer is able to purchase based upon , his/her Income 0 An increase in the price of Coke reduces a consumer's purchasing power. . Holding constant the number of other goods consumed (purchased), the consumer can no longer afford the same quantity of Coke. Shifts in Bemand Holding Price constant, actions that cause the quantity demanded to increase or decrease. income 0 Normal GoodmA good for which the demand increases as income rises and decreases as income falls. 0 Football Tickets o Inferior Good— Agood for which the demand increases as income falls, and decreases as income rises. o Ramen Noodles "Es/“gorngf f» Prices of Related Goods 0 Substitutes—Goods and services that can be used for the same purpose. 0 An increase in the price ofa Sub wili lead to an Increase in quantity demanded at a given price, hence the demand curve will shift right, and vice versa. 0 Coke and Pepsi. ? o Complements— Goods that are used together. 0 An increase in the price ofa Complement will lead to a decrease in quantity demanded at a given price, vice versa. W \ -- t _ . - a _, t ,_ o Milkand Cookies Wkly" 1C0? :QAE/ggf ‘34} 3:» {3,1 Tastes 0 Taste is a catch—all category that refers to the many subjective elements that enter into a consumer’s decision to buy a product“ 0 LSU/Florida vs. LSU/Vanderbilt Population and Demographics 0 The characteristics of a population with respect to age, race, and gender that affect the demand of certain products, 0 Aging population and Health Care. . a Mic-i <“ Expected Future Prices 0 If prices for a good are expected to rise in the future, then demand for that particular good should increase today, and Vice versa. - 0 Gas grief Review {'fahieB-Zi, ?. as} 0 increases in Demand p N,» P. f g“ \. I q a 1 {b Enema? i‘Ov‘ stewed gee-6%- \lJ La’iii: 35w“ cuff»; ) o Decrease in Demand 0 Opposite ofAboye. Remember 0 Changes in Quantity Demand, or changes in prices. 0 Shifts in demand, or increases/decreases in quantity at a g income, prices of related goods, tastes, demographics, and expected future prices. the demand curve, are caused , are caused by changes in Law {if Suppiy 0 Quantity Supplied—— The amount of a good or service that a firm is willing and able to supply at a o The Law of Supp y-- The positive relationship between the price of the product supplied and the quantity of the product supplied. 0 Holding everything else constant (Ceteris Paribus), as Price increases Quantity Supplied increases, and Mice versa. 0 When the price of a good falls, the good is less profitable and the quantity supplied wili decrease. 0 Supply Curv w Graphical representationpfthe relationship between price and quantity supplied. 3? W34 3" ”‘0‘” TEN CKCVfi/I SE; a» l 4-1 w a A” ' ‘ in "fat ‘ \“ Pg;3c.3.i"i“i\rl=2 $12..)p-A -= Shifts in Supply Holding Price constant, actions that cause the quantity supplied to increase or decrease. a; Price of inputs 0 The factor most likely to cause a supply curve to shift is a change in the price of an input. 0 if the price of an input (anything used in the production of a good or service) rises, the supply will decline and the supply curve will shift to the left, and vice versa. - An increase or decrease in costs. 0 An increase in the price of crude oil in the suppiy of gasoline. Technological innovation 0 A positive or negative change in the ability of a firm to produce a given ievel of output with a given amount of inputs. I A decrease in the cost of producing a given quantity; reduces the number of inputs to produce a given quantity. 0 An increase in refining methods of crude oil that creates less waste. - i “T E‘i’" a ‘7‘} ?I{Z\ EiffiAfi/‘gdi Mg: Ft: 6 SE ’15“ ,C /\ ? S :: w Prices of Subs in Production 9 Alternative products that a firm could produce are called substitutes in production. 0 Desks vs. Tables .5" p K 12 {it ., w, - g Number of Firms 0 When firms enter a market, the supply curve shifts to the right; when firms exit a market, the supply curve shifts to the left. Expected Future Prices 0 If a firm expects that the price of its product will be higher in the future, the firm has an incentive to decrease supply in the present and increase supply in the future. Goeé Review - ‘t‘e‘pie 3—2, $3.278 Rememhee _ o Changesingua‘ntitywskupply, or the supply curve, are caused by_changes in prices. 0 Shifts in supply, or increases/decreases in quantity at a I are caused by changes in prices of inputs, technology, prices of subs in production, the ti of firms, and expected future prices. '§}eman§ and Suppiy - The purpose of markets is to bring buyers and sellers together. 0 Market Eguiiibrium— A situation in which quantity demanded equals quantity supplied. Market Surpéus - A situation in which the quantity supplied is greater than the quantity demanded. 0 When there is a surplus, firms have unsold goods piling up, which gives them an incentive to increase their sales by cutting the price. Cutting the price simultaneously increases the quantity demanded and decreases the quantity supplied leading to a market equilibrium. Market Shertage o A situation in which quantity demanded is greater than the quantity supplied. 0 When a shortage occurs, some consumers will be unable to obtain the product and wili have an incentive to offer to buy the product at a higher price. A higher price wiil 'simuitaneously increase the quantity suppiied and decrease the quantity demanded leading to a market eq uiiibrium. i‘iote (3 s - Adjustments to equilibrium caused by shortages and surpluses are obtained by changing- therefore these are adjustments in quantity supplied and quantity demanded, i either curve. fittest of Shifts in Bertrand and Seppiy en Eeeiiiht‘iem increase in Suppiy 0 An increase in supply is associated with a shift to the right of the supply curve, causing a surplus at the original equilibrium price. 0 The surplus is eliminated as the price fails to the new equiiibrium and the quantity rises to a new equilibrium. St 5;; C“: gufliug Increase in Demand 0 An increase in demand is associated with a shift to the right ofthe demand curve, causing a shortage at the original equilibrium price. 0 To eliminate the shortage, the equilibrium price and quantity rise as described above. a: 1:3,. H :2}? Q; M Q Shifts in Supply and Demand I The effect on price is determined by the magnitude of the shifts. 0 When demand shifts more than does supply, the equilibrium price rises. 0 When supply shifts to the right more than demand, the equiiibrium price fail. SMHQYS .51 FE? :1"; "rifle Uaéerstafié 0 Figure 3-9, 3-10, and 3—11 0 Making the Connection: The Falling Price of LCD Televisions - Solved Problem 3-4. fled ef Shame? §3re§3§ems 0 4.3, 4.5, 4.6, 4.9, and 4.11 . 355} .r - .mxx r m ‘P gem-z . fl ? Anvimllfil‘; fi_,,,,._.._,.-.-—-—-n gt" =3 COW/“l 1.4; Wm? 99%." ‘ a; J_ ._ e- g. 5' 2% b.6223." 2 5:2. 2’2“"2 2 \1\\'\M\h\1}5\m&kg__ ______ f: -----Embéxigmg“avg...“ ...
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