EC 201 - • Law of Supply o All else equal, direct,...

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EC 201 9-8-08 Math pretest Tuesday Math post test Friday Improved technology o =»p.p.f. outward Law of demand o All else equal, there is an inverse relationship between price and quantity demanded Price going up quantity demanded goes down Price going down quantity demand goes up Hold constant o Tastes o Incomes o Price of other goods o Expectations Individual demand curve Law of demand =» D curve slopes downward Market demand curve is (horizontal) sum of individual D curves o Every buyer faces same price, different buyers choose different quantities Influences on sellers o Technology of production o Prices of inputs An input is used in producing an output Oil is an input in gasoline Wheat is an input in bread o Price of good

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Separate influences on sellers into 2 categories 1. Price of good 2. Everything else (technology prices of inputs) If P=0, Qs=0 o P=0 =»zero revenue, positive cost =»negative profit
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Unformatted text preview: • Law of Supply o All else equal, direct, positive relationship between P and Qs (Quantity supplied) o P↑=»Qs↓ o P↓ =»Qs↑ • Put demand and supply together o How do buyers and sellers interact? • Demand curves to not have to be straight to follow the law of demand o they just have to be downward sloping • P=\$2.50: Qd›Qs : Shortage o Long lines, empty shelves o =»upward pressure on price o P=\$5: Qs › Qd: Surplus Unsold product Bulging warehouses • =» downward pressure on price • Equilibrium: 1. P-Q combination at which Qs= Qd 2. No surplus, no shortage 3. No pressure for price change 4. Equilibrium : intersection of supply and demand curves • What if new D or new S? o Aids advisory 1987 o Sale of latex gloves as a result of bodily fluid transmitted disease o As a result sales rise...
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This note was uploaded on 04/19/2011 for the course EC 201 taught by Professor Ballard during the Fall '08 term at University of Michigan.

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EC 201 - • Law of Supply o All else equal, direct,...

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