Week2.DemandandSupply.2010

Week2.DemandandSupply.2010 - Week 2: Demand and Supply in a...

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Week 2: Demand and Supply in a Competitive Market NEWS FLASH! - Part 2 of the Course Handbook is up on the UTSC Intranet - Tutorials start this week - Office Hours for help from TAs in MW- 369 (If you need help…go get it…TAs are paid to help you!) - TA’s are Zuoyi, Richard, Lance, Jolin, Cindy and Gary (check www.utsc.utoronto.ca/~cleveland for the time of office hours in MW-369 and the time and location of tutorials. Click on the button for ECMA04 and then on the button on the right-hand side for “Professor and TAs”). - The videos of this class are available each week! Go to my website and click on the link on the Home Page to find your way (the address is there, too) 1
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What did we learn last week? - definition of economics - opportunity cost - production possibilities model - calculating opportunity cost on PPF - PPF with increasing costs - maximizing a value (or utility) function along PPF 2
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Agenda for this week: - Overview of the competitive market model - What is a market? - What is competition? - Demand - Supply - Equilibrium - Shifts in Demand and Supply: how they affect equilibrium Now…on to Demand and Supply… 3
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$25 $60 $30 $50 Demand Price 100,000 Market for bushels of apples in Toronto in September (a bushel = about 45 pounds of apples) 350,000 300,000 Quantity Per month
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5 0 350,000 $25 $15 $23 $11 Supply Demand Price Quantity Per month 300,000 100,000 Bushels of apples in Toronto
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Demand curve – behaviour of buyers Demand has negative slope.  Why? Supply curve – behaviour of sellers In short run, supply has positive slope.  Why? Supply in SR = now, with existing firms only , using  their existing productive capacity (but varying amounts  of labour) In long run, supply is less steeply sloped.  Often is  horizontal (zero slope) 6
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Equilibrium occurs when the behaviour of buyers and  sellers is consistent (the amount buyers want to buy  matches the amount sellers want to sell) Price brings these behaviours into equilibrium!!! Price plays a key role in markets 7
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What is a market? A set of institutional arrangements that bring buyers  and sellers together to negotiate the terms for  exchanging goods or services Good = tangible Service = intangible 8
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A sneak peek at the demand and supply model.   What effect do we think that ethanol subsidies in the  U.S. have had on the price of potato chips? Ethanol can be made from corn. Corn producers receive government subsidies of about  $0.50 per litre to produce ethanol (instead of feed for  animals etc.) The result in 2008 was a rise in the price of corn from  $2-$3 per bushel to $6-$8 per bushel That raised the price of corn chips/tortilla chips 9
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What was the effect on the price of potato chips?
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This note was uploaded on 08/17/2011 for the course ECON A04 taught by Professor Mk during the Fall '07 term at University of Toronto.

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Week2.DemandandSupply.2010 - Week 2: Demand and Supply in a...

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