Approaches: (1) Traditional (answer today is same as yesterday), (2) Contests and lines, (3) Command (gov’t planners answer Law of Increasing Opportunity Costs: as you move along the PPF, the opportunity costs of add’l units increases because production gets less efficient. (PPF bowed out) Supply (pos. slope): P↑, Q(s)↓ Demand (neg. slope): P↑, Q(d)↑ Causes of Change in Demand : Normal goods (Income ↑, D ↑)right Inferior Goods (Income ↑, D ↓)left Substitutes (Price ↑, D ↑)right Complements (Price ↑, D ↓)left Preferences (Like more, D ↑)right # Demanders ↑, D ↑(right) Expected Future Price ↑, D ↑(right) Causes of Change in Supply: Costs ↑, S ↓(left) Technology ↑, S ↑(right) # of Suppliers ↑, S ↑(right) Expected Future Price ↑, S ↓ (left) Normal Goods : D ↑ as income ↑ Inferior Goods : D ↓ as income ↑ Cost : what the seller pays to produce something Price : what buyer pays Surplus : price above equilibrium and Q(s) > Q(d) Shortage : price below equilibrium and Q(d) > Q(s) Marginal Cost (pos. slope): opportunity cost of producing one more unit. MSC= supply curve
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This note was uploaded on 04/07/2008 for the course ECO 2023 taught by Professor Rush during the Fall '08 term at University of Florida.