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Economics115
Lecture2:IntrotoSupplyand Demand
OutlineforToday
CourseDetails Review
Scarcity S it OpportunityCost
Announcements
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ProblemSetRules:
Discuss,consult,workingroups.Thisishelpful andencouraged Writeupyourownresults.ItisnotOKtocopy someoneelsesanswer DueMondaysatthestartoflecture
MainIdeasfromLastTime
Economicsisallabouttheallocationofscarce resources Scarcitygivesrisetoopportunity opportunitycost cost Opportunitycostforcesustoexplicitly examine i trade d offs ff
RelevantTradeoffsoccur
withinanindividualorhousehold(e.g.studyor talk) ) withinafirm(hiremoreworkers,orbuyabetter machine) inmarkets,connectingfirmsandhouseholds(sell moreproductatalowerprice) betweengovt,householdsandfirms(increasea taxonfuel) w/inandbetweencountries,regions,etc (imposeatariff)
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THEDEMANDCURVE
Howmuchwouldbepurchasedateachdifferent p price?
TheDemandforGasoline
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TheDemandCurveis ADemandSchedulelistinghowmuchis demandedateachdifferentprice Thewillingnesstopayforthemarginal unit marginal=extra,last,next.Itistheunit the on h margin i of fb being i purchased. h d
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Dcanbeagraph,oraTable:
DasanE Equation: ti
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Dmightbealine:
Acurve:
Oranabstractfunction:
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GlobalWarmingandtheDemandforGasoline
Toreduceconsumption,increaseprice?
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WhatswiththisLawofDemand,anyway?
Lookat1999 2005.
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TheDcurveholdsallelseequal (otherthanprice)
t i paribus ceteris ib
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Ashift shiftofthedemandcurve curve (achange changein demand)occurswhenafactorotherthan pricechanges changes.Example:populationincrease shiftsthedemandcurveout. Amovement movementalongthedemandcurve: curve :price changes,holdingeverythingelseconstant.
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Population Income
normal lgood dvs
inferiorgood
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Pricesofothergoods g
Substitutes
Complements l
Expectationsoffutureprices. Changeintastes
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AnincreaseinthePriceofGasoline
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DforGasandanIncreaseinIncomesinChina
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DemandcurvealonecanNOTdeterminebothP andQ.Itisacurve,notapoint:
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SUPPLY
Firmswanttoearnaprofit OutputofthefirmhasanOpportunityCost thecostofinputs MarginalWillingnesstoSupply Perfectlycompetitivefirmtakespriceasgiven Howmuchtop produce/sell / atafixedandgiven g price?
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TheSupplyCurve
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WhydoesSupplyslopeup?
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TheSupplyofMaize:diminishingmarginal returns,increasingmarginalopportunitycost
ThinkabouthowhecanincreaseS:more labor,morefertilizer,moreland....
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Whensomeinputisfixed(e (e.g., g land)andthe firmaddsmoreandmoreotherinputs(e.g., labor fertilizer) labor, fertilizer),diminishingreturns eventuallysetsin Fornow now,well we llassumediminishingreturns always,sosupplyslopesup
Later, L t economies i of fscale? l ?
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SasaGraph:
S asaTable:
S asanEquation:
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Smightbealine:
Acurve:
Oranabstractfunction:
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TheScurveholdsallelseequal (otherthanprice)
t i paribus ceteris ib
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Ashift shiftofthesupplycurve curve(achange changein supply)occurswhenafactorotherthanprice changes. changes Examples: Prices P i of fi inputs Technology Numberoffirms Amovement movementalongthesupplycurve: curve :price changes,holdingeverythingelseconstant.
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EquilibriumP&Q
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