Econ 101 4th Real Lecture

Anouncements: The discussion board is up, and test number three is up today!

Review:
Demand is the relationship between the price, and the quantity of any product that a consumer is willing to purchase, given the price, ceteris paribus
Supply is the relationship between the price, and the quantity of any product that a producer is willing to sell, given the price, ceteris paribus

Consumers want to buy more when the price is low because their opportunity cost is lower
Producers want to sell more when the price is high, because their profit margins will be higher

The producer and the consumer don't know each other, so how do we get them to make a deal?

EQUILIBRIUM! YAAAAAAAAAAAY!

Prices ($) Quantity Supplied Quantity Demanded
1.00 7 1
0.80 6 3
0.60 5 5
0.40 3 8
0.20 1 11


An excess in supply (When quantitiy supplied is greater than quantity demanded) creates a pressure for producers to lower their prices
An excess in demand (When quantity demanded is greater than quantity supplied) creates a pressure for producers to raise their prices

BECAUSE OF THIS SUPPLY AND DEMAND TEND TO AUTOMATICALLY GRAVITATE TOWARD A POINT OF EQUILIBRIUM: Where the quanitiy of supply equals the quantity of demand (that is the condition for equilibrium). If you are staying put (remaining constant over time) you are in EQUILIBRIUM! If you are happy, you will stay there.

Stable equilibrium: When changes occur, things resettle toward equilibrium again (things go back to the way they were: eg: blood glucose, a punching bag)
Unstable equilibrium: When change occurs, things do not go back to equilibrium again (eg: the pencil gets knocked over)

LAWS OF SUPPLY AND DEMAND (these deal with SHIFTS in the curve caused by changes in the Ceteris Paribus Variables)
An Increase in Demand increases the equilibrium price, and increases the quantity exchanged (Ipods become more popular, become more expensive, and sell by the truckloads)
A Decrease in Demand lowers the equilibrium price and decreases the quantity exchanged (Tamagotchi becomes unpopular, are bought less often, and can be purchased for fifty cents)
An Increase in Supply decreases the equilibrium price and increases the quantity exchanged (Unconventional Oil lowers the cost of extracting natural gas from rocks, and floods the market with cheap natural gas which costs very little, and is purchased rapidly by consumers)
A Decrease in Supply increases the equilibrium price and decreases the quantity exchanged (Bananas suddenly become extremely expensive to cultivate due to storms ravaging the Caribbean. Producers become less willing to produce bananas, so there are less of them on the market, which sell for a much higher price, because the demand for bananas has not changed)

WOOO

Econ 101 Real Lecture #3

1: The test email worked! =D
2: True Room Numbers: Mine is at Hebb 12. I have emailed by TA to double check this!

DEMAND: The quantity the consumer is willing to purchase, given the price, Ceteris Paribus!
We all know what the ceteris paribus variables are... so now it's time for...

SUPPLY!
This is more challenging because it is more difficult to psychologically envision being a supplier.

Quantity Supplied: The quantity a firm is WILLING to sell, given the price, Ceteris Paribus

BASICALLY, as the price of a product increases, so does the quantity supplied.
$1.00 -> 7 desired sales
$0.80 -> 6 desired sales
etc. It makes sense. Suppliers want to maximize profits, so the higher a product will sell for, the more of then they would like to sell!

Four Factors:
-The firm is involved, so this is supply-side
-What is being measured is what supplied would LIKE to sell, not what is actually sold
-Quantity Supplied is dependent on price
-Ceteris Paribus

COST is the only real ceteris paribus variable. Basically, all of the other ceteris paribus variables will affect the cost of inputs required to create the product being sold. You can figure out how they affected them by using your logical brain.
(More suppliers creates less supply, ironically) (But I have to double check that)

Complimentary products are different here. Instead of just being products that go well together, they are products that you can easily produce/extract together. An example of this is oil and gas, or meat and gelatin (different parts of the same cow). Basically, as the price of gelatin goes down, the quantity supplied of gelatin goes down, and the quantity supplied of beef will also go down.

Substitute products are products where resources could go into producing one or the other, but must be allocated. An example is wheat and barley in a farmer's field. If the price of Barley goes up, the quantity supplied of barley will increase, and as such, there will be less room left in the field to plant wheat, and less resources available to harvest the wheat, so the quantity supply of wheat will decrease!

Super-easy, right? Let's see some graphs

I stole this from some other prof's online resource package, and I'm terribly sorry. This is the shape most supply curves take.

MOVEMENT:
If prices changes, SUPPLY does not change. The curve stays put. We simply look at the new price and use the graph to find a new point of demand supplied which corresponds to the price.

HOKAY: SHIFTS: There is a process to figuring them out.

Let's say the liberal government increases minimum wage (aka, they increase the cost of output)

1: Is this a shift or a movement? Well it's not a change in price or quantity, so it must be a SHIFT and not a movement along the graph
2: Does it affect demand or supply (if it affects cost, it usually affects demand)? Well the minimum wage raise creates higher costs for producers, so it affects supply.
3: How does it affect supply? It's going to raise the cost of inputs, which in turn means that supply will decrease
4: Graphically Represent this: The curve shifts to the left


Try this with other problems!

JUST REMEMBER: The buyer and seller don't know each other yet. They are on different graphs.