micro ch 3

List and discuss the shift factors for supply.

- Changes in input prices (i.e., goods that are used to produce another good- e.g., labor) - Changes in technology - Changes in the number of producer's - Changes in producer's expectations - Changes in the prices of related goods(co-produced goods)

List and discuss the shift factors for demand.

- Changes in the number of buyers - Changes in tastes - Changes in consumer's expectations - Changes in income - when a rise in income increases the demand for a good - the normal case - we say that the good is a normal good. - when a rise in income decreases the demand for a good, the good is an inferior good. - Changes in the prices of related goods - two goods are substitutes if a fall in the price of one of the goods makes consumers less willing to buy the other good. - two goods are complements if a fall in the price of one good makes people more willing to buy the other good.

What is meant by a shift in the demand curve? What might cause this to occur? How is "movement along a demand curve" different from "a shift in the demand curve"?

A shift in demand means at the same price, consumers wish to buy more. A movement along the demand curve occurs following a change in price. the five shift factors. the difference between a shift of the demand curve and movement along the demand curve is illustrated in text Figure 3-3 - movement along the demand curveis a change in the quantity of a good demanded because of a change in the good's price

How will supply change if there is a change (i.e., improvement) in technology?

A technological improvement that reduces costs of production will shift supply to the right, so that a greater quantity will be produced at any given price. Government policies can affect the cost of production and the supply curve through taxes, regulations, and subsidies.

Markets may fail to deliver the desired level of economic activity. In such a circumstance, government may intervene using what two sets of policy tools. Discuss policy approches and the entities that control them.

Economy's level of economic activity may differ from the desired level (e.g., too little economic activity, too much unemployment) - this issue is very different from the previous two in that it is not related to activities within any one market - instead it relates to factors that influence all markets simultaneously (i.e., the entire economy) - economists tend to be skeptical of government interventions in individual markets (as opposed to efforts aimed at influencing thelevel of economic activity within the entire economy) when there is no clear market failure or equity issue - put another way, economists generally feel that intervening in markets for political reasons harms society- because it is inefficient, and - has the government creating winners and losers- recent efforts to boost the level of economic activityAdd material on current economic situation

If two goods are substitutes & the price of one of the goods rises, what will happen to the demand for the other substitute? Why?

If goods A and B are substitutes, an increase in the price of A will result in a leftward movement along the demand curve of A and cause the demand curve for B to shift out. A decrease in the price of A will result in a rightward movement along the demand curve of A and cause the demand curve for B to shift in.

Draw and discuss a diagram representing the circular flow of money (do not include government or international trade).

In the above diagram, arrow: #1 represents resources (inputs to production) provided to businesses by households (i.e., land, labor, capital, entrepreneurship) #2 represents goods and services provided to households by businesses #3 represents payments made by businesses to households in payment for resources (i.e., rent, wages, interest, profits) #4 represents payments made by households to businesses for goods and services received

Explain how it is that a change in consumer tastes may cause a change in demand?

There are all kinds of things that can change one's tastes or preferences that cause people to want to buy more or less of a product. For example, if a celebrity endorses a new product, this may increase the demand for a product.

When a market reaches its equilibrium point, it tends to stay there. What would result in a market at equilibrium being thrown off of its equilibrium position? How will the market respond to this?

There will be a different equilibrium price which means the supply of demand curve would have to react to meet the new equilibrium.

In a market where the market price is initially below the equilibrium price, describe the process (i.e., the steps of the process) by which supply and demand interact to move the market toward an equilibrium price and quantity.

a - the quantity demanded is greater than the quantity supplied to the market (a shortage results) - a shortage means too many buyers and too few goods offered for sale b - this leads to bidding - the product price is bid up [in this case, one buyer bids against another in attempt to get a product that is in short supply] c - the rise in product price leads to adjustments in: - the quantity demanded (with higher price, consumers will buy less), and - the quantity supplied (with higher price, suppliers provide more) d - result of changes in quantity demanded and quantity supplied is that the shortage shrinks (but, may, or may not, disappear)

In a market where the market price is initially above the equilibrium price, describe the process (i.e., the steps of the process) by which supply and demand interact to move the market toward an equilibrium price and quantity.

a - the quantity supplied to the market is greater than the quantity demanded (a surplus results) - a surplus means too many goods offered for sale and too few buyers b - this leads to bidding - the product price is bid down [in this case, one seller bids against another in a search for customers] - the drop in price by any one seller puts great pressure on other sellers to cut price [remember products are identical] c - the drop in product price leads to adjustments in: - the quantity demanded (with lower price, consumers will buy more), and - the quantity supplied (with lower price, suppliers provide less) d - result of the changes in quantity demanded and quantity supplied is that the surplus shrinks (but, may, or may not, disappear)

What is meant by a shift in the supply curve? What might cause this to occur? How is "movement along a supply curve" different from "a shift in the supply curve"?

a change in the quantity supplied of a good at any given price (at various potential prices) the supply list factors. the difference between a shift of the supply curve and movement along the supply curve is illustrated in text Figure 3-7 - movement along the supply curveis a change in the quantity of a good supplied because of a change in the good's price

How does economics define an "efficient" outcome? List and discuss the circumstances (4) under which a market may fail to achieve an "efficient" outcome.

an economy is efficientif all opportunities to make some people better off, without making others worse off, are exercised- the market/economy produces the maximum possible gains from trade [from exchange], given the resources available- in other words, all the possible mutually beneficial exchanges occura. individual actions have side effects that are not properly taken into account by markets (externalities or spillovers) - a cost or benefit that should be reflected in the market price, is not [meaning market acts with the wrong price]- if the price used by the market is wrong => then the quantity that results from market action will be wrong result: if QD < QE then opportunities to make some people better off through mutually beneficial exchanges are lost if QD > QE then some people are made worse off better as a result of a higher consumption level b. one party attempts to capture a greater share of resources for itself (market power)c. some goods by their very nature are unsuited for efficient management by markets (public goods)-private goods, which markets generally handle efficiently, are both excludable and rival-excludable means: if you do not pay for the good, you do not receive the benefits of the good-rival means:as you use the good, you are using it up (reducing the potential future benefits available from having possession of the good)-public goods, which markets generally do not handle efficiently, are neither excludable and rivald. information problems - if one party to a transaction has access to better information than their counter-parties

Explain how it is that a change in consumer expectations may cause a change in demand?

if consumers find out pizza is more nutritious than previously thought, they will be more willing to buy pizza at all possible prices.

Choose one type of market failure and explain how this circumstance may come about. How will the market failure will be seen in terms of market price and quantity?

some goods by their very nature are unsuited for efficient management by markets (public goods)-private goods, which markets generally handle efficiently, are both excludable and rival-excludable means: if you do not pay for the good, you do not receive the benefits of the good-rival means:as you use the good, you are using it up (reducing the potential future benefits available from having possession of the good)-public goods, which markets generally do not handle efficiently, are neither excludable and rival