Econ 200

productivity and technology

When either improves this forces supply to increase.

Quanity demanded > quanity supply (shortage)

Whenever price is below equilibrium

Quanity supply > quanity demanded (surplus)

Whenever the price is above equilibrium

The marginal principale tells you to break "how many" decisions into a series of smaller marginal decisisons

if something is worth doing, keeep doing it unit your marginal benefits equal your marginal costs

The interdependence principle states that

everything is connected

Production Possibility Frontiers (PPFs)

graph that shows all the different combinations of output of two goods that can be produced using available resources and technolog

econmic surplus

he total benefits minus the total cost flowing from a decision. It measures how much a decision has improved your wellbeing

Rational rule

if something is worth doing, keeep doing it unit your marginal benefits equal your marginal costs

At each price the total quality of gas demanded

is the sum of the quality that each potential costumer will demand at that price

The rational rule says keep buying until price =

marginal benefit

The price elasticity of supply measure

measures how responsive sellers are to price changes

Elasticicity is all about substitutability

more competing products means greater elasticity- specific brands tend to have more elastic demand than catagories goods- nessisities have a less elastic demand- consumer search makes demand more elastic- demand gets more elastic over time

Change in quality demanded

movement along the demand curve showing that a different quantity is purchased in response to a change in price

Horizontal price curve

the quantity supply is infinitely responsive to a change in price---Perfectly elastic

economic surplus

the sum of consumer surplus and producer surplus

SUBSTITUTES IN PRODUCTION:FARMER example

If the price of corn rises from 4 to 8, the farmer will put his resources towards corn production. This is a rise in quantity

When both supply and demand shift

Impact on equilibrium may be ambiguous It depends on which curve shifted the most

elastic

-describes demand that is very sensitive to a change in price -when the absolute valsue of the percent change in quanity is larger than the absolute valuse of the percent change in price

individual demand curve

Individual:we are reffereing to one person Demand We are examininf buying decisions ( as opposed to sellind decisions) Curve: we are graphing things

A decrease in price will only cause revenue to rise if...

% change in price is larger than % change in quantity

Horizontal demand curve

% change in quality is infinite for any % change in price- the quality is infinitely responsive to a change in price- perfectly elastic

Relativitly flat demand curve

% change in quanity is larger than % change in price- the quanity demanded is relativily responsive to the price change

Price elasticity of supply equation

% change in quantity supplied / % change in price

Relatively steep demand curve

%change is quanity is smaller than % change in price- The quaniy

What factors affect elasticity of demand and supply?

1) availability of substitutes, (2) if the good is a luxury or a necessity, (3) the proportion of income spent on the good, and (4) how much time has elapsed since the time the price changed.

individual demand curve graph

( price on vertical axis) ( quality on horizontal) As price goes down the quality and demand goes up

Income-shift

-Normal good: a good for which a higher income causes an increase in demand. Inferior Good: a good which higher income cause a decrease in demand

Independence principle: your dest choice depends on

-Other choices -The choices other male -Developments in other markets -Devlopemts in other markets -And expectations about the futute When any of there factos change, your best choice might change

5 factors that shift the market supply curve

Input prices, productivity and technology, price of related outputs

planned economy

:centralized decisions are made about what is produced, how, by whom, and who gets what

ceteris paribus

A Latin term meaning "all other things constant" or "nothing else changes."

shortage

A situation in which quantity demanded is greater than quantity supplied

surplus

A situation in which quantity supplied is greater than quantity demanded

Marginal Principle

Increase the level of an activity as long as its marginal benefit exceeds its marginal cost. Choose the level at which the marginal benefit equals the marginal cost.

Markets

Bring buyers and sellers together to exchange goods and services

Revenue and elastic demand

Buyers are very responsive to changes in price Lowering the price will result in a relativily big increase in quanity purchased Revenue will ultimatly go up

Preferences- shift

Changes in your preferences can shift your demand curve. Life altering events: having a baby changes demand. Marketing, influences, and fashion cycles: new pasta recipe or skincare. Social Pressure. SEASON AND weather

Price of related goods-shift

Complementary goods; Goods that go well together your demand for a good will decrease f the price of a complementary good rises. Substitute goods: goods that replace eachother. Your demand for good will increase if the good for the substitute will rise

Difference between individual and market supply/demand

Individual demand refers to the quantity of a good or service that a single consumer is willing and able to purchase at a given price, while market demand refers to the total quantity of a good or service that all consumers in a market are willing and able to purchase at a given price

Marginal principle

Decisions about quantities are best made incrementally. You should break "how many" questions into a series of smaller, or marginal decisions, weighing marginal benefits and marginal costs.

Inelastic

Describes demand that is not very sensitive to a change in price -when the absolute value of the percent change in quanity is smaller than the absolute valuse of the percent change in price The absolute value of price of elasticity is less than 1

Visulizing the marginal principale

Determine what type of choice you are faced -if it is a how many decision Weigh the marginal benefits against the marginal costs Apply the marginal principale iterativelty until you eventually decide agaisnt buying one more unit then stop

market economy

Economic decisions are made by individuals or the open market.

Elasticity equation

Elasticity= percentage change in quantity/ percentage change in price

In equilibrium

Every seller who wants to sell an item can find a buyer Every buyer who wants to buy an item can find a seller

Expectations-shift

Expectations about future prices or future availability can influence your current demand-your choices are linked though time Ex ( toilet paper pandemic)

22

First is between each of my individual choices Second- between business or people in the same market Thrird- exsists beween markets Fourth - Occur over time

Cost-Benifit Principle

Framing effect ( make people buy cheper things but its not even wanted that badly) One example cited in the podcast of a factor that may cloud your decision making is.

When BOTH supply and demand shift

The impact of the two shifts on equilibrium

individual demand

The individual demand curve plots the quantity a person plans to buy at each price, holding all other factors constant (ceteris paribus)

characteristics of the market demand curve

The market demand curve is downward sloping:

Cross price

Percent change in quantity demanded ÷ Percent change in price of another good.

Total revenue equation

Price x Quantity

If price and quantities move in opposite direction

The supply curve has definitely shifted

When supply decreases it shifts to the left

The supply would increase casing a larger surplus

Law of Demand

The tendency for quantity demanded to by higher when the price is lower This law implies that demand curves slop down: demand down to the ground

Law of Supply

Tendency of suppliers to offer more of a good at a higher price

interdependence principle

Your best choice depends on your other choices, the choices others make, developments in other markets, and expectations about the future. When any of these factors changes, your best choice might change.

Sunk cost

a cost that has been incurred and cannot be reversed. A sunk cost exsists in whatever choice you make, and hece it is not an opportunity cost Good decision makes ignore sunk costs Sunk costs are irrevelant to the current decision

market demand curve

a graph plotting the total quantity of an item demanded by the entire market at each price.

Cost-Benefit Principle

a guide to decision-making which states that an individual should undertake an activity if and only if the additional benefit of doing so is greater than or equal to the additional cost of doing so.

perfectly elastic demand curve

a horizontal line reflecting a situation in which any price increase reduces quantity demanded to zero; the elasticity has an absolute value of infinity-when any change in price leads to an infinitley large change in quanity

decrease in demand

a leftward shift of the demand curve- quantity falls and price falls

decrease in supply

a leftward shift of the supply curve

decrease in supply

a leftward shift of the supply curve- quality falls and price falls

competitive market

a market in which there are many buyers and many sellers so that each has a negligible impact on the market price

price elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price

cross-price elasticity of demand

a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good

Price elasticity of supply

a measure of how responsive sellers are to price changes It measures the percentage change in quantity supplied that follows from 1% price change

input prices

a measure of the average prices of labor, raw materials, and other inputs that firms use to produce goods and services. inputs used in the production process

Movement along the demand curve

a price change causes a movement from one point on a fixed demand curve to another point on the same demand cure

increase in demand

a rightward shift of the demand curve- quality rises price falls

increase in supply

a rightward shift of the supply curv- quanity rises and price falls

increase in supply

a rightward shift of the supply curve

Decrease in demand

a shift of the demand curve to the left- a decrease quantity is demanded at each and every price

Increase in demand

a shift of the demand curve to the right- an increased quantity is demanded at each and every price

Elasticity

allows you to forecast how much quantities will change under different market conditions.

Substitutes in prod

alternative uses of your resources. Your supply of a good will decrease if the price of a substitute in a production rises.

The law of demand states that

as price falls demand increases

The rational rule for the buyer

buy more of an item if the marginal benefit of one more is greather that ( or equal to0 THE PRICE)

The rational rule for the buyer

buy mote of an item if the marginal benifit of one more is greater than ( or equal to0 THE PRICE)

Law of demand

consumers buy more of a good when its price decreases and less when its price increases

Decrease demand

decrease in both equilibrium price and quantity

The effect of changing income

depends on weather the food is normal or inferior

Diminishing marginal benefit

each additional item yields a smaller marginal benefit than the previous item

The type and number of the buyer

if the composition of the market changes because of the change in demographic composition, then the market will also changes. Type of buyer: as baby boomers grow old and increase in demand for healthcare will increase. Number of buyer: an increase in population overtime can increase the demand for goods and services, sifting the demand curve to the right

Individual demand Curve

illustrates the relationship between quantity demanded and price for an individual consumer

the same rise in price caused total revenue to fall

in the elastic case and rise in inelastic case]

The 6 factors that shift the demand curve but not change the price

income, preferences, prices of related goods, expectations, congestion and network effects, type and number of buyers

Increase demand

increase in both equilibrium price and quantity

The market demand summarises the entire relationship between

price and quantity demand

perfectly inelastic

quantity does not respond at all to changes in price (E=0)- completely vertical demand curve-price elasticity demand is zero- no matter what the change in price, the total quantity demanded is unchanged

Oppoturnity cost principal

rue cost of something is the next best alternative Independence principel--next best alternative. Look at consiques for the choices. Or the trade-offs of your decisions.

Production possibalities Frounter (PPf)

shows the different sets of Output that are attainable with scares resources

When the percent change in price is _____ than the percent change in quantity demanded, demand is _______

smaller, elastic

Scarsity

sourses are limited, therefore any resources you spend pressuring one activity leaves fewer resources Limited money, time, attention, willpower, and production resources.

Individual demand curves are...

the building blocks of market demand

You generate economic surplus everytime you make a decision accordance with

the cost benefit principal

You generate economic surplus everytime you make a decision accordance with the cost benefit principal

the cost benefit principal

IF pricees and quantities move in the same direction

the demand curve has definitely shifted- it is also possiable that supply curve also may have shifted

Willingness to pay

the maximum amount that a buyer will pay for a good

opportunity cost

the most desirable alternative given up as the result of a decision

Equilibrium

the point at which there is no tendancy for change. A market is in equilibrium when the quantity supplied equals the quantity demanded

Demand illustrates

the price at which you are willing to buy each quantity The process you are willing to pay for each unit is informed by the marginal benefit you associate with that unit

equilibrium price

the price that balances quantity supplied and quantity demanded

equilibrium quantity

the quantity supplied and the quantity demanded at the equilibrium price

Relatively flat supply curve

the quantity supplied is relatively responsive to change in price --- elastic

Relativily steep

the quantity supplied is relatively unresponsive to a change in price---inelastic

Vertical supply curve

the quantity supplied is unchanged for any change in process- perfectly inelastic

Congestion and network effects

the usefulness of some products- and hense your demand for them- is also shaped by the choices of others. Network effects: when a good becomes more useful because other people use it. If more people buy such a good, your demand for it will also increase. Congestion effect- when a good becomes less valuable because other people use it. If more people buy such a produce, your demand for it will decrease.

if you demand curve for your product is relativily elastic

then you should lower the price of your good increase your total revenue

on valentines day the price of roses rise, as does the quality sold

this means there was a shift in demand

total revenue

total amount you receive from buyers, which is calculated as price x quantity.

opportunity cost

whatever must be given up to obtain some item

2 cases in which elasticity does not change

when elasticity equals zero and when it's infinite- horizontal demand curve

The Interdependence principle

your best choice depends on other peoples choices.

Price of related outputs

your choices as a supplier are also interdependent across different outputs as there are many different lines of business in which you could engage. Complements in production: goods that are made together. Your supply of a good will increase if the price of a complement in production rises.