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 Second Lecture

Supply and Demand: This is one of the most important components to Economics.

Demand:
-Quantity Demanded
-Demand Schedules
-Shifts versus Moving Along The Curve

Quantity Demanded is not the same thing as 'Demand'

Supply:
-Quantity Supplied
-Supply Schedules
-Shifts and Movements

Friday: How do you make a deal? How do suppliers and 'demanders' meet in the middle?

DEMAND:

The Quantity Demanded is the quantity a buyer is willing to purchase given the price, (P), with all other things held constant (ceteris paribus).

We are basically measuring two variables against each other: Price and Quantity Demanded. In order to do this, we need to artificially control all of the other possible factors so that they do not affect the graph, etc.

If the price is $1, how many condoms do you want to buy?
If the price is 80 cents, how many condoms do you want to buy?

Here is a demand schedule for Condoms:
Price Quantity Bought
1.00 --> 1
0.80 --> 3
0.60 --> 5
0.40 --> 8
0.20 --> 11

Why do we buy more when the price is lower? BECAUSE THE OPPORTUNITY COST HAS FALLEN! Eg- buying one condom is now the equivalent to 1/16th of a can of coke instead of a whole can of coke.

Price affects our willingness to buy.
There is an inverse relationship between price and the quantity demanded. As price falls, the quantity demanded rises (I work at co-op. I have witnessed this).

HERE ARE THE OTHER FACTORS WHICH CAN AFFECT Quantity Demanded!
-Income
-Tastes
-Advertising
-Price of complimentary goods
-Price of substitute goods
-Population
-Wealth
-Expectations

See Gateman's notes to fill in the details tonight!

Okay. The price of beer drops. What happens to your willingness to buy condoms? It's subjective; different people behave differently. However, for the sake of understanding, you buy more condoms and this is why.

If the price of beer drops, beers opportunity cost is lower, so you will buy more beer. If you buy more beer, you will need to buy more condoms because they are COMPLIMENTARY.

Substitute goods work the opposite way. If two goods are in competition with each other for an example, a drop in Price in one causes you to buy less of the other.

For an example, if the price of coke drops, you will buy less Pepsi.

Wealth is accumulated income, which is storehoused (it's a bit different from income). Generally, the more wealth you have accumulated, the more you spend for both practical and cultural reasons.

Expectations are difficult to prognosticate. The effect of expectations is different for different people. EG: housing market predictions creat expectations.

DEMAND CURVE:
relation between Price, and the Quantity the consumer is willing to purchase, all things held constant (ceteris paribus).
Qd = f (P/I,T,A,Pr, Pop, W, Exp)
Usually, constant variables (the ceteris paribus) are overlined, but he doesn't know how to do this in word processor.

Demand function:
Y = f(x)
Qd = f(P) : This is the math

Inverse Demand Function:
P = g(Qd) : This is the graph

The price is graphed on the Y axis
The Qd is graphed on the X axis



WE DON"T DO QUADRATICS> YAYA!