Log in
HomeClass Notes1,200,000US530,000

ECON 101 Lecture Notes - Lecture 3: Market Clearing, Shortage, Demand Curve

15 views2 pages
rosebutterfly172
22 Aug 2020
School
GCC
Department
Economics
Course
ECON 101
Professor
ames

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Price expectations: prices of related goods. Complementary goods cookies and milk, computer and keyboard, cars and fuel, etc. If price of one good decreases, demand of other increases. If price of one good increases, demand of other decreases. Substitute goods apple and orange, honda and toyota, pepsi and coke. iphone and samsung galaxy. If price of one good decreases, demand of other decreases. If price of one good increases, demand of other increases: consumer incomes. Inferiror good public transit, laundromats . Inferior goods does not mean cheaper quality think of saving money: tastes and fashion. When goods and services become more popular, the demand expands ex: clothing of a particular style. If prices are expected to rise in the future, the demand expands today. If we think gold will increase in price tomorrow, we will buy today: price expectations. Number of suppliers: effects in technology. An improvement in technology expands supple: effect of input costs.

Get access

Grade+
$40 USD/m
Billed monthly
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
10 Verified Answers
Class+
$30 USD/m
Billed monthly
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
7 Verified Answers

Related Documents

ECON 101 Lecture Notes - Lecture 31: Budget Constraint, Demand Curve, Production Function
skywildebeest541
ECON 101 Lecture Notes - Lecture 17: Normal Good
skywildebeest541
ECON 101 Lecture Notes - Lecture 8: Demand Curve, Netflix, Inferior Good
rosebutterfly172

Related Questions

Suppose that the extended (generalized) demand function for good Y is:

QdY= 250,000 - 500 PY -1.5 M + 240 PX

where: QdY = quantity demanded of good Y

PY = Price of good Y

M = Average income of consumers

PX = Price of related good X

a) If M = $ 60,000 and PX = $100, what is the reduced demand function for good Y?

b) Continue using the reduced demand equation from part a,

If M = $60,000, PX = $100, and PY = $200 then QdY = ________

If M = $60,000, PX = $100, and PY = $300 then QdY = ________

Use this information (prices and quantities demanded of good Y) to calculate the price elasticity of demand between these two points on the demand curve of good Y. Show your work.

c) Use your answer to part b. Between these two points on the demand for good Y, is demand elastic, inelastic, or unitary price elastic? Why? What will happen to total revenues if the price increases between these two points on the demand curve?

d) In part b, you found that when:

M = $60,000, PX = $100, and PY = $200 then QdY = ________

Now let's suppose that the price of the related good X decreases from $100 to $50 but income remains constant (at $60,000). Assume that the price of good Y is also constant at $200.

If M = $60,000, PX = $50, and PY = $200 then QdY = ________

Use these prices of good X and the quantities demanded of good Y to calculate the cross-price elasticity of the demand for good Y when the price of good X decreases from $100 to $50.

e) Consider your answer to part d. Based on the value of the cross-price elasticity of demand you just estimated, are goods X and Y substitutes, complements, or unrelated? Why?

f) In part b, you found that when:

M = $60,000, PX = $100, and PY = $200 then QdY = ________

Now let's suppose that consumer income increases from $60,000 to $80,000 but the price of good X remains constant (at $100). Assume that the price of good Y is also constant at $200.

If M = 80,000 , PX = $100 and PY = $200 then QdY = _________

Use these income levels and quantities demanded of good Y to calculate the income elasticity of the demand for good Y when income increases from $60,000 to $80,000.

Show your work

g) Consider your answer to part f. Based on the value of the income elasticity of demand you just estimated, is good Y normal, inferior, or income independent?

1) Suppose your grandmother gave you $25 for your birthday and you decided to spend all of it on candy bars and bags of popcorn. The price of candy bars is $1.25 and price of a bag of peanuts is $3.75.

a) Construct a table showing the alternative combinations of the two products that are available.

b) Plot the data in your table as a budget line in a graph. What is the slope of the budget line? What is the opportunity cost of one more candy bar? Of one bag of peanuts?

c) How, in general, would you decide which of the available combinations of candy bars and bags of peanuts to buy?

2) With current technology, suppose a firm is producing 750 screwdrivers daily. Also assume that the least-cost combination of resources in producing those screwdrivers is 15 units of labor, 20 units of land, 4 units of capital, and 3 unit of entrepreneurial ability, selling at prices of $50, $45, $75, and $50, respectively. If the firm can sell these 750 screwdrivers at $2.50 per unit,

a) what is its total revenue?

b) what is its total cost?

c) what is its profit or loss?

d) will it continue to produce screwdrivers?

e) If this firm’s situation is typical for the other makers of screwdrivers, will resources flow toward or away from this product?

3) How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market; that is, do equilibirium price and quantity rise, fall , or are the answers indeterminate because they depend on the magnitudes of the shifts?

a)Supply decreases and demand is constant. Change in eqilibrium price chnage in eqilibrium quantity

b)Demand decreases and supply is constant.

c)Supply increases and demand is constant.

d)Demand increases and supply increases.

e)Demand decreases and supply decreases.

4)Zeke likes to go to music concerts. The number of times per year that he attends concerts depends on both the price of the concerts as well as Zeke’s income and the cost of other types of entertainment—in particular, how much it costs to go see a movie instead of attending concerts. The three demand schedules in the $60,000 per year and movies cost $10 each. In scenario D2, Zeke's income is also $60,000 per year, but the price of seeing a movie rises to $12. And in scenario D3, Zeke's income goes up to $80,000 per year, while movies cost $12.

a)Using the data under D1 and D2, calculate the cross-elasticity of Zeke's demand for concerts at all three prices. (To do this, apply the midpoints approach to the cross-elasticity of demand.) Is the cross-elasticity the same at all three prices? Are movies and concerts substitute goods, complementary goods, or independent goods?

b)Using the data under D2 and D3, calculate the income elasticity of Zeke's demand for concerts at all three prices. (To do this, apply the midpoints approach to the income elasticity of demand.) Is the income elasticity the same at all three prices? Are concerts an inferior good?

PRICE D1 D2 D3
50 10 5 12
40 15 10 25
30 25 15 40

Income 60,000 60,000 80,000

Cost of revenue 10 12 12

5) On the basis of the three individual demand schedules below, and assuming these three people are the only ones in the society, determine (a) the market (a) the market demand schedule on the assumption that the good is a private good and (b) the collective demand schedule on the assumption that the good is a public good.

P Qd(D1) Qd(D2) Qd(d3)
20 0 0 1
19 0 1 2
17 0 2 3
16 0 3 4
15 1 4 5
14 2 5 6
13 3 6 7
12 4 7 8
11 5 8 9
10 6 9 10

DEMAND and SUPPLY FUNDAMENTALS: Shifts in Demand or Supply

Variables typically included in a multivariate demand function (other than the price and quantity of the item the demand function represents) are consumer tastes and preferences, the number of buyers, spendable (disposable) income, prices of substitute goods, prices of complementary goods, advertising expenditures, weather, and expectations. Recalling that the price of the item being considered is placed on the vertical axis, and the quantity on the horizontal axis, the other variables are termed demand shifters. Please answer the following questions about the affect changes in other variables might have on the demand for the item. These changes will either cause demand to increase(shift right) or decrease(shift left). Use either word as applicable, for the short answer.

If the price of a good increases because the demand for it increases, What would you expect the demand for its complement to do?

If the demand for coffee beans increases, then what is likely to happen to the demand for land on which to grow coffee?

If advertising expenditures for the good being considered are decreased, then demand for the good being considered will likely:

Lattes are a relatively expensive coffee drink. However, being a normal good, as consumers’ disposable income increases, the demand for Lattes should:

5. As the supply of tablet computers and e-readers increases relative to the demand for them, what change in demand for printed textbooks (having digital e-book versions) would you expect?

Variables typically included in a multivariate supply function (other than the price and quantity of the item the supply function represents) are prices of other goods that use similar input resources for production, expectations, the number of suppliers, techniques of production, taxes and subsidies, and prices of input resources, weather. Please answer the following questions about the affect changes in other variables might have on thesupplyof the item. These changes will either cause supply to increase(shift right) or decrease(shift left). Use either word as applicable, for the short answer.

If there is an increase in the number of producers of the item being considered, then the supply of it is likely to:

A tariff is a form of trade restriction (that behaves much like a tax). Suppose the United States removes a high tariff on imported broccoli that had been in effect for a long time. How should this affect the supply of imported broccoli?

A decrease in a government-provided subsidy of the item being considered is likely to ___________its supply.

If the price of an input resource decreases (and there are no cheaper substitutes for the resource) then producers of the item are likely to _____________ its supply?

Suppose broccoli growers have successfully lobbied Congress for a crop subsidy. Once the subsidy becomes available, the domestic broccoli supply is likely to: