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ECO100Y5 (345)
Lecture

# ECO100.docx

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Department
Economics
Course
ECO100Y5
Professor
Kalina Staub
Semester
Fall

Description
ECO100 Monday September 16th 2013 Lecture Professor Staub CHAPTER 3: The Determinants of Demand 2. Consumers Income ▪ as income increases, demands increase ( normal goods) ▪ as incomes increases, demands decreses (inferior good)- example would be Kraft DInner 3. Prices of related goods. ▪ Complements- example PB&Jelly, as the prices for PPB increases, demand for Jelly decreses. ▪ Subsititutes- example peaces, necturines, as the prices for peaches increases, demand for nectarines increases. ▪ 4. Taste of Preferences ▪ if negative health consequences of PB change- demand of PB decreases. 5.Population/ # of buyers ▪ Increase of # of buyers, the demand increases. 6. Expectations about the Future ▪ price of PPB(t+1) increase, the demand of PPB will increase Change in price, Change in quantity demand, alone the demand curve/ change in determinants demand will cause change in demand to shift in the demand curve Change in demand, causes the demand curve to shift to the right, if we have a decrease in demand, causes the demand curve to shift to the left. Supply Quantity of supply is influenced by: (DETERMINANTS OF SUPPLY) 1. Products output price 2. Price of inputs 3.Technology 4. Government taxes of subsides 5. Prices of related goods 6. Number of suppliers Law of Supply: ▪ ceteris paribus, as price increases the quantity of supply increases or, as the price of the product decreases, the quantity supple decreases ▪ change of determinant of supply, change S shift entire S curve 2.)Price of inputs, ▪ price of products( peanuts) increase, supply ( peanut butter) decreases 3.) Technology- ▪ if we have a machine for crushing peanuts that is 2 times faster than before, then we say we have an increase in technology, the supply of the peanut butter will increase. ( shift to the right) 4.) Government Taxes and Subsides ▪ Increase of races causes a decreases of supply ▪ Increase subsides, you will increase supply 5.)Prices of related products ▪ compliments and substitutes in production- substitutes, if the price of snickers increases, then the supply for peanut butter will decrease- compliments, peanut butter and peanut shell hamster bredding, Price of the bedding increases, the supply of peanut butter increases 6.) Number of suppliers number of firms increase supply increase ECO100 Monday September 23rd 2013 Lecture Professor Staub CHAPTER 4: Elastacity measures the responsiveness of one variable to change into another variable Price is Elasticity of Demand ( %) = % ( of change) Quantity demand/ % ( of chance) Price = Q1-Q2/ Q and P1-P2/p Slope of Elasticity: Slope cannot = Elasticity The slope depends on units elasticity Elasticity is unit free Midpoint method: P= P1+ P2/2 and Q= Q1+ Q2/2 Perfect Elasticity means Horizontal Demand Curve | np | = infinity Perfect Inelasticity means Vertical Demand Curve | np | =0 Linear Demand Curve: The same absolute changes in P and Q represent different percentage changes as we move along the curve WHAT DETERMINES THE ELASTICITY OF DEMAND? 1.) The availability of the substitutes. More substitutes = more elastic demand 2.) Time horizon. More inelastic in the short run. Ex. gas. ECO100 Wednesday September 25th 2013 Lecture Professor Staub CONTINUATION ON ELASTICITY: What Determines the Elasticity of Demand? 1.) Availabilty osfSubsitutes 2.) Time Horizon Relationshsip between elasticity and TE ( total expenditure) TE= PxQ = TR ( total revenue) ▪ as price is increasing the quantity decreases. ▪ | % changed P | < | % changedQ | ▪ when we add those two together we get a decrease in total expenditure ▪ if the price increases and demand is elastic total expenditure and total revenue will decrease ▪ if, demand is inelastic | % change Q | < | % change P | ▪ if we have an increase in P and a small decrease in Q, the TE will increase when demand is inelastic ▪ if you want to increase your TR you only need to increase your price. ▪ if demand is unit elastic | % change P | = | % change in Q |, TE will stay the price, there will be no change Price Elasticity of supply P of E = % change of Quantity supply/ % change of Price - this will always be positive because the law of supply states that as P increases, Q supply increases. Types of Elastic supply - Elastic ( ES > 1 ) - Inelastic ( ES < 1 ) - Unit elastic ( ES = 1 ) - perfectly elastic ( ES = infinity) - perfectly inelastic ( ES = 0 ) Determinants of Supply Elasticty: ▪ Short Run vs Long Run ▪ - Long Run supply is more elastic ▪ Substitution vs Production Costs ▪ - how easy is it to sift production from one good to another, ▪ If its easy = more elastic ▪ if its hard = more inelastic ▪ ▪ How much of cost increase in production increase ▪ - if a alot= more inelastic ▪ - if a little = more elastic Income elasticity of Demand:
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