ECON 200 Lecture 4: Class 4
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22 Jan 19
What's Your Price?
• Law of Demand - There exists an inverse relationship between the price of the good and the
amount of it buyers are willing to purchase
• An increase in the price of a good will raise the opportunity cost of consuming it
• Inverse relationship between price and quantity of demand
o Typical range of prices over which price matters a great deal (notice the negative slope)
Slide or Shift?
• A movement along a demand curve is a result of a price change alone
o This is known as a change in the quantity demanded
• A shift in the entire curve occurs when something other than the price changes
o This is a change in demand
o The demand shifts out when something "good" happens which causes more demand
o Demand shift in when something "bad" happens to cause less demand
The Law of Supply
• Law of Supply - There exists a direct relationship between the price of the good and the amount of
it that will be offered for sale
More On Supply
• If we change the question (by violating ceteris paribus) we alter the supply curve
o What are places where you would be more comfortable singing
o What are places where it would be more embarrassing/uncomfortable to sing?
o Incentives influence singing
• Example
▪ Family reunion
▪ In class
▪ Shower
Slide or Shift?
• A movement along the supply curve is a result of a price change alone
o This is known as a change in quantity supplied
• A shift in the entire curve occurs when something other than the price changes
o This is a change in supply
o The supply curve shifts out when a "good" thing happens
• Examples
▪ Lower input costs
▪ Better technology
▪ Lower taxes
▪ Higher subsidies
▪ A better future is expected or there are more sellers
o Supply shifts is when a "bad" thing occurs
Equilibrium Experiment
• Barter --> Double coincidence of wants
o Having to barter makes exchange more difficult
• $$ - missing
Document Summary
Inverse relationship between price and quantity of demand: typical range of prices over which price matters a great deal (notice the negative slope) Law of supply - there exists a direct relationship between the price of the good and the amount of it that will be offered for sale. Lower input costs: better technology, higher subsidies, a better future is expected or there are more sellers. Lower taxes: supply shifts is when a "bad" thing occurs. **at a price of , the quantity supplied equals the quantity demanded. Thus is the price associated with the equilibrium quantity: suppose there is a 10% rise in the price of gasoline. Then, according to the law of supply, we expect the quantity of gasoline supplied to increase. Conversely, if the price goes down, quantity supplied will drop, as well. **keep in mind that changes in price do not shift the supply curve.