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Chp 4 Material Type: Notes; Class: PRIN MICROECONOMICS; Subject: Economics; University: Louisiana State University; Term: Fall 2010;
Typology: Study notes
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Chp 4 Supply and Demand Basic Concepts Those who got it and those who want it In a world constrained by scarcity driven by utility seekers, there comes into being the interaction between those who want and those who have to offer The ensuing behavior creates the phenomenon known as a “market” Those who want and are allocate their own scarce resources to attain, demand This observed behavior has precise meaning in economics and refers to the following 3 points
Relative prices are given Shirts/Pants = $10/$30 = 1/ Consider each and their implications on behavior 2 factors at work within law of demand and inverse relationship between price and demand
Reason for distinguishing between substitute goods is often a matter of tastes and preferences Maybe normal, inferior, neutral Generally speaking if the price of one differs greatly than the other demand will shift towards the good featuring a lower price As an aside, substitute goods are frequently marketed in ways to prevent them from being considered either as a substitute or commodity Complement: goods generally consumed jointly, a change in demand for one will likely precipitate a similar change in demand for the other May be normal, inferior, or neutral Generally speaking, are good if not both are not used without the other sometimes, flow goes both ways, other times not Given different types of goods Income Individuals/consumers within the market Increase will generally push the demand curve out for normal goods but reduce demand for inferior goods; neutral goods will remain the same Taste and preferences The choice determine allowing for the unique difference each consumer exhibits, it’s this effect also captures the phenomenon of how conumers differentiate between goods that ostensibly serve the same or close to the same purpose Whether consumers are motivated by seemingly trite fashion or more something like health concerns, a change in t and p will shift demand All goods maybe effected Prices of related goods: effect upon demand will likely be in the same direction Substitute: shift will be in opposing direction when “price changes”, we are referring to those changes making a pronounced effect on market dynamics That effect demand across all price ranges not quantity demanded Price of related good: effect upon demand is most relevant to complement and substitute goods
For complements, the shift in demand will likely be in the same direction For substitutes the shift will be in the opposing directions When we speak of price changes we are referring to those changes making a pronounced effect on market dynamics – effect all across Number of buyers: size of any market is related to the number of buyers, when more are around demand will be greater across all price levels, the reverse is also true. This can affect all goods. Expectations of future price: consumers react to a belief the future price will change after their behavior in the present. Overall demand will shift as people await the new price structure Supply Supply, in economic terms, is a specific term relating to those who utilize resources in such manner they produce goods, like demand. 3 key points
Advances in technology may bring about lower production costs. If such changes allow more efficient production (more production, same input) than producers will increase supply. Production is more profitable across the supply curve Number of sellers on a market More producers yields more supply, less suppliers yields less supply Expectation of future price Producers will alter what they deliver to the market if there is an expectation of change in future price If producers think a higher price will be attained in the future, why send now Likewise, if the price is expected to drop, a producer may try and capture more of the higher price now Again markets react today to those events thought to occur in the future there is no waiting Taxes and subsidies Taxes have an adverse effect on supply The more government taxes supply less will come to market Subsidies encourage production for better, for worse, the subsidies incentivizes producers to allocate resources beyond what market conditions might demand simply put, less produced of that which is taxed, more of that which is subsidized Government restriction Regulation has a negative effect upon supply The supply curve will shift inward with increasing governmental restrictions The more arduous the regulation, the more producers began to curtail production or drop out entirely of the market Supply and Demand