FILE:
251N02.HTML
CLASS
NOTES FOR ECONOMICS 251
DR.
WILLIAM SHINGLETON
FALL 2005
THESE
NOTES ARE FOR THE WEEK OF AUGUST30-SEPTEMBER 01
FINISH
EXAMPLE FROM LAST WEEK
MARKETS
AND THE PRIVATE SECTOR CH. 3
IMPORTANCE
OF PRIVATE PROPERTY AND PROFIT
PROFIT AS A NECESSARY CONDITION
PROFIT INCENTIVE
PROFIT LESS THAN 10 PCT OF
INCOME
VOLUNTARY
EXCHANGE(LAWN MOWER EXAMPLE)
PRICE
THEORY I: LAW OF MARKETS
DEMAND CURVE
SUPPLY CURVE
3 KINDS OF PRICES
DISEQUILIBRIUM PRICES
INVENTORY CHANGES AS SIGNALS
NO INTENTIONAL MISTAKES
EQUILIBRIUM PRICE
VOLUNTARY EXCHANGE/BENEFICIAL
DISTRIBUTION
MARKETS AS EXCHANGE
CONSUMER SURPLUS
PRODUCER SURPLUS
PRICE RATIONING
LAW OF
DEMAND
DEMAND VS QUANTITY DEMANDED
QUANTITY DEMANDED
MUST BE A NUMBER
MUST FIRST KNOW THE PRICE
DEMAND IDENTIFIES QUANTITY DEMANDED AT
EACH PRICE
LAW OF
SUPPLY
QUANTITY SUPPLIED
MUST BE A NUMBER
MUST FIRST KNOW THE PRICE
SALES ARE UNCERTAIN BEFORE
THE MARKET PERIOD
ROLE OF PROFIT
NORMAL PROFIT
NECESSARY RESOURCE
CREATES/DESTROYS
MARKETS/JOBS/TECHNOLOGY
SUPPLY IDENTIFIES QUANTITY SUPPLIED AT
EACH PRICE
LAW OF
MARKETS: SUPPLY AND DEMAND/PRICE DETERMINATION
TIME/PLACE IDENTIFY MARKET
LABEL EACH AXIS WITH MATCHING ITEMS
DISEQUILIBRIUM PRICES
QUANTITY DEMANDED MORE THAN
QUANTITY SUPPLIED
QUANTITY SUPPLIED MORE THAN
QUANTITY DEMANDED
CHANGE IN PRICE DOES NOT
CHANGE DEMAND
CHANGE IN PRICE DOES NOT
CHANGE SUPPLY
INVENTORIES AS SHOCK
ABSORBERS
EQUILIBRIUM PRICE
EFFECTS
OF CHANGES IN THE UNDERLYING CONDITIONS
DEMAND CHANGES
SUBSTITUTES
COMPLEMENTS
INCOME
EXAMPLE
SUPPLY CHANGES
COSTS
NUMBER OF SELLERS
EXAMPLE
LAW OF
MARKETS: ALFRED MARSHALL 1890
INVENTORY CHANGES ARE SIGNALS OF
INCORRECT DECISIONS
SELF-INTEREST (PROFIT) NOT SOCIAL
WELFARE
MARSHALLIAN SCISSORS
MORE THAN A TOOL: THE FIVE YEAR OLD'S
HAMMER
LAW OF
MARKETS/SUPPLY AND DEMAND/ HOW TO TELL THE STORY
LABEL EVERYTHING
MAKE SURE YOUR LABELS ARE
COMPLETE AND CORRECT
START AND END AT EQUILIBRIUM
IDENTIFY STARTING QUANTITY
AND PRICE
TELL WHY THE EQUILIBRIUM
PRICE IS DIFFERENT
IDENTIFY AND LOGICALLY DEFEND EACH AND
EVERY CHANGE
USING
THE EVENT IN THE QUESTION
THERE IS NO NEED TO EXPLAIN
THE CAUSE
DEVELOP A LOGICAL BASIS TO
CHANGE BEHAVIOR
CHANGE MUST HAPPEN
EVEN IF THE PRICE
STAYS THE SAME
FOCUS ON MARGINAL
CONSUMER/MARGINAL OUTPUT
USING
THE EVENT IN THE QUESTION, IDENTIFY
A NEW POINT AS PART OF NEW
DEMAND/SUPPLY CURVE
ONLY ONE CURVE AT EACH MOMENT
IN TIME
DEMAND VS QUANTITY DEMANDED
QUANTITY DEMANDED
MUST BE A NUMBER
SUPPLY VS QUANTITY SUPPLIED
QUANTITY SUPPLIED
MUST BE A NUMBER
NOTE DISTINCTION
BETWEEN PRICE AND COST
IDENTIFY SURPLUS OR SHORTAGE
SURPLUS OR SHORTAGE IS SIGNAL TO FIRM
FIRM CHANGES PRICE AND OUTPUT
IN ORDER TO IMPROVE PROFIT
NOT TO GET TO EQUILIBRIUM
AS PRICE CHANGES
CHANGE THE QUANTITY DEMANDED
/NOT THE DEMAND
CURVE
CHANGE THE QUANTITY SUPPLIED
/NOT THE SUPPLY
CURVE
FINAL
STATEMENT: RETURN TO EQUILIBRIUM
AT ANY MOMENT IN TIME
ONLY ONE DEMAND CURVE IS
RELEVANT
ONLY ONE SUPPLY CURVE IS
RELEVANT
QUANTITY DEMANDED IS A NUMBER
DETERMINED BY PRICE
QUANTITY SUPPLIED IS A NUMBER
DETERMINED BY PRICE
CONSIDER WHAT WOULD HAPPEN
IF THE PRICE STAYED THE SAME
THE EMPHASIS IS ALWAYS ON
"WHY?"
THE EXPLANATION IS THE IMPORTANT PART
OF THE ANSWER
EQUILIBRIUM QUANTITY IS BOTH
1. THE QUANTITY DEMANDED
2. THE QUANTITY SUPPLIED
SELF
TESTS
CAN YOU
IDENTIFY
SOMETHING THAT WOULD
INCREASE DEMAND?
SOMETHING THAT WOULD
DECREASE DEMAND?
SOMETHING THAT WOULD
CHANGE THE QUANTITY DEMANDED
BUT WOULD NOT MOVE THE DEMAND
CURVE?
SOMETHING THAT WOULD
INCREASE SUPPLY?
SOMETHING THAT WOULD
DECREASE SUPPLY?
SOMETHING THAT WOULD
CHANGE THE QUANTITY SUPPLIED
BUT
WOULD NOT MOVE THE SUPPLY CURVE?
LONG RUN/SHORT RUN:
PRICE VS PRICE EXPECTATION
CHANGE IN PRICE NEVER MOVES DEMAND OR
SUPPLY
CHANGE IN PRICE EXPECTATION CAN MOVE
EITHER ONE
SIMULTANEOUS
CHANGES IN MARKET CONDITIONS
THE SUM OF THE PARTS
ONE KNOWN, ONE UNKNOWN
NEXT
WEEK
ROLE OF
GOVERNMENT AND TAXES CH 4