Econ 101 4th Real Lecture

Anouncements: The discussion board is up, and test number three is up today!

Review:
Demand is the relationship between the price, and the quantity of any product that a consumer is willing to purchase, given the price, ceteris paribus
Supply is the relationship between the price, and the quantity of any product that a producer is willing to sell, given the price, ceteris paribus

Consumers want to buy more when the price is low because their opportunity cost is lower
Producers want to sell more when the price is high, because their profit margins will be higher

The producer and the consumer don't know each other, so how do we get them to make a deal?

EQUILIBRIUM! YAAAAAAAAAAAY!

Prices ($) Quantity Supplied Quantity Demanded
1.00 7 1
0.80 6 3
0.60 5 5
0.40 3 8
0.20 1 11


An excess in supply (When quantitiy supplied is greater than quantity demanded) creates a pressure for producers to lower their prices
An excess in demand (When quantity demanded is greater than quantity supplied) creates a pressure for producers to raise their prices

BECAUSE OF THIS SUPPLY AND DEMAND TEND TO AUTOMATICALLY GRAVITATE TOWARD A POINT OF EQUILIBRIUM: Where the quanitiy of supply equals the quantity of demand (that is the condition for equilibrium). If you are staying put (remaining constant over time) you are in EQUILIBRIUM! If you are happy, you will stay there.

Stable equilibrium: When changes occur, things resettle toward equilibrium again (things go back to the way they were: eg: blood glucose, a punching bag)
Unstable equilibrium: When change occurs, things do not go back to equilibrium again (eg: the pencil gets knocked over)

LAWS OF SUPPLY AND DEMAND (these deal with SHIFTS in the curve caused by changes in the Ceteris Paribus Variables)
An Increase in Demand increases the equilibrium price, and increases the quantity exchanged (Ipods become more popular, become more expensive, and sell by the truckloads)
A Decrease in Demand lowers the equilibrium price and decreases the quantity exchanged (Tamagotchi becomes unpopular, are bought less often, and can be purchased for fifty cents)
An Increase in Supply decreases the equilibrium price and increases the quantity exchanged (Unconventional Oil lowers the cost of extracting natural gas from rocks, and floods the market with cheap natural gas which costs very little, and is purchased rapidly by consumers)
A Decrease in Supply increases the equilibrium price and decreases the quantity exchanged (Bananas suddenly become extremely expensive to cultivate due to storms ravaging the Caribbean. Producers become less willing to produce bananas, so there are less of them on the market, which sell for a much higher price, because the demand for bananas has not changed)

WOOO