Week 2 - Textbook & Main Lectures

what is a demand curve?

function that shows the quantity demanded at different prices

how can you shift demand (6 ways)?

changes in:

1. income

2. population

3. price of substitutes

4. price of complements

5. expectations

6. tastes

what is consumer surplus?

the different in the price the customer is willing/able to pay & the actual price → consumer gains from exchange

what is the supply curve?

shows the quantity supplied at different prices

what is producer surplus?

when producers are selling for a higher price than it costs them to make → producer gains from trade

how to shift the supply curve (6 ways)?

changes in:

1. tech innovations

2. price of raw materials

3. taxes & subsidies

4. expectations (speculation)

5. entry or exit of producers

6. changes in opportunity costs

what is equilibrium?

when quantity demanded = quantity supplied

what is surplus?

too much supply, not enough demand, area above equilibrium point

what is shortage?

not enough supply, too much demand, area below equilibrium

what 3 conditions are happening when a free market maximizes producer & consumer surplus (equilibrium)?

1. the goods are bought by the buyers with the highest willingless to pay

2. the goods are sold by the sellers with the lowest costs

3. no unexploited gains from trade and no wasteful trades

difference in quantity demanded vs. demand?

increase in quantity demand = movement along the curve
increase in demand = shift in demand curve

what is a normal good?

when an increase in income increases demand for this goodw

what is an inferior good

when an increase in income decreases demand for this good

what happens to customers with different willingnesses to pay when prices rise?

lower willingness to pay customers drop out, leaving only those with high willingness to pay

what are unexploited gains from trade?

when quantity sold is less than equilibrium quantity, buyers are willing to pay more than what it costs sellers to make the item

change in supply (shift down & right) may be due to increase or decrease in opportunity cost?

decrease in opportunity cost

if opportunity cost increases of growing wheat what happens to the supply curve of wheat?

suppliers shift to other products (Ex. hemp) → SUPPLY CURVE OF WHEAT DECREASES

what does economics say about the profitability of the marijuan industry?

currently not a very profitable market after the initial legalization/liberalization