All Notes So Far 2.6.24

Chapter01_prelecture

Page 2: Scarcity

• Scarcity Defined: Scarce resources refer to items that people desire, where demand surpasses availability.

• Group Activity Instructions:

  1. Form a group of 3 or 4 participants.

  2. Designate a recorder for group output.

  3. Use Jamboard and set sharing permissions accordingly.

  4. Create a uniqueChapter 1: Introduction to Economics

     Overview

     • Economics: The study of how individuals and groups make choices regarding scarce resources and the consequences of those choices on society.

     ---

     group number from the last two digits of each member's phone number.

  5. Group responses to record:

     • Something in common among group members.

     • An unusual example of scarcity.

  6. Non-recorders to submit group number in Brightspace.

  7. Recorders will submit both the group number and Jamboard link.

Page 3: Responses

• Content likely contains summaries of group input and reflections on the discussion of scarcity but is not explicitly detailed in the transcript.

Page 4: Examples of Scarcity

• Potable water: An essential but scarce resource in many areas.

• Cultural Culinary Examples: Rice cooked with Coke is a tradition in Colombia.

  • Coca-Cola and Resource Consumption:

    • Significant water usage by Coca-Cola operations, exemplified by a plant consuming 68.5% of the local water supply in Tocancipá.

    • The relationship between poor drinking water quality and higher per capita Coca-Cola consumption, as noted in Leticia, Colombia.

  • Culinary Value of Coke:

    • Not just necessity; it adds sweetness and acidity to Colombian dishes like arroz con Coca-Cola.

    • Other dishes include arroz árabe, which incorporates Coke in traditional rice recipes influenced by Middle Eastern cooking styles.

Page 5: What is Economics?

• Economics studies:

  1. How individuals and entities make choices with limited resources.

  2. The impact of these choices on broader society.

Page 6: Positive vs. Normative Economics

• Positive Economics: Focuses on objective analysis of economic behavior, such as the effect of calorie postings in restaurants.

• Normative Economics: Addresses subjective questions and opinions regarding policy, such as:

  • Should calorie information be mandated by the government for restaurants?

  • Is it necessary for individuals to have insurance?

  • How does mandatory insurance influence healthcare pricing?

Chapter02_prelecture

Chapter 2: Optimization in Decision Making & Specialization

Optimization in Decision Making

• Understanding how individuals and firms make decisions to maximize benefits given constraints.

• Importance of weighing trade-offs and recognizing specialization.

Page 1

• Introduction to concepts of optimization in decision-making and how specialization plays a role.

Page 2: Poll

• Discussion around the optimal level of crime, illustrated humorously with a reference to Yoda.

Page 3: Trade-offs and Constraints

• Trade-offs: The idea that to gain one benefit, another must be sacrificed.

  • Example: Time spent on TikTok could be used for other activities.

• Constraints: Limitations on choices based on resource availability.

  • Example: Time allocation—Free time is divided among Socializing, Studying, Working, and Sleeping.

Page 4: Opportunity Cost

• Opportunity Cost Definition: The value of the best alternative activity given up when making a choice.

• Importance of recognizing opportunity costs in optimization strategies.

Page 5: Opportunity Cost Example

• Example illustrates opportunity cost: Attending class incurs a cost of not working, leading to lost income.

Page 6: Poll Questions

• Discussion scenarios where driving distance for a discount is considered, weighing the savings against travel costs.

  • Driving for a $10 book discount versus a $10 savings on a $1,000 computer.

Page 7: Cost-Benefit Analysis

• Analysis focused on driving to save money, considering both monetary costs and opportunity costs.

  • Costs include gasoline, time, etc.

  • Benefits include savings from discounts.

Page 8: Case Study - Music vs. Medicine

• Personal anecdote emphasizing the opportunity cost of choices made in pursuing career paths.

• Example of collaboration in the music industry and successful outcomes for different choices.

Page 9: Poll - Tennis Decision

• Question on whether to play indoor or outdoor tennis based on weather and non-refundable reservation.

Page 10: Poll - Basketball Game Decision

• Scenario considering whether to attend a basketball game during inclement weather.

Page 11: Sunk Cost

• Definition: A cost that has already been incurred and cannot be recovered.

• Important concept that should not influence future decision-making.

Page 12: Choices and Rational Behavior

• Rational Behavior: Making decisions by comparing benefits against costs, including opportunity costs but excluding sunk costs.

Page 13: Two Optimization Techniques

• Optimization in Levels: Evaluate net benefits of all choices, select the highest.

• Optimization in Differences (Marginal Analysis): Evaluate changes in net benefits when switching options to maximize well-being.

Page 14: Conclusion on Optimization Techniques

• Both techniques should lead to the same optimal decision.

Page 15: Sunk Costs and Decision-Making Example

• Example of evaluating a project based on updated revenue and cost projections after initial investment.

Page 18: Another Investment Decision Example

• Consideration of whether to proceed with a project after further investments with adjusted revenue expectations.

Page 22: Exercise on Pollution Reduction

• An exercise analyzing costs versus benefits of pollution reduction, determining optimal levels.

Page 26-30: Production Possibilities Model

• Production Possibility Frontier (PPF): Graphical representation of the maximum output possibilities for two goods.

• Individual A’s 8-hour time allocation example for designing banners versus writing ads.

Page 31: Changes in PPF

• Discussion on how shifts/rotations in PPF occur due to changes in resources or productivity.

Page 32: Opportunity Cost in Production

• Examples demonstrating opportunity costs when shifting resource allocation between different products.

Page 35: Absolute and Comparative Advantage

• Absolute Advantage: Ability to produce more of a good with same resources.

• Comparative Advantage: Ability to produce at lower opportunity cost.

• Example comparing individual A and B's production capabilities in a club activity.

Chapter03_prelecture

Chapter 3: Economic Methods and Questions

Economic Models

• Definition: Economic models illustrate how individuals, firms, and governments make decisions regarding resource management and the interactions of these decisions.

• Purpose: They simplify complex economic problems to make them more understandable.

• Components of Economic Models:

  • Include economic agents (individuals, firms, government) and their choices.

  • May reflect the environments in which these agents interact.

Demand & Supply Model of a Market

• Variables:

  • QD (Quantity Demanded)

  • QS (Quantity Supplied)

• Graph Overview:

  • Price levels versus quantity of Good X, showing how price for a good affects supply and demand.

  • Surplus occurs when the price is too high, leading to excess supply.

Circular Flow Model

• Purpose: Represents a basic framework for understanding the economy.

• Key Elements:

  • Households: Spend money on goods/services, providing labor, land, and capital to firms.

  • Firms: Supply goods/services and generate revenue through sales.

  • Market Flows:

    • Flow of dollars for goods and services purchased.

    • Revenue flow in the form of wages, rent, and profit back to households.

The Utility of Models

• What Makes a Model Useful?

  • Simplification of real-world complexities.

  • Clear articulation of assumptions.

  • Capability to predict cause and effect.

Causation vs. Correlation

• Causation: Refers to when one event directly influences another (e.g., using a heater increases room temperature).

• Correlation: Indicates a mutual relationship between two variables, where changes in one relate to changes in another (e.g., ice cream consumption and beach crowds).

  • Types of Correlation:

    • Positive Correlation

    • Negative Correlation

    • Zero Correlation

Examples of Causation vs. Correlation

• Study Example Q1: Cows named by farmers show increased milk production compared to unnamed cows, questioning the direct causation vs correlation.

• Study Example Q2: Research shows older gamblers are generally healthier than non-gamblers.

Reasons Correlation Does Not Imply Causation

1. Simple Coincidence:

   • Events may coincide strongly by chance, not through a causal link.

   • Example: Events occurring close together in time may suggest correlation (post hoc fallacy).

2. Omitted Variables:

   • Missing variables that could explain the apparent correlation.

3. Reverse Causality:

   • The presumed cause and effect may actually be reversed.

Returns to Education

• General Observation: People with higher education levels tend to earn higher salaries.

• Explanations for Higher Earnings:

  1. Human Capital Argument: Education provides valuable skills sought by employers.

  2. Signaling Argument: A college degree signals to employers that an applicant is capable and committed.

• Discussion Point: What data could clarify the reasons for increased earnings with higher education?

Chapter04_parts1-3_prelecture

Chapter 4: Demand, Supply, and Equilibrium in Markets

Introduction to Markets

• Importance of Markets

  • Foundations of the first half of the course.

  • Key questions:

    • Why do economists trust markets?

    • What are market strengths?

    • When do market failures occur?

  • This chapter serves as an essential framework for further concepts in the semester.

Definition of a Market

• Economics Definition:

  • A market consists of buyers and sellers of a particular good or service.

  • Markets can exist locally, globally, or virtually.

• Market Price:

  • Established price at which transactions occur between buyers and sellers.

• Perfectly Competitive Market:

  • Assumption for this chapter and much of the semester.

  • Characteristics include:

    • Standardized goods sold by all sellers.

    • Price takers; no single buyer or seller can influence the market price.

    • Full information available to participants.

    • No transaction costs.

Understanding Demand

• Demand vs. Want:

  • Demand reflects a consumer's decision on which wants to satisfy through purchasing.

  • Reflects willingness and ability to buy goods/services under specific circumstances.

• Measuring Demand:

  • Willingness to Pay (WTP):

    • The highest price consumers are ready to pay for additional units of a good.

Factors Affecting Demand

• Demand Schedule:

  • A table showing quantity demanded at various prices while holding other factors constant.

• Demand Curve:

  • A graphical representation of the quantity demanded at different prices.

• Diminishing Marginal Benefit:

  • As consumption increases, the willingness to pay for additional units usually decreases.

• Change in Demand vs. Change in Quantity Demanded:

  • Change in demand points to shifts of the entire demand curve driven by external factors while change in quantity demanded reflects movements along the curve due to price changes.

Determinants of Demand

• Factors impacting demand:

  1. Tastes and Preferences: Shift based on consumer preferences.

  2. Income and Wealth:

     • Normal Goods: Demand increases as income rises.

     • Inferior Goods: Demand decreases as income rises.

  3. Related Goods:

     • Substitutes: An increase in the price of one commodity raises the demand for its substitute.

     • Complements: An increase in the price of one lowers the demand for the complement.

  4. Number and Scale of Buyers: Greater number of buyers increases demand.

  5. Buyers’ Expectations: Future expectations can shift current demand.

Law of Demand

• Indicates that quantity demanded increases as prices fall, leading to a downward-sloping demand curve.

Supply: Basics and Determinants

• Willingness to Sell (WTS):

  • The lowest price a seller accepts for selling an additional unit of a good.

• Quantity Supplied:

  • The amount sellers are willing to sell at specific prices.

• Supply Schedule:

  • Table indicating quantity supplied at various prices.

• Supply Curve:

  • Graphically represents the quantities supplied at different price points.

Law of Supply

• States that, all else equal, quantity supplied rises as price increases, producing an upward-sloping supply curve.

Market Equilibrium

• Equilibrium Definition:

  • State where quantity supplied equals quantity demanded.

• Equilibrium Price:

  • Price at which supply equals demand.

• Equilibrium Quantity:

  • Volume that is supplied and demanded at the equilibrium price.

Changes in Market Equilibrium

• Factors Leading to Equilibrium Changes:

  • Changes in supply or demand due to shifts in determinants (external factors).

  • Regulatory changes, taxes, or transaction costs can also impact equilibrium.

Excess Demand and Supply

• Excess Demand (Shortage):

  • Occurs when demand exceeds supply at a given price.

• Excess Supply (Surplus):

  • Results when supply surpasses demand at a price, leading to downward pressure on prices.

Summary of Demand and Supply Influences

• Both demand and supply influences contribute to market dynamics.

  • Key determinants for demand and supply include preferences, income, and prices of related goods.

• Demand and supply curves can shift due to various economic conditions, changing equilibrium prices and quantities.

Ch04_part4_prelecture

Chapter 4.4: Market Equilibrium & Efficiency

Market Equilibrium

• Market equilibrium is the point at which quantity supplied equals quantity demanded.

• It reflects a situation where resources are optimally allocated, and both buyers and sellers are satisfied with the price and quantity available.

• Graphical Representation:

  • Intersection of Supply (S) and Demand (D) curves at given price (e.g., $5) and quantity (e.g., 100).

Why is Market Equilibrium a "Good" Place to Be?

• Both consumers and producers benefit at equilibrium.

• Prices are stable, leading to predictable market conditions.

• Efficient resource allocation ensures maximum total surplus.

• Market satisfaction is highest at equilibrium, minimizing deadweight loss.

Efficiency

• Achieved when total surplus is maximized, leading to the concept of Pareto efficiency.

  • Total Surplus: The sum of consumer surplus and producer surplus; represents the net benefit to society.

  • When efficiency is present, someone cannot be made better off without someone being made worse off.

Perfectly Competitive Market

• In such a market, equilibrium leads to welfare maximization for both buyers and sellers.

• Willingness to Pay (WTP):

  • Definition: The maximum price a buyer is willing to pay for a good or service; related to marginal benefit.

  • Also known as reservation price.

Consumer Surplus

• Defined as the difference between what consumers are willing to pay and what they actually pay.

• Formula: CS = (WTP - P)

• Graphical representation shows consumer surplus as the area below the demand curve and above the market price.

• Example Calculation:

  • Given willingness to pay of $100 for a Kindle:

    • If price = $50, CS = $100 - $50 = $50.

    • If price = $100, CS = $100 - $100 = $0.

    • If price = $125, CS = $100 - $125 = -$25 (indicating no purchase).

Producer Surplus

• The net benefit to producers from selling a good or service, measured as the difference between the actual price and the minimum price they would accept (the marginal cost).

• Formula: PS = (P - WTS) = (P - MC)

• Represented graphically as the area above the supply curve and below the market price.

• An increase in price leads to an increase in producer surplus.

Total Surplus (Social Surplus)

• Total Surplus = Consumer Surplus + Producer Surplus.

• Reflects the overall economic efficiency of the market.

• A perfectly competitive balance results in maximum total surplus, avoiding inefficiencies such as deadweight loss.

Deadweight Loss

• Occurs when total surplus is not maximized, often due to misallocation of resources or market distortions (e.g., price floors/ceilings).

• Represents lost efficiency that could have been achieved at equilibrium.

Government Intervention

• Government may intervene for various reasons:

  • To improve equity, as market efficiency does not guarantee fair distribution of resources.

  • To address market failures including externalities, monopolies, and asymmetric information.

Conclusion

• Efficiency in markets ensures resources are used productively, leading to the highest possible total value of goods and services.

• Prices and quantities at equilibrium maximize both consumer and producer surplus.

Lecture 2 Slides

Chapter 1: Introduction to Economics

Scarcity

• Definition of Scarcity: Scarcity arises when the quantity that people want exceeds the quantity available. This situation leads to competition for resources.

• Group Activity Instructions:

  • Form groups of 3-4 students.

  • Assign a recorder to maintain the group's output on Google Drawings.

  • Share the drawing link with the group number formed by the last two digits of the phone numbers of group members.

  • Respond collectively to the prompts about common characteristics and examples of unusual scarce resources.

Common and Unusual Scarce Resources

• Responses from Students:

  • Common Scarce Resources: Time, certain jobs, and college opportunities.

  • Unusual Scarce Resources:

    • S2025: Black truffles, collectible items (e.g., Jordans, Koenigsegg cars), wealth, toilet paper during COVID-19, diamonds, and limited movie theater seats.

    • F2024: Caviar, vintage Pokemon cards, cinnamon and sugar-flavored Pringles, jobs.

    • S2024: Sriracha sauce, land, medical organs (e.g., hearts), and various unique items.

    • F2023: Freshwater, university spots, and happiness.

Economics: Definition and Concepts

• Economics: The study of how agents make choices among scarce resources and the implications of those choices on society.

Positive vs. Normative Economics

• Positive Economics: Concerned with how behavior changes (e.g., asking how calorie displays affect consumer choices).

• Normative Economics: Concerned with what ought to be done (e.g., questioning the government's role in requiring health insurance).

Chapter 2: Optimization in Decision Making & Specialization

The Concept of Optimization

• Optimization in decision-making refers to understanding the best strategy to achieve goals through comparing options and their respective benefits and costs.

Responses from Polls About Crime Levels

• Optimal Level of Crime: Many responses suggest that ideally, no crime exists, but in practice, the optimal level of crime exists where the cost of preventing crime equals the benefits.

• Responses indicate a balance of costs and benefits regarding crime prevention, recognizing that some individuals may find crime beneficial under certain conditions.

Trade-offs and Constraints

• Trade-offs: Choices require giving up some benefits to gain others (e.g., time spent on non-productive activities).

• Constraints: These are the limitations faced by individuals in making choices due to available resources.

Opportunity Cost

• Definition: The opportunity cost of any decision is the value of the next best alternative that is forgone.

• Example: If attending class costs $44 in lost work earnings and parking fee, then that is the opportunity cost.

Cost-Benefit Analysis in Decision Making

• This analysis compares the costs involved with driving to another location for a discount against the potential savings.

• Considerations include gasoline expenses and the opportunity cost of time spent.

The Concept of Sunk Costs

• Sunk Cost: A cost that has already been incurred and cannot be recovered. Rational decision-making should focus on marginal costs and benefits, excluding sunk costs.

Two Optimization Techniques

1. Optimization in Levels: Calculate the net benefit of each alternative choosing the one with the highest net benefit.

2. Optimization in Differences (Marginal Analysis): Analyze changes in net benefits when switching from one alternative to another, ensuring the best choice increases overall benefit.

Application Through Examples

• Investment Decision: Evaluate whether to complete a project based on sunk costs and marginal benefits, illustrating rational decision-making when facing conflicting costs.

• Decisions about completing construction despite sunk costs often depend on comparing continued investments versus anticipated revenue.

Lecture 3 Slides

Chapter Overview

• Topic: Optimization in Decision Making & Specialization

Sunk Costs and Rational Decisions

• Key Concept: Sunk costs should not influence economic decision-making.

  • Example given: Different sunk cost scenarios ($1,500 vs $2,500).

  • Conclusion: Decisions should be made based on future costs and benefits, not past expenses.

• Post Lecture Assignment Highlights:

  • Charlie: Emphasizes potential profit as the deciding factor to finish a project, irrespective of sunk costs.

  • Ryan: Analyzes net benefits of finishing vs. not finishing the project in various sunk cost scenarios.

  • Jingyi: Reiterates that rational agents weigh future costs against future benefits, exemplifying this with the tennis court analogy.

  • General consensus: Focus on marginal benefits over sunk costs leads to better economic decision-making.

Optimization Techniques

• Two Main Techniques:

1. Optimization in Levels:

   • Pertains to assessing the net benefit of all available alternatives.

   • Aim: Choose the alternative yielding the highest net benefit.

2. Optimization in Differences:

   • Also known as Marginal Analysis.

   • Concerned with the change in net benefits from switching options.

   • Aim: Select the alternative that offers a beneficial shift (better off vs worse off).

Pollution Reduction Case Study

• Exercise:

  • Data: Total benefits and costs on pollution reduction levels

  • Objective: Determine the optimal pollution reduction level by analyzing net benefits.

• Findings:

  • For exercise, the optimal pollution reduction level identified as Level 3, where marginal benefit exceeds marginal cost.

Production Possibilities

• Scenario:

  • Individual A must allocate 8 hours between two tasks: designing banners and writing ads.

• Output Descriptions:

  • Production Possibility Frontier (PPF) indicates maximum goods that can be produced given time constraints (banners vs ads).

  • Slope interpretation: Represents opportunity costs associated with resource allocation.

Comparative Advantage

• Key Definitions:

  • Absolute Advantage: Ability to produce more with the same resources.

  • Comparative Advantage: Ability to produce at a lower opportunity cost.

• Illustration:

  • Individual A’s opportunity costs highlight advantages in producing ads compared to banners and vice versa for Individual B.

  • Focus on specialization based on comparative advantages could yield greater productivity.

Summary of Findings

• Sunk costs should be disregarded in decision-making frameworks.

• Understanding and applying optimization techniques is vital for efficient resource allocation.

• Production possibilities and comparative advantages quantify efficiency and potential gains in specific economic scenarios.

Lecture 4 Slides

Chapter 3: Economic Methods and Questions

Economic Models

• Definition: Economic models illustrate how individuals, firms, and governments make resource management decisions and the interactions resulting from those decisions.

  • Simplification: Models are a simplification of complex problems.

• Components of Models:

  • Include economic agents (individuals, firms, and governments) and their choices.

  • May incorporate environments where economic agents interact.

Demand and Supply Model of a Market

• Variables: Quantity Demanded (QD) and Quantity Supplied (QS) are plotted against Price.

• Graphical Representation: Trade-off between QD, QS, and price leads to understanding market dynamics.

  • Surplus: Occurs when the price is too high, leading to excess supply.

Circular Flow Model

• Basic Economy Representation:

  • Households: Spend on goods and services and provide land, labor, and capital.

  • Firms: Sell goods and services and compensate households through wages, rent, and profits.

  • Flows:

    • Flow of dollars and flow of goods/services between households and firms.

    • Markets for the factors of production and goods/services.

Characteristics of Useful Models

• Utility:

  • Simplifies the real world's complexities.

  • Clearly states its assumptions.

  • Predicts cause and effect relationships.

Causation vs. Correlation

• Causation: Occurs when one event directly influences another (e.g., heater usage increases room temperature).

• Correlation: Describes a relationship between two variables, where a change in one influences the other, classified into:

  • Positive correlation: both variables rise or fall together.

  • Negative correlation: one variable rises while the other falls.

  • Zero correlation: no relationship.

Correlation Examples and Misinterpretations

• Example 1: Study shows that cows with names yield more milk.

• Group Activity: Analyze this example in class.

• Example 2: Older gamblers in better health compared to non-gamblers.

• Analysis Task: Determine and discuss how correlation might not imply causation.

Misunderstanding in Correlation

1. Coincidence: Events occur near each other coincidentally, not implying a cause.

2. Omitted Variables: Critical factors are left out, causing misinterpretation of correlation.

3. Reverse Causality: Assumed direction of effect is wrong (e.g., healthier seniors may gamble more).

Returns to Education

• Observation: More education often correlates with higher earnings.

• Theoretical Explanations:

  1. Human Capital Argument: Education provides valuable skills, increasing productivity.

  2. Signaling Argument: A college degree signals to employers qualities like diligence, benefiting employability and salary options.

• Discussion Prompt: Consider which data would clarify this relationship.

Chapter 4: Demand, Supply, and Equilibrium in Markets

• Importance: Central theme in economic studies focusing on market mechanics.

• Questions Addressed**:

  • What advantages do markets have?

  • In which scenarios do markets fail?

Market Definition

• Definition: A market consists of buyers and sellers engaging in the trade of goods and services, existing in various forms (local, global, virtual).

• Market Price: The agreed price at which transactions occur.

Perfectly Competitive Market

• Characteristics:

  • Identical goods/services offered by all sellers.

  • No single buyer/seller can influence market price (price takers).

  • Complete information accessibility regarding prices and product features.

  • Uniform pricing for all buyers and sellers with no transaction costs.

Demand vs. Want

• Concepts:

  • Want: The infinite desires for goods/services.

  • Demand: The decision to satisfy specific wants based on willingness and ability to pay under given circumstances.

Measuring Demand

• Willingness to Pay (WTP): The highest price a consumer is willing to pay for an additional unit of a product (e.g., a Snickers bar).

Lecture 5 Slides

Chapter Overview

• Chapter 4: Demand, Supply and Equilibrium in Markets

  • Important chapter providing foundation for course.

  • Questions addressed:

    • Why do economists trust markets?

    • What do markets do well?

    • What causes market failures?

  • The concepts introduced will be revisited throughout the semester.

  • While the concepts are straightforward, their importance is significant.

Definition of Markets

• Markets

  • Comprised of buyers and sellers trading a specific good or service.

  • Can be located locally, globally, or virtually.

  • Market Price: Price at which transactions occur between buyers and sellers.

  • Perfectly Competitive Market

    • All sellers offer identical goods.

    • No substantial participant influences market prices (participants are price takers).

    • Full information about price and features is available to participants.

    • Every buyer pays the same price, and every seller charges the same price, with no transaction costs.

Understanding Demand

• Difference Between Want and Demand

  • Want: Unlimited desires for goods/services.

  • Demand: Decision on which wants to satisfy, i.e., how much of something a person is willing and able to buy in certain circumstances.

Human Experiences with Demand

• Cultural Values (Example from Humans of New York)

  • Influence of upbringing on understanding value of goods.

  • Questioning needs versus wants helps instill appreciation.

Measuring Demand

• Willingness to Pay (WTP)

  • Represents the highest price a buyer is willing to pay for an additional unit of a good.

  • Example: Surveying willingness to pay for a standard Snickers bar.

Demand Schedule and Curves

• Demand Schedule: Table showing quantity demanded at various prices.

• Demand Curve: Graphical representation of the relationship between price and quantity demanded.

Price and Quantity Demanded Relationship

• As price decreases, quantity demanded increases (Law of Demand).

• Change in Demand vs. Change in Quantity Demanded:

  • Change in Demand: Shift of the demand curve due to factors other than price.

  • Change in Quantity Demanded: Movement along the demand curve due to price changes.

Factors Affecting Demand Shifts

• Demand may increase or decrease due to:

  1. Tastes and preferences.

  2. Income and wealth.

  3. Availability and prices of related goods (complements/substitutes).

  4. Changes in the number of buyers.

  5. Buyers’ future expectations.

Types of Goods Based on Income

• Normal Goods: Demand rises as income increases.

• Inferior Goods: Demand decreases as income rises.

  • Example of inferior goods discussed includes various personal preferences.

Conclusion on Market Demand Behavior

• Understanding Demand Dynamics helps in analyzing consumer behavior via various economic principles.

• The distinction between changes in demand and changes in quantity demanded is critical for analyzing market shifts and trends.

lecture recording February 6

Introduction

• Discussion around adjusting strategies based on market conditions and technology.

Understanding Market Dynamics

• Sales and Model Update:

  • With no current sales, waiting could lead to acquiring a superior model.

• Market Saturation:

  • A lower amount, around 5,000 units, creates a foundation.

  • Reasons include the presence of TikTok and its impact on sales.

Impact of Technology on Demand

• ban on TikTok altered consumer behavior:

  • Apps like TikTok can influence purchasing decisions.

  • Lack of availability affects market reach and customer engagement.

Price and Consumer Behavior

• Raising Prices:

  • As prices increase from zero (starting point), consumer interest may adjust accordingly.

  • Example of starting with two customers and analyzing demand shifts.

• Demand Shift Influences:

  • Higher prices of one product (e.g., almond butter) lead consumers to consider alternatives (e.g., peanut butter).

  • Suggests a shift in demand rather than supply.

Supply and Demand Interactions

• Illustrating Supply and Demand:

  • An increase in price typically leads to an increase in the quantity supplied.

  • Graph relationships:

    • Positive relationship between price and quantity—higher prices can lead to increased sales volume.

• Demand Shift Definition:

  • Increase in demand does not equate to merely moving along the same demand curve but indicates a new demand trajectory.

Discussing Personal Experiences

• Reference to personal anecdotes (e.g., issues with a vape).

• Represents consumer challenges and the willingness to quit habits while acknowledging struggles.

Analyzing Demand Changes Further

• Discussion about results of demand shifts:

  • An increase in demand can lead to an overall price increase.

  • Distinction between increase in demand (shifts the curve) vs. increase in quantity demanded (movement along the curve).

Learning Process and Reflection

• Struggles with understanding:

  • Group discusses challenges related to grasping concepts of demand and supply shifts.

  • Emphasis on actively engaging with material despite confusion.

Conclusion

• Continuous learning is essential in grasping economic principles.

• Realizing that fluctuations in prices can significantly influence consumer behavior.