Parcial 2 - Economía I UFM

Demanda

• Demand:

• Quantity demanded: the amount that consumers plan to purchase at a given price.

  • When price decreases, quantity demanded increases

• Demand curve: illustrates the amount of a good that consumers plan to purchase at any given price.

• Law of demand: negative relationship between price and quantity demanded, other things being constant.

• Demand itself can change due to:

  1. A change in the number of consumers.

  2. A change in consumer tastes and preferences.

  3. A change in income.

  4. A change in the price of a substitute good. Positive slope.

  5. A change in the price of a complementary good. Negative slope.

  6. A change in the expected price of a good.

• Engel curve: relationship between quantity demanded and income.

  • Normal good: income increases, Qd increases but not by much. 1>x>0

  • Superior good: income increases, Qd increases. 1<

  • Inferior good: income increases, Qd decreases. 1>

• Elasticity means responsiveness. How sensitive are buyers to a change in price?

• Price elasticity: the percentage change in quantity demanded divided by the percentage change in price.

• Elasticity of demand is influenced by five factors:

  • Time horizon

  • The availability of substitutes

  • The proportion of one's budget spent on a good

  • Category of product

  • Necessities vs luxuries

• Formula de elasticidad de punto

• Formula de elasticidad de arco

• Formula de elasticidad cruzada

• Three types of elasticity:

  • Elastic: 1<

  • Inelastic: 1>

  • Unitary: 1=

• Change in quantity demanded: movement along the curve.

  • Caused by a change in the price.

• Change in demand: a shift in the curve.

  • Caused by a change in one of the shifters of the curve.

Oferta

• Supply:

  • When price increases, quantity supplied increases.

• Only actions have costs, all costs are costs to someone, all costs lie in the future.

• Producers consider marginal costs of production when deciding which outputs to produce.

• A supply curve shows us how much suppliers are willing to supply at different prices.

• Changes in the supply curve:

  • A rise or fall in the price of a factor of production.

  • Technological changes increase overall supply.

  • A change in the relative price of an alternative product.

  • A change in the expected price of the producer's output.

  • A change in the overall number of suppliers.

  • Taxes and subsidies.

• Elasticity of supply is influenced by:

  • Change in per unit costs with increased production

  • Time horizon

  • Share for market inputs

  • Geographic scope

Equilibrio

• The market is a process of plan coordination among sellers and buyers.

• Equilibrium price: market-clearing price. The forces of supply and demand have worked themselves out.

  • Allocating goods to the highest-value buyers from the lowest-cost sellers that maximizes the gains from trade.

• A surplus occurs when the quantity supplied is greater than the quantity demanded.

  • Consumer surplus: the consumer's gain from exchange.

  • Producer surplus: the producer's gain from exchange.

• A shortage occurs when the quantity demanded is greater than the quantity supplied.

• Buyers compete with buyers and sellers with sellers.

• Scarcity is a relationship between desirability and availability, or between demand and supply.

  • Market prices inform of relative scarcities.

• Interest is the difference in value between present and future goods.

• Deadweight loss: unexploited gains from trade.

  • Gains from trade: the difference between the buyer value and the seller cost.

• Waste: when there is more supply than demand.

Price controls

• Precio: Cantidad de dinero que en el mercado hay que pagar para comprar una cosa.

  • Precio nominal: La cantidad equivalente de dinero de un producto

  • Precio real: Los bienes que una persona pueda obtener a cambio de lo que produce.

• Prices reflect the market process at work.

• Price ceiling: a legally maximum price, intended to help consumers.

• A price ceiling has five effects:

  • Shortages

  • Reduction in product quality

  • Wasteful lines and other search costs

  • A loss in gains from trade

  • A misallocation of resources

• Example: gasoline

• Price floors: a legally minimum price, intended to help suppliers.

• A price floor has five effects:

  • Surpluses

  • Lost gains from trade

  • Wasteful increases in quality

  • Misallocation of resources

• It also prevents competition.

• Government often steps in to buy surplus goods, which increases taxes for everyone else.

• Example: minimum wage

• Communism can be thought of as a system of universal price controls.

  • It fails because price can't give signals to properly allocate resources.

• Demand is also a factor in costs.

  • A high demand allows for higher prices.

  • High demand drives for higher supply, which must increase costs of production, therefore driving prices up.

• When a product is banned by law, the market moves underground.

  • Those with a comparative advantage in crime rise to the top.

  • Example: 1920s Prohibition