Let's Start Supply

Is it possible to have "perfectly inelastic" curves? NO.
ex: insulin to a diabetic: is there a  substitute for insulin?
Not exactly, but one could have a better diet, better exercise, prayer; not perfect but helps

Recall: demand curve, want and have the ability to get it
Consider: lower price, stock up (think will have in the future, maybe pay $60 for life supply)

ex: penicillin, not very big in 1880, but if someone really wanted it, could dedicate all resources to finding it

ex: claim "people will pay anything for healthcare", markets can't do it, costs don't matter
IF TRUE, does anything change in distribution? public health care = split check
Fact: 90% of US medical care paid for by others (gov't, insurance)
Why is this person wrong about health care?
Of COURSE cost is an issue; yes do whatever can to live
BUT also would eat healthy, avoid drinking, smoking, wouldn't get pregnant
--> we do not commit to life at alllll costs

-At some point, there is a substitute for everything!

Income Elasticity of Demand

 Quantity demand: > 0 "normal"
Income: < 0 "inferior"
-how much consumption/income changes
  -income consumption is NOT the same as price consumption

Income elastic of enviro = 2
-income up some amount, desire to spend $ on enviro goes up even more
ex: Income $50,000. spend on enviro $500 Income elasticity = 2
-Income increased by 20%
-spending on environment goes up by 40%
Change in I= $10,000
Change in E= $200, bigger share of income

Cross Price Elasticity
-complements/substitutes
Cross price is positive: goods are substitutes
(negative means goods complement)

Law of Supply
ex:Britain bought slaves to free them;
Problem was, the incr. # of slaves taken in caused the supply of slaves to incr.
ex: Chinese bought swords from Japan to deplete their supply, but Japan ended up producing more
-Prices go up and people want
-->respond by making more

Consider: riding the bus is cheap, for rich and poor people; other opportunity costs matter, relativity

Consider: price of grad school is very high, but people go during a recession b/c there are no goods jobs currently available

What are costs?
Consume resources, tradeoffs
Must be related to an action and to whom, not a thing;

-Must entail sacrificed opportunities
What is the cost of rugby? Ridiculous!
A cost could be attributed to how to play, to teach, equipment
-yes, for example pay Rizzo the worth of 3 projectors
-Costs of hitting making eating a basebell
-Costs must be costs to someone

Why cost more to make a mountain bike than a picnic table?
Price of stuff going into mountain bike higher value
-Also, consider other opportunity costs missed, metal of bike could be used elsewhere
-->others bid away resources
-cheap means fewer opportunities
ex: women in India hand cut the grass, can she obtain value from somewhere else?
Rizzo paid more than football coach
--> Rizzo could have many other employment opportunities; to keep him pay more for his salary
Skilled workers paid more than unskilled workers IF their skills could be used elsewhere

"talented"-sing and balance on one foot while work, paid more? DEPENDS
skills matter if they are valued somewhere by someone else

Quantity Supply: amount of goods that firms are willing/able to produce at a particular prices (a number)

Law of Supply: when price of good rises, sellers will make more
(a "most of the time" law)

Find a Nice Price

ex: own price elasticity of demand for apples
P(initial) $1.50 lb Q (int) = 6 lbs of apples
P (final) $2.00/lb Q (fin) = 2 lbs of apples

M apples = [(2.00-1.50)*1.50] / [2.00/6] = (2/3) / (1/3)

If /M/ =	Demand	In Other Words
< 1 (m > 1)	Inelastic	People NOT sensitive to price change
= 1	“Unit elastic”
> 1 (m < -1)	Elastic	People ARE sensitive to change in price

What Impacts Elasticity      

 1) Time

2) Budget

3) Substitues

Quantity Response vs. Price Response = Nothing significant about 1

Changes not instant - plan, save $ for later, buy cottage? Short run vs. long run

ex: Gas goes up to $7, will not go down

Short term: buy lots of gas

Long term: carpool, move closer to work, get better fuel efficiency

-Substitutes impact change demand elasticity

Steep Demand = Inelastic
Flatter Demand = Elastic
-Consider the Law of Demand, when expensive, consume less
-Compare, minivan, Ford minivan, red Ford minivan => the availability of substitutes matters

Total Recipts = P * Q 

If price increases, quantity decreases

If price decreases, quantity increases

Consider: tradeoffs of the firm

-Raise price, some people will pay more, but probably will lose customers

-Lower price, maybe gain revenue?

ex: TR initial: $500 TF final = $320

loss of customers: 6 x 50 = $300

gains from existing: 4 x 30 = $120

==> Lost $180

-find elasticity of demand of customers, sensitive to price change?

  -make $ by lowering the price

Expenditures NOT the same thing as cost

ex: MRI didn't exist in 1980s, do we consider them a cost? No, it is an expenditure

Theory of the Leisure Class

I did not expect to find an academic work that deemed drunkenness as "honorific" but I supposed it was a sign of the time this passage was written in (end of the 19th century). I think that Thorstein Veblen makes some interesting claims in the few pages that I read for this assignment. He asserts that the leisure class' persistence "furthers the survival and culture of predatory traits". Initially, I disagreed, thinking that survival meant that these financially well-off men were also of the best fitness to overcome natural selection; I thought these boozed fat cats would have no chance of better fitness than a man of lower class employed in physical labor. However, the men higher in class do not face the risks of labor, but reap the rewards. Perhaps one's intelligence rather than physical capability is more important to survival of man. I did disagree with Veblen's sexist ideas; even if it was the 1800s, no woman;s duty is to "prepare and administer these luxuries" for "men to consume them". If only Velben could see society now with women out competing men in GPAs and advanced degrees.

Did you "expect" your demand to stay constant? No way.

Individual Market Demand

At each price, add up the total economic demand 

-horizontal summation of the demand curve

1) Look at market/industry demand; flatter, elastic than individual demand curve

2) Aggregate demand

-assume all units the same (globs on GDP)

difficulty: modeling; when agg. price level increases, we buy less GDP

-includes all prices

Comparative Statics

-quantity demand; asks, what things impact how much we buy?

a) prices of the goods in question

b) "other stuff"

-Price of the good itself: change in quantity demand,

-->movement along existing demand curve

Changes on Demand

Consider boiling point of water; can alter by changing the pressure; in same way, other factors can influence how much we purchase

Things That Impact Consumption Choice

1) Income

2) Prices of Other Things

3) Expectations

- of price, of anything, way consume burritos

4) Tastes

5) # of Participants

1) & 2) ==> Ability to pay

3) 4) 5) ==>Willingness to pay

Demand Shifts Out:

At given price, consume more

  

-Demand has increased

-Price has not changed; 

Demand can also shift in when we consume LESS!

Income

When gain more income, consume more?

-more vacations, make repairs, buy clothes

-better quality of stuff

"Normal Goods" = when income increases, quantity increases

"Inferior Goods" = when income increases, quantity demand falls

-Goodbye ramen noodles and Genny Light! 

Consider, during recession people go to state parks instead of Disney; more income demand for $$ stuff shifts in

Price of Other Thing

a) Substitutes (Replacements)

-when burgers more $, demand of burrito increases

Demand shifts OUT

b) Complement (Go together)

-hot sauce price goes up, consume less burritos as if burrito price went up

In econ, no natural pairing of goods

-->examine relationships; price burger up, consumption of burrito up

Demand shifts IN

Tastes

-Burrito hurts stomach, change taste and shift demand

Expectations

Expectations of income

ex: student loans, expect future income to go up

(students consume more than their current income allows)

ex: Rizzo can't afford his current house, takes out mortgage because knows in future, wife will be employed and his salary will go up

Prices of Other Things

ex: Storm oncoming, prices rise but people buy more

-->desire to buy today, expectations change

-expect that prices higher later than today

-if think future prices go up, today will buy more

ex: Rizzo thinks natural gas will be the important fuel source of the future

-expects relative to oil/solar/wind thinks natural gas will be cheaper for electricity

-price substitute fall, change behaviors

Elasticity

How much more!

For good, when consumption responsive to price, demand is elastic

-sometimes if prices change, consumption doesn't change 

ex: no matter the price of pencils, still will buy the same amnt --> "inelastic"

but European travel is elastic

-when can measure elasticity with respect to anything

--> price of pizza, mood, temperature, age

Own Price Elasticity of Demand

-when price of your good changes, what do you do

50% / 20% = 2 (be able to express this in words)

The Efficiency Dilemma

In my environmental class, we discussed the importance of efficiency of energy and how changes affect consumers. We read an article that explained that as efficiency improves, people actually consumer more. This reminded me of the price elasticity of demand, as things become cheaper, people buy more. This is an important concept for environmentalists. Originally I was a big supporter of improving the fuel economy of cars; the problem is, as cars require less gas (and subsequently less money) to run, people will drive MORE and contribute more emissions into the atmosphere. Perhaps I should support a HIGHER fuel economy so there is less pollution from automobiles.

Burrito Day

Recall, quantity of demand is a number
-expensive, do less; cheaper do more; people ALWAYS behave this way, that's why it's law
Consider: During a storm the price of milk goes up, but people buy more...still proves

Demand: any tradeoff; not just money, it can be changes in risk
ex: parachutes more stable, people jump out of planes more

Rachel's Demand Schedule for Burrito

Price	Quantity
$ 0 $0.75 $1.50 $2.25 $3.00 $3.75 $4.50	12 10 8 6 4 2 0

What can we learn from this?

Values are totally subjective & contextual (belly full? age? where?)

-think of demand as a plan

P: tradeoff, opportunity costs

1) what you would have done had you not purchased it

2) can plot

When free, don't consume infinite amount

Notice, at some point, walk away, not worth it

-->Not willing or able to pay

When prices low, what does your behavior reflect?

Where price 0, use burritos fpr everthing

-eat 2 instead of 1, get more for friends, play with food

Price will tell you what service to derive

-no "correct' way to consume something (feed it to the dog or play baseball) 

How do you behave as tradeoffs increase?

Give up uses of burrito lease useufl

-->weigh of value of pack of gum w/ "burrito baseball"

-force you to prioritize your wants, makes you think about everyone else

Demand curve = plot

y axis = price, x-axis = # of burritos

-relationship, downward sloping chart

-in econ, price is the given

Why do we behave this way? What learn from the chart?

1) Wealth Effects: when prices go up, you're poorer

--> will consume less

ex: Income $50 CORN EXAMOLE IN NOTES

2) Substitution availability

-more expensive, willing to purchase other stuff. Oil cheap, why bother with solar

ex: CO2 incr. fear of climate change, harm enviro, health & econ costs

--> require cost of electrictiy goes up, sort of imposes wealth effect, hurts the poor most

-raise energy prices but sucks for low income

  -ppl don't care or too poor to care!

political problems tied up w/ econ; cap & trade tied in w/ welfare?

Good climate: make bad activities more expensive! incr. incentives of ppl to respond to higher prices

-->will drive less, use less heat

3) Diminishing Marginal "Utility"

-each unit you purchase of a good gives you less satisfaction than a previous one

  -> first slice of pizza AWESOME..but by slice 5, awful

-when price is low, consume more, get less pleasure

    -> won;t pay for 5th slice, explains why that even when price is $0, still will not consume to infinitey

What can be obtained from simple chart/

1) Marginal Values

Demand curve = plot of marginal values (at price, willing to purchase good?)

2) Total Expenditures

Pt, total spent; at $3, buy 4 ->$2

what total amnt of pleasure from consuming 4?

3) Total Value of Good 

The area below demand curve up to amnt you consume

=$14.25 vs. mv $3.00

4) Buyers' Net Gains => Consumer Surplus

Put total value and expenditures together

--> know how much spend to get pleasure

-Total exp: $12

-Total value: $14.25

--> gains $2.25!!!

Markets Can Occur Anywhere!

This article is proof that even when money is absent, people will still trade and exhibit laws of the market to exchanges goods and services. In prisoner of war camps, cigarettes and foodstuffs became a means of currency for men to swap. There were even cases of low demand, or waiting for a better price. The author explained, "People left surplus clothing, toilet-requisites and food in shop until sold at fixed price in cigarettes". The market naturally came into existence without labor or production; even specialists and middlemen were brought about to provide better services within the camps.  I think that its interesting that the "just price" was not affected by "short term variations in supply"