The Snails' Book Club discussion

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Principles Of Economics Mankiw > Chapter 4 (18-19 July 2016)

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message 1: by Sang (new)

Sang | 58 comments Mod
Notes and Discussion for chapter 4.


message 2: by Karen (last edited Jul 19, 2016 07:05PM) (new)

Karen | 27 comments 12A:A fall in the price of flour would be responsible for this pattern.
Bagel equilibrium quantity up is caused by an increase in supply, and a falling price of flour will cause an increase supply. Cream cheese equilibrium price up is caused by a decrease in supply. A fall in the price of milk will only cause an increase of supply. So this is not the answer.

12B: Both the rise in the price of flour and milk would be responsible for this.
A decrease of supply makes the quantity down and the price up.

13A: It is unusual that the quantity supplied here is fixed. The reason is the seats are fixed in the stadium. (supply curve is flat)

13B: US$8, 8000 tickets

13C: US$20, 8000 tickets (should be 12)


message 3: by Sang (new)

Sang | 58 comments Mod
Chapter 4 The Market Forces of Supply and Demand

Market: A group of buyers and sellers of a particular good or service

Competitive Market: A market in which there are many buyers and many sellers so that each has a negligible impact on the market price.

Perfectly Competitive Market:
The goods offered for sale are all exactly the same
The buyers and sellers are so numerous that no single buyer or seller has any influence over the market price

Quantity Demanded: The amount of a good that buyers are willing and able to purchase

Law Of Demand: other things equal, the quantity demanded of a good falls when the price of the good rises.

Demand curve can be shifted by change of income, prices of related goods, tastes, expectations, number of buyers

Normal good: a good for which, other things equal, an increase in income leads to an increase in demand

Inferior good: a good for which, other things equal, an increase in income leads to a decrease in demand

Substitutes: two goods for which an increase in the price of one leads to an increase in the demand for the other

Complements: two goods for which an increase in the price of one leads to a decrease in the demand for the other

Quantity supplied: the amount of a good that sellers are willing and able to sell

Law of supply: other things equal, the quantity supplied of a good rises when the price of the good rises.

Supply curve can be shifted by input prices, technology, expectations, number of sellers.

Equilibrium: a situation in which the market price has reached the level at which quantity supplied equals quantity demanded.

Equilibrium price: the price balances quantity supplied and quantity demanded.

Equilibrium quantity: the quantity supplied and the quantity demanded at the equilibrium price

Surplus: a situation in which quantity supplied is greater than quantity demanded

Shortage: a situation in which quantity demanded is greater than quantity supplied.

Law of supply and demand: the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance.


message 4: by Sang (new)

Sang | 58 comments Mod
Review Question 12.

Because bagels and cream cheese are often eaten together, they are complements.

We observe that both the equilibrium price of cream cheese and the equilibrium quantity of bagels have risen.. What could be responsible for this pattern - a fall in the price of flour or a fall in the price of milk?

Answer: a fall in the price of flour.
Fall in price of flour -> supply curve move to right -> equilibrium price fall -> equilibrium qty rise -> demand for cream cheese rise -> equilibrium point for cream cheese move to right and up along supply curve -> price of cream cheese increase

B. suppose instead that the equilibrium price of cream cheese has risen but the equilibrium quatity of bagels has fallen. What could be responsible for this pattern - a rise in the price of flour or a rise in the price of milk?

Answer: Both

Rise in the price of flour -> supply curve move to left -> equilibrium price of bagels increase -> equilibrium qty of bagels decrease

Rise in the price of milk -> supply curve of cream cheese move to left -> equilibrium price of cream cheese increase -> equilibrium qty of crease cheese decrease -> bagels is complements of cream cheese -> demand for bagels decline -> quantity for bagels decrease

13.
a. The supply curve is flat. This is because the capacity of stadium is constant. The supply quantity of seat will not be affected by ticket price.

b. Price = $8 qty = 8000

c. $12


message 5: by Karen (new)

Karen | 27 comments Sang wrote: "Review Question 12.

Because bagels and cream cheese are often eaten together, they are complements.

We observe that both the equilibrium price of cream cheese and the equilibrium quantity of bag..."


Your answers are correct and clear.


message 6: by Karen (new)

Karen | 27 comments et
Market Is a Group of Buyers and Sellers of a Particular Good or Service.
Competition
Competitive market is a market in which there are many buyers and many sellers so that each has a negligible impact on the market price.
Perfectly Competitive Market
1) The goods offered for sale are exactly the same
2) The buyers and sellers are so numerous that no single buyer or seller has any influence over the market price.
Price taker/Monopoly

Demand
The Demand Curve: The Relationship between Price and Market Demanded
Quantity Demand, the amount of a good that the buyers are willing and able to purchase.
Law of Demand, other things equal, when the price of a good rises, the quantity demand of the good falls, and when the price falls, the quantity demand rises.
Demand Schedule, a table that shows the relationship between the price of a good and the quantity demanded.
Demand Curve, a graph of the relationship between the price of good and the quantity demanded.

Market Demand versus Industrial Demand
Market demand is the sum of all the individual demands for a particular good and service.

Shift in the Demand Curve
Normal good, a good for which, other things equal, an increase income leads to an increase in demand.
Inferior good, a good for which, other things equal, an increase income leads to a decrease in demand.
Substitutes, two goods for which an increase in the price of one leads an increase in demand for the other.
Complement, two goods for which an increase in the price of one leads a decrease in demand for the other.

Variables that influence buyers are income, price of related goods, tastes, expectations and number of buyers.

Supply
The Supply Curve: The Relationship between Price and Quantity Supplied
Law of supply, other things equal, when the price of a good rises, the quantity of good supplied also rises, and the price falls, the quantity supplied also falls.
Supply Schedule, a table shows the relationship between the price of a good and the quantity supplied, holding constant everything else that influences how much producers of the good want to sell.
Quantity supplied, the amount of a good that sellers are willing and able to sell.

Market Supply versus Individual Supply
Variables that can shift the supply curve, input prices, technology, numbers of sellers and expectations.

Supply and Demand Together
Equilibrium
A situation in which the market price has reached the level at which quantity supplied equals quantity demanded. Buyers have bought all they want to buy, and sellers have sold all they want to sell.

Surplus, a situation in which the quantity supplied is greater than the quantity demanded.

Shortage, a situation in which the quantity demanded is greater than the quantity supplied.

Three Steps to Analyzing Changes in Equilibrium
1) Decide whether the event shifts to the demand or supply curve (or perhaps both).
2) Decide in which direction the curve shifts.
3) Use the supply-and-demand diagram to see how the shift changes the equilibrium price and quantity.


message 7: by [deleted user] (new)

Chapter 4 The Market Forces of Supply and Demand

4.1
• competitive market: a market in which there are many buyers and many sellers so that each has a negligible impact on the market price

• normal good: a good for which, other things being equal, an increase in income leads
to an increase in demand

• inferior good: a good for which, other things being equal, an increase in income leads
to a decrease in demand

in addition to price, some most important determinants that can shift the demand curve are income, prices of related goods, tastes, expectations, and number of buyers.

4.2

in addition to price, some most important determinants that can shift the supply curve are input prices, technology, expectations ,and number of sellers.

4.3

Three Steps for Analyzing Changes in Equilibrium

1. Decide whether the event shifts the supply or demand curve (or perhaps both).
2. Decide in which direction the curve shifts.
3. Compare the new equilibrium with the initial equilibrium


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