HC1 ECONOMIE VOOR MAW: SUPPLY AND DEMAND
The social science that studies the production, distribution and consumption of goods and services.
Course introduction
Basic principles
Principles of individual choice
1. Choices are necessary because recourses are scarce
a. Time, money etc. can only be spend once.
2. The true cost of something is its opportunity cost
a. Following this lecture means you can go to the gym.
3. ‘how much’ is a decision at the margin
a. People make trade-offs between costs and benefits
4. People usually respond to incentives, exploiting opportunities to make themselves better off.
a. Asking people to reduce litter voluntarily does not work.
Principles of interaction
1. There are gains to trade Specialization
a. By specializing, two countries can each get more of what they could get if they were
self-sufficient.
2. Markets move toward equilibrium
a. No individual would be better off doing something else.
3. Resources should be used as efficiently as possible to achieve societies goals
a. An economy is efficient if it takes all opportunities to make some people better of
without making other people worse off
b. Equity means that everybody gets their ‘fair’ share
4. Markets usually lead to efficiency
a. Not always; externalities/market power
5. When markets don’t achieve efficiency, government intervention can improve societies
welfare.
a. Pollution permits/ competition law
Principles of economy-wide interactions
1. One person’s spending is another person’s income
a. Decrease in wage less consumption Less profit
2. Overall spending sometimes gets out of line with the economies productive capacity.
a. Shortfalls in spending (crises); inflation
3. Government policies can change spending
a. Spending themselves or through taxation macroeconomic policy
,Program lecture one
- Competitive markets
o Many buyers and sellers
o Individual actions do not have an effect on price.
- The supply and demand model:
o The demand curve
o The supply curve
o Factors that cause the demand and the supply curve to shift
o Market equilibrium (Price and quality)
o Supply and demand shifts change the equilibrium.
- The meaning of consumer and producers surplus
- The meaning and importance of total surplus and how it can be used to evaluate the
efficiency on a market
- Why competitive markets are efficient
o Smith’s invisible hand
The law of demand
The law of demand Shows how much people are willing to buy/demand at different prices,
relationship between demand and price?
Effect of increase demand
- Shift of demand curve Change in quantity demanded at any given price (keeping price
constant)
- Movement along demand curve A change in quantity demanded due to a change in price.
,Movement along the demand curve vs. shift of the demand curve
- People buy more roses on Valentine’s day.
- More carpooling due to rise price petrol
Shifts of the demand curve: What factors cause the demand curve to shift?
- Change in tastes
- Changes in the prices of related goods:
o Substitutes; Rise in price of good 1 increases
demand for good 2.
o Complements; Rise in price of good 1 decreases
demand for good 2.
- Changes in income
o Normal goods Rise in income increases demand
o Inferior goods Rise in income decreases demand
B producten, fastfood t.o.v. restaurant
- Changes in expectations
- Other factors: # of consumers, weather all factors affecting willingness to pay of consumers
Consumer Surplus & Demand curve
- How much do buyers on the market gain from the existence of the market? welfare
- Individual consumer surplus is the net gain to an individual buyer from the purchase of a
good. It is equal to the difference between the buyer’s willingness to pay and the price paid.
- Total consumer surplus in a market is the sum of the individual consumer surplus of all the
buyers of a good.
First suppose there are only a few demanders (like in the experiment).
The demand curve for used textbooks
Total consumer surplus = €49 at a price of €30 Vraag is 0 bij een prijs van meer dan €59
, Consumer surplus
The total consumer surplus generated by purchases of a good at a given price is equal to the area
below the demand curve but above that price. Gebied onder de vraagcurve, maar boven de prijs.
A decrease in price increases consumer surplus Consumers pay a lower price Better off.
The social science that studies the production, distribution and consumption of goods and services.
Course introduction
Basic principles
Principles of individual choice
1. Choices are necessary because recourses are scarce
a. Time, money etc. can only be spend once.
2. The true cost of something is its opportunity cost
a. Following this lecture means you can go to the gym.
3. ‘how much’ is a decision at the margin
a. People make trade-offs between costs and benefits
4. People usually respond to incentives, exploiting opportunities to make themselves better off.
a. Asking people to reduce litter voluntarily does not work.
Principles of interaction
1. There are gains to trade Specialization
a. By specializing, two countries can each get more of what they could get if they were
self-sufficient.
2. Markets move toward equilibrium
a. No individual would be better off doing something else.
3. Resources should be used as efficiently as possible to achieve societies goals
a. An economy is efficient if it takes all opportunities to make some people better of
without making other people worse off
b. Equity means that everybody gets their ‘fair’ share
4. Markets usually lead to efficiency
a. Not always; externalities/market power
5. When markets don’t achieve efficiency, government intervention can improve societies
welfare.
a. Pollution permits/ competition law
Principles of economy-wide interactions
1. One person’s spending is another person’s income
a. Decrease in wage less consumption Less profit
2. Overall spending sometimes gets out of line with the economies productive capacity.
a. Shortfalls in spending (crises); inflation
3. Government policies can change spending
a. Spending themselves or through taxation macroeconomic policy
,Program lecture one
- Competitive markets
o Many buyers and sellers
o Individual actions do not have an effect on price.
- The supply and demand model:
o The demand curve
o The supply curve
o Factors that cause the demand and the supply curve to shift
o Market equilibrium (Price and quality)
o Supply and demand shifts change the equilibrium.
- The meaning of consumer and producers surplus
- The meaning and importance of total surplus and how it can be used to evaluate the
efficiency on a market
- Why competitive markets are efficient
o Smith’s invisible hand
The law of demand
The law of demand Shows how much people are willing to buy/demand at different prices,
relationship between demand and price?
Effect of increase demand
- Shift of demand curve Change in quantity demanded at any given price (keeping price
constant)
- Movement along demand curve A change in quantity demanded due to a change in price.
,Movement along the demand curve vs. shift of the demand curve
- People buy more roses on Valentine’s day.
- More carpooling due to rise price petrol
Shifts of the demand curve: What factors cause the demand curve to shift?
- Change in tastes
- Changes in the prices of related goods:
o Substitutes; Rise in price of good 1 increases
demand for good 2.
o Complements; Rise in price of good 1 decreases
demand for good 2.
- Changes in income
o Normal goods Rise in income increases demand
o Inferior goods Rise in income decreases demand
B producten, fastfood t.o.v. restaurant
- Changes in expectations
- Other factors: # of consumers, weather all factors affecting willingness to pay of consumers
Consumer Surplus & Demand curve
- How much do buyers on the market gain from the existence of the market? welfare
- Individual consumer surplus is the net gain to an individual buyer from the purchase of a
good. It is equal to the difference between the buyer’s willingness to pay and the price paid.
- Total consumer surplus in a market is the sum of the individual consumer surplus of all the
buyers of a good.
First suppose there are only a few demanders (like in the experiment).
The demand curve for used textbooks
Total consumer surplus = €49 at a price of €30 Vraag is 0 bij een prijs van meer dan €59
, Consumer surplus
The total consumer surplus generated by purchases of a good at a given price is equal to the area
below the demand curve but above that price. Gebied onder de vraagcurve, maar boven de prijs.
A decrease in price increases consumer surplus Consumers pay a lower price Better off.
