Economics Lecture Notes
Lecture 1
Supply and demand
Consumer and producer surplus
Competitive markets: many buyers and sellers. Individual actions do not have an effect on price
(unlike having a monopoly)
The supply and demand model:
- The demand curve
- The supply curve
- Factors that cause the demand and the supply curve to shift
- Market equilibrium (equilibrium price and quantity)
- Supply and demand shifts change the equilibrium
The demand curve shows how much people are willing to buy/demand at different prices
relationship between demand and price
Effect of increase demand:
Shift of the demand curve: change in quantity demand at any given price (keeping price constant)
example: buying more roses on valentine’s day
Movement along demand curve: a change in quantity demanded due to a change in price
example: more carpooling due to rise price petrol
Factors to cause a demand curve to shift:
- Change in taste
- Change in the price of related goods:
Substitutes: rise in price of good A increases demand for good B (ex.: train and bus
tickets)
Complements: rise in price of good A decreases demand for good B (ex.: petrol price and
cars)
- Changes in income:
Normal goods: rise in income increases demand (ex. Smartphones)
Inferior goods: rise in income decreases demand )ex. McDonalds burgers)
- Changes in expectations (ex. Stock market)
- Other factors: consumers, weather all factors affecting willingness to pay of consumers
,Consumer surplus & the demand curve
How much do buyers on a market gain from the existence of the market (welfare)
Individual consumer surplus: the net gain to an individual buyer from the purchase of a good. the
difference between the buyer’s willingness to pay and the actual price paid
Total consumer surplus: the sum of the individual consumer surpluses of all the buyers of a good
A decrease in price increases consumer surplus (consumers pay a lower price better off)
The supply curve shows how much people are willing to sell/supply at different prices relationship
quantity supplied and price
A decrease in supply:
A shift in the supply curve: change in the quantity supplied at any given price (keeping price
constant). example: more supply of ice cream due to a new technology of mixing, which lowers
production costs
, Movement along curve: change in the quantity supplied as a result of a change in the price.
example: putting your house for sale when house prices rise.
Factors that cause a supply curve to shift:
- Change in taste
- Change in input prices (less costly = more supply)
An input is a good that is used to produce another good
- Changes in technology
Turn inputs to output more efficiently
- Changes in expectations
Expect stock price to rise = less supplied
- Other: weather/ climate, number of producers factors that affect the willingness to sell/
accept
Producer surplus and the supply curve
How much do sellers on a market gain from the existence of the market (welfare)
Individual producer surplus = the net gain to a seller from selling a good the difference between
the price received and the sellers’ cost
Total producer surplus = the sum of the individual producer surpluses of all the sellers of a good
Lecture 1
Supply and demand
Consumer and producer surplus
Competitive markets: many buyers and sellers. Individual actions do not have an effect on price
(unlike having a monopoly)
The supply and demand model:
- The demand curve
- The supply curve
- Factors that cause the demand and the supply curve to shift
- Market equilibrium (equilibrium price and quantity)
- Supply and demand shifts change the equilibrium
The demand curve shows how much people are willing to buy/demand at different prices
relationship between demand and price
Effect of increase demand:
Shift of the demand curve: change in quantity demand at any given price (keeping price constant)
example: buying more roses on valentine’s day
Movement along demand curve: a change in quantity demanded due to a change in price
example: more carpooling due to rise price petrol
Factors to cause a demand curve to shift:
- Change in taste
- Change in the price of related goods:
Substitutes: rise in price of good A increases demand for good B (ex.: train and bus
tickets)
Complements: rise in price of good A decreases demand for good B (ex.: petrol price and
cars)
- Changes in income:
Normal goods: rise in income increases demand (ex. Smartphones)
Inferior goods: rise in income decreases demand )ex. McDonalds burgers)
- Changes in expectations (ex. Stock market)
- Other factors: consumers, weather all factors affecting willingness to pay of consumers
,Consumer surplus & the demand curve
How much do buyers on a market gain from the existence of the market (welfare)
Individual consumer surplus: the net gain to an individual buyer from the purchase of a good. the
difference between the buyer’s willingness to pay and the actual price paid
Total consumer surplus: the sum of the individual consumer surpluses of all the buyers of a good
A decrease in price increases consumer surplus (consumers pay a lower price better off)
The supply curve shows how much people are willing to sell/supply at different prices relationship
quantity supplied and price
A decrease in supply:
A shift in the supply curve: change in the quantity supplied at any given price (keeping price
constant). example: more supply of ice cream due to a new technology of mixing, which lowers
production costs
, Movement along curve: change in the quantity supplied as a result of a change in the price.
example: putting your house for sale when house prices rise.
Factors that cause a supply curve to shift:
- Change in taste
- Change in input prices (less costly = more supply)
An input is a good that is used to produce another good
- Changes in technology
Turn inputs to output more efficiently
- Changes in expectations
Expect stock price to rise = less supplied
- Other: weather/ climate, number of producers factors that affect the willingness to sell/
accept
Producer surplus and the supply curve
How much do sellers on a market gain from the existence of the market (welfare)
Individual producer surplus = the net gain to a seller from selling a good the difference between
the price received and the sellers’ cost
Total producer surplus = the sum of the individual producer surpluses of all the sellers of a good
