Economics Class: Supply and Demand Lecture

Introduction

• Speaker: Jacob Clifford
• Purpose: Save time in economics class by bridging the gap between introduction and application of supply and demand.
• Advice: First watch without taking notes; focus on understanding concepts.

Demand

Demand Curve

• Shows inverse relationship between price and quantity demanded.
  • Price Increase: Quantity demanded decreases.
  • Price Decrease: Quantity demanded increases.

Reasons for Law of Demand

1. Substitution Effect
   • Higher price leads consumers to substitute with other products (e.g., candy bars for ice cream).
2. Income Effect
   • Higher price reduces purchasing power, decreasing quantity demanded.
   • Lower price increases purchasing power, increasing quantity demanded.
3. Law of Diminishing Marginal Utility
   • Additional satisfaction from consuming more decreases, requiring price drop to increase demand.

Shifters/Determinants of Demand

1. Taste and Preferences
   • E.g., hot weather increases demand for ice cream.
2. Number of Consumers
   • More consumers increase demand; fewer decrease it.
3. Price of Substitutes and Complements
   • Substitutes: Higher price of substitutes increases demand.
   • Complements: Higher price of complements decreases demand.
4. Income
   • Normal Goods: Income increase leads to higher demand.
   • Inferior Goods: Income increase leads to lower demand.
5. Expectations
   • Expected future price changes can shift current demand.

Supply

Supply Curve

• Shows positive relationship between price and quantity supplied.
  • Higher price encourages more production due to profit potential.

Shifters/Determinants of Supply

1. Price of Resources/Inputs
   • Higher input prices decrease supply.
2. Technology
   • Technological advancements increase supply.
3. Government Actions
   • Taxes decrease supply; subsidies increase supply.
4. Number of Sellers
   • More sellers increase supply; fewer decrease it.
5. Expectations
   • Future price expectations can alter current supply decisions.

Market Equilibrium

Equilibrium

• Market Clearing Price: Point where quantity demanded equals quantity supplied.
• Disequilibrium: Occurs when market price is not at equilibrium.
  • Shortage: Quantity demanded exceeds quantity supplied at low prices.
  • Surplus: Quantity supplied exceeds quantity demanded at high prices.

Using Supply and Demand

• Changes In Demand: Affects equilibrium price and quantity.
• Changes In Supply: Affects equilibrium price and quantity.
• Real-World Applications
  • Example: Studying effects on ice cream based on consumer preferences or production changes.

Conclusion

• Additional Topics: Price controls, elasticity, macro and microeconomic applications.
• Practice: Critical to understanding and applying concepts.
• Resources: Ultimate review packet and economics worksheets available for further study and practice.
• Final Tip: "When in doubt, draw it out" — visualizing supply and demand curves to understand shifts.

Note: Further learning and practice are essential for mastering supply and demand concepts.