Microeconomics Supply & Demand

Class Outline

• Review and Finish PPF • Supply & Demand — and their shifts

Depending on time

• Equilibrium

• Multiple shifts • Practice Quiz

Announcements:

1. Quiz on Monday– short & on basics of this past Monday and Today 2. Problem Set has been posted — due 6/29 3. Resources posted on Blackboard 4. Practice questions for Friday to be posted tonight

Review Production Possibilities Frontier Fruitland Example

Berries

• PPF = curve showing efficient production levels for a two good economy

• Resources & Technology are assumed constant

• Productive efficiency = can’t produce more of one good without producing less of another good

Apples

A B C D

Berries 100 60 30 0

Apples 0 60 75 80

Practice Questions • How are scarcity and trade offs illustrated in the PPF? • What’s the opportunity cost on an apple in the range of B to C? • Suppose we wanted to produce 30 Berries and 60 apples. Is that feasible? Is

that efficient? • The PPF typically has a shape described as being “bowed outward”– the slope

becomes larger in magnitude as we move to the right. Why do we think this is often the case in real life? (Hint: Principle of… and the reasoning behind it )

The PPF typically has a shape described as being “bowed outward”– the slope becomes larger in magnitude as we move to the right. Why do we think this is often the case?

Efficiency • Feasible/Infeasible • Efficiency/Inefficient

A B C D

Berries 100 60 30 0

Apples 0 60 75 80

How are scarcity and trade offs illustrated in the PPF?

Scarcity → we might want a very large amount of berries and apples, but our resources are limited– so we can’t satisfy all of our desires. Trade offs → Because there’s scarcity, we have to trade off between apples and berries

A B C D

Berries 100 60 30 0

Apples 0 60 75 80

What’s the opportunity cost on an apple in the range of B to C?

Slope = Change in Max. Berries / Change in Apples

→ Slope = “what I give up” in berries if I produce more apples

B to C: Gain 15 Apples, Lose 30 Berries → 2 Berries per Apple

A B C D

Berries 100 60 30 0

Apples 0 60 75 80