Economic 101 – Recitation #2
Monday, September 9, 2013
1. Housekeeping
a. Office Hours Changes
b. Changing offices: new office is in Phillips Annex 202
c. Love that people are coming to office hours, 20 minute limit if there is someone
waiting
d. Keep asking questions
e. Notes and preparation
f. Increasing cost notes on utran.web.unc.edu
g. Asked for old test questions so you can get an idea of what the exams will be like
2. Topics to cover in this recitation:
a. Questions and Issues
b. Frequently Missed Aplia Question
c. Supply and demand
d. Equilibrium
e. Price Floors and Ceilings
f. Consumer Surplus
g. Consumer Choice
i. Law of Demand
ii. Utility
iii. Budget Set
iv. Optimal Purchase Price
v. Marginal Utility
vi. Indifference Curves
3. Frequently missed Aplia Question
a. A decrease in unemployment rate will shift the PPF outward from the origin?
i. True or False
ii. False – unemployment is just waste
Electric Cars
U.S. PPF
Smart phones
4. Defining and plotting the demand curve
a. Choose an example:
i. Provide a schedule of prices and quantities in a table on the board
Ask the students to write down how many cups of coffee will they buy at each price.
Call out 3 students to give you their numbers
Price
Student A
Student B
Student C
Cups of Coffee
10
Add A+B+C
8
Add A+B+C
5
Add A+B+C
4
Add A+B+C
3
Add A+B+C
2
Add A+B+C
1
Add A+B+C
ii. Discuss where those quantities come from-aggregation of private buyer’s responses
The quantity demanded at any product normally depends on its price. Quantity
demanded also depends on a number of other determinants, including population
size, consumer choices, tastes, and the prices of other products.
Table schedule: is a table showing how the quantity demanded of some product
during a specified period of time changes as the price of that product changes, holding
all other determinants of quantity demanded constant.
b. Work through the plotting of these points of the graph, one by one. Have students help
out, make sure that everyone sees how it is done.
Work with the survey from the class.
Demand curve: is a graphical depiction of a demand schedule. It shows how the
quantity demanded of some product will change as the price of that product changes
during a specified period of time, holding all other determinants of quantity demanded
constant.
c. Drill a bit on movements along the curve (price changes) vs. movements of the curve
(changes in the survey). Use your example, show how changes to income, population
size or prices of substitutes can shift the curve. Solicit other reasons for shift from the
students, and have them explain the effect on curve.
i. Movements along the curve (this is the same survey)
A change in the price of a good produces a movement along a fixed demand curve. By
contrast, a change in any other variable that influences quantity demanded produces
a shift of the entire demand curve.
ii. Movements of the curve (make sure they know this is a new survey). New group and
new characteristics.
1. Change in income
If income is double how many units will you demand? At least as much as you did
before but probably you will increase your quantity demanded at every price, so
the demand curve will shift outward to the right. Opposite if the income is reduce.
It could be seen as a new group of how will it change if I double the income, but
still is a new survey.
2. Change in population.
Add someone to the chart and show how the curve will shift outward to the right.
Or said that if “anyone” had a twin with the same taste for coffee then the curve
will shift outward to the right.
3. Price of substitutes.
If price of tea increases, there might be someone that will stop getting their
caffeine from tea and will start buying more coffee at all prices. Hence the
demand for coffee will shift outward to the right.
4. Ask students for other reasons to shift the demand curve and why. Eg. Consumer
preferencesif consumer preferences shift in favor of a particular item.
5. Defining the plotting the supply curve. Go through the same steps as above for demand,
making sure that you choose as you example the other side of the market for the good in 2.
Price
Starbucks
Caribou
Cups of Coffee
10
Add S+C
8
Add S+C
5
Add S+C
4
Add S+C
3
Add S+C
2
Add S+C
1
Add S+C
*Notice we are assuming that Starbucks American coffee and Caribou American coffee
are exactly the same. Come up with number such that the market will clear at price equal
to three.
Supply schedule: the relationship between the price and its quantity supplied; they
show how much sellers are willing to provide during a specified period at alternative
possible prices.
When it is graph then we call it the supply curve. Plot it!
1. Movements along the curve. A change in the price of the good causes a movement
along a fixed supply curve (same survey)
2. Movement of the supply survey (new survey)
a. Technological Progress. Technological progress that reduces costs will shift the
supply curve outward to the right.
b. Price of inputs. Increases in the prices of inputs that suppliers must buy will
shift the supply curve inward to the left.
c. Price of related outputs. A change in the price of one good produced by a
multiproduct industry may be expected to shift the supply curves of other
goods produced by that industry.
6. Illustrate the equilibrium (q*, p*)
a. Have students identify it in the tables.
b. Have the students identify it on the graph
c. Discuss why this market price is one that leaves all participants satisfied (and all no
participants happy they aren’t participating)
Proof by contradiction:
Suppose p1 higher than p* then there is a surplus, is an excess of quantity supplied over
quantity demanded. When there is surplus, sellers cannot sell the quantities they desire
to supply at the current price.
Suppose p2 is lower than p* then there is a shortage, is an excess of quantity demanded
over quantity supplied. When there is a shortage, buyers cannot purchase the quantities
they desire at the current price.
 An equilibrium is a situation in which there are no inherent forces that produce
change. Changes away from an equilibrium position will occur only as a result of “outside
events” that disturb the status quo.