ECO101 Lecture 01

• ECO101 - Week 01 Equilibrium.pdf
• $Q_s$ = commodity supply
• $Q_d$ = commodity demand
• Supply and Demand curves
• If the price is high, firms want to sell at higher quantity, households want to buy less
• Equilibrium wages balance Supply and Demand
• Dovish and Hawkish shit at capital markets.
• Interests and shit.
• Why risk assets go up when money is cheaper to borrow.
• Balance is automatic

(01 Equilibrium, p.2)
Our curriculum follows this paradigm. We examine
a. the operation of Commodity Markets and Factor Markets in
Unit 1: Equilibrium (Chapter 3),
Unit 2: Elasticity (Chapter 4),
Unit 3: Regulated Markets (Chapter 5),
Unit 4: Global Markets (Chapter 20),
b. situations where market-based prices, wage and interest rates fail to yield efficient outcomes in
Unit 5: Market Failure (Chapter 16),
Unit 6: Pollution (Chapter 17),
c. the details of household behavior in
Unit 7: Household Demand (Chapter 6),
Unit 8: Household Supply (Chapter 6),
d. the details of firm behaviour in
Unit 9: Short Run (Chapter 7),
Unit 10: Long Run (Chapter 8),
Unit 11: Competition (Chapter 9),
e. and explain why a concentration of market power can lead to an inefficient outcome in
Unit 12: Monopoly (Chapter 10)

• Textbook is a reference tool, that's it.

• Demand is all about buyers.

• Reservation price is when people start buying.

• Diminishing marginal benefits.

• $P_y$ is price of related goods.

  • Complimentary products going up in price will also reduce the demand for the actual product.

• $P_e$ is expected price.

  • Price of gas goes up on friday.
  • We expect it to go higher on friday, so demand on thursday goes up.
  • Inferior goods demand goes down when income goes higher.

• $n_d$ number of buyers

• When wages decline, the supply curve shifts to the right.

• If wages goes down, it's cheaper to run a business, or if an increase in tech (like ai makes things more efficient and cheaper)

• Increasing marginal cost:

  • For a small supply of labour, the opportunity cost is low.
  • For a big supply of labour, the opportunity cost is higher.
  • This is the increasing marginal cost.

• A factory can produce x or y, these are substitutes in production.

• Tech innovation will cause an increase in supply.

• Equilibrium prices balance buyers price and supply price.

• $D=S$

• $12-2p=2p-4$

• $16=4p$

• $p=4$

• Equilibrium price is 4 dollars.

• At price of 4 $D=12-2(4)=4$

• $S=2(4)-4=4$

• If the price was $5$ dollars, supply would exceed demand.

• at 5, quantity is 2, at 5 the supply is 6

• So long side are unable to find buyers, they then drop the price.

• If the price is low, then there are too many buyers and not enough sellers.

• $D_x^0=20-2P_x$

• $S_x=2P_x-4$

• $20-2p_x=2p_x-4$

• $P_x^0=6$

• Now if the good $P_y$ is 3

• $D_x^1=28-2P_x$

• $S_x=2P_x-4$

• $P_x^1=8$

• When there's an increase in demand, price rises.

• What is economics?
  • Managing unlimited wants when there are limited resources
  • The study of decision-making in this world
  • Free Market, automatic markets managed by everyone who participates in it.
  • The outcomes of the market are 'generally efficient', so things are in equillibrium.
• Types of economies:
  • Market economy
  • Planned command economy
  • Mixed economy
  • Traditional economy
  • Differences between having a free market, vs a couple of people or a government, etc deciding how the market works.
  • We have a mixed Economy
• The role of an economist:
  • Positive statement is how the world is.
  • Normative statement: how the world should be.
  • Economists make positive statements normally.
• Direct costs:
  • When you are paying capital to buy a good or service.
  • Must have a price tag associated with it.

• Indirect costs:

• Opportunity cost:
  • The benefits lost by choosing an option rather than another one.
  • Example:
    • Buying a tim hortons bagel, you could've spent that time and money doing something else for more benefit.
  • Theoretical, but it's almost required to know how people think about making decisions about these things.
  • Important to note, this is the next best thing you would've done, if this current opportunity wasn't available.
• PPFs
  • Production possibilities frontier
  • Thinking about being an institution with limited resources, and understanding what thing you could produce, and choosing which one.
  • Example, a school with two subjects, trying to find what balance they want:
    • This tells us how much of each course they want in this example, like more art, more math, etc.
    • Points $A,B,C,E$ are feasible, but $A,B,C$ are efficient.
    • Point $F$ is unfeasible
    • Point $D$ is the dream, but unfeasible.
    • The dotted line shows us if they get better at everything, so you can add more to everything.
      • Ex: Hiring more teachers for everything.
    • The dashed line shows us if they get better at math only, ex: they buy more calculators.
    • Opportunity costs effects:
      • In the second graph, point A is when everyone teaches math,
      • Point B is when you take the most effective art teacher from math and shift to art.
      • We essentially get diminishing returns. Because eventually we have to take highly skilled math teachers and shift them to art, but we get less art results.
  • Budget constraint
  • Budget constraint (BC)
  • Slope is $-\frac{P_x}{P_y}$
  • $-\frac{10\text{ hats}}{20\text{ sweaters}}=\text{slope}$
  • Opportunity cost of one sweater is two hats.
  • Opportunity cost of one hat is half a sweater.
  • What if sweaters are now 25
  • Slope is $-0.4$
  • If income doubles, you just shift the y-int of the line up.