Micro 2/2

UGA tickets are a fixed (inelastic vertical supply line)
-causes a shortage because the price is low enough that more Qd than Qs
-Scalpers raise the prices and restore the equilibrium
What Shifts Demand? (do consumers know it)
1.income: income goes up, demand goes up (for normal goods), Price goes up, Q goes up, Supply remains constant | income rises, D goes down (for inferior goods), Supply stays constant, Price goes down, Q goes down
2. Prices of related goods
-substitutes in consumption: Ford & Toyota, Nike & Adidas
-P of Adidas rises, D for N rises>cause Price N rise>cause quantity N rise
-complements in consumption: PB & J
– P of PB goes up>D of J goes down>P of J drops> Quantity of J drops
3. Expected Future Prices: Hurricane Katrina and Perdue says to not worry about gas
– Expect P gas to rise>> D gas now go up>> P gas now go up> Q gas now go up
4. Population: Pop go up, D go up, P go up, Q go up
– Increase legal driving age to 18
-D gas down, Price gas down, Q gas down
5. Preferences (trends, fads) on test would be talking about advertisement
What Shifts Supply?
1. Price of input (cost)
– P steel up > costs up > Supply cars down
2. Prices of related goods
-substitutes in production
-corn or wheat
-P corn down > S wheat up >
– complements in production
-oil and natural gas (looking for oil causes natural gas)
-P oil up > S ng up > P ng down > Q ng up
3. Technology goes up
-T up > cost down> S up
4. Expected future prices
-expect P gas up future
– S gas up > P gas up > Q gas down
5. Number of firms
– if GE started making cars
– S cars up
6. Natural Disaster: S down
7. Taxes
-cost up > S down
-Subsidy (opposite of tax… ex HOPE scholarship) S up
Outcomes
1. D up, S constant, P up, Q up (normal good)
2. D down, S constant, P up, Q up (inferior good)
3. D constant, S down, P down, Q down
4. D constant, S up, P down, Q up

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