Waching daily Feb 26 2018

BREAKING News Out Of NASCAR Puts NFL To SHAME

NASCAR's most patriotic race is set to begin its the fourth annual folds of

Honor QuikTrip 500 honoring our heroes and fueling dreams and joining us now

live from Atlanta Speedway folds of Honor founder major Dan Ruby Rooney

QuikTrip CEO Chet cADCA Joe and gold star Army Ranger wife and folds of Honor

recipient Colleen Katzenberg ur core see all of you welcome this morning major

Dan first of all tell us about this race I know it's an exciting day it is it's

an unbelievable today great day to be an American and I think Pete when you look

at this country so many red issues or blue issues this is a day we come

together it is red white and blue and it is the most significant race in NASCAR

because as we make left-hand turns today we'll be creating awareness and raising

dollars for these incredible families that we help and a quick trip in their

locations just this last year we deployed over 6 million dollars of

scholarships and yeah you have obviously the residents that we help we're having

I'm sorry a little bit of a challenge with the shot we knew we might have some

challenges we try to live in grass as well you know this is the fourth year

they've done it and folds of Honor has raised more than a hundred million

dollars and awarded 20,000 scholarships major Dan I think we have you back right

now a question for Colleen I know she doesn't have an earpiece in but if you

could relay she's a gold star Army Ranger wife tell us ask her about you

know her her former husband and what she's received from your foundation

absolutely so Colleen if you could share your story that would be fantastic

thanks Dan thank you yeah so my story and sadly a pretty tragic one in 2011 I

lost my husband Staff Sergeant Jeremy Katzenberg er he was on his eighth

deployment with the 1st Battalion 75th Ranger Regiment and at the time I had

been working as a registered nurse and our son was about 7 months old and when

we lost him in 2011 a big part of my grief process was putting together

pieces and figuring out what I was going to do with the rest of my life because

when you bury your husband at 20 s yeah and all your hopes and

and it's so for me a big big step in my grief process with the decision to go

back to school to get a masters of Education and become a high school

biology teacher and folds of Honor stepped in and make sure that I I got to

make that dream a reality and for me it was pivotal in my grief process and

putting together my pieces as a mom a woman and just a future for myself

contributor and making sure that those hopes and dreams are put together for

thousands of other possible scholarship Wow your son who's now 7 years old is

gonna have a future used scholarship very briefly Chet sorry we're gonna

we're running out of time how does it mean to partner with folds of Honor it's

fantastic and all the guys and gals who work a quick trip have a deep passion

for making sure we take care of the families that have been left behind by

our heroes and our I'll stand up they probably do bad things to me if we won't

have well we love it we love all of you today it's on Fox you saw it this

afternoon don't miss it big race thanks for

joining us thank you god bless you and God bless america

For more infomation >> BREAKING News Out Of NASCAR Puts NFL To SHAME(VIDEO)!!! - Duration: 3:29.

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BREAKING: Diane Feinstein About To Get The BOOT! Spread This EVERYWHERE(VIDEO)!!! - Duration: 2:16.

BREAKING: Diane Feinstein About To Get The BOOT! Spread This EVERYWHERE

evany this may be a sign that California Democrats want to shift further to the

left while President Trump is in office the state party handing longtime Senator

Dianne Feinstein a major rebuke this weekend by not voting to give her the

party's endorsement showing that winning re-election in 2018 could prove to be a

major challenge this is not an easy time to run for office I have never seen the

presidency and I'm gonna say it as disgraced as it is today we are

Democrats not because we don't like business or not because we don't like

the professions but because we recognize that America is made up of many

different people each of whom has equal rights under the law and the struggle is

to see that this country lives that way Feinstein is being challenged by

California state senator Kevin de Leon who's running to the left of the

incumbent senator on health care taxes and immigration this weekend he beat

Feinstein by 17 points in the race to give the state's party's endorsement but

while neither got the 60 percent needed to actually get that endorsement de

Lyonne is counting the vote as a major victory heading into the June primary in

the Democratic Party after the loss of Hillary Clinton I think voters are

saying overwhelming that we're tired of the old institutions we're tired of the

old way of doing democratic politics we're looking for a new way and a new

direction there are seven problems for the Challenger Feinstein is upholding de

Leon by nearly 30 points she also has a major lead in fundraising and of course

name recognition having been around for so long evany yes she's been around a

very very long time but interesting update in California politics there

Thank You okar thank you god bless you and God bless america

For more infomation >> BREAKING: Diane Feinstein About To Get The BOOT! Spread This EVERYWHERE(VIDEO)!!! - Duration: 2:16.

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Elasticity and Marginal Revenue (derived from video lecture by Jonathan Gruber) - Duration: 4:43.

What I want to highlight here is this means there's a very important relationship

between marginal revenue and the elasticity of demand.

So let's take our marginal revenue equation and put it back in change terms:

p plus delta p over delta q times Q and let's multiply and divide by p.

So marginal revenue you can rewrite as p plus p times delta p over delta q times Q over p.

So I just took this second term, multiplied and divided by p, the second term.

I just multiplied and divided by p.

The reason I did that is because that means you can rewrite this.

This now starts to look like an elasticity expression.

Remember the expression for elasticity.

This looks like the inverse of an elasticity expression.

Remember what elasticity of demand was, delta q delta p times p over Q.

So that's the inverse to the elasticity demand.

So we can rewrite this as marginal revenue equals p times 1 plus 1 over the elasticity of demand.

Marginal revenue equals p times 1 plus 1 over the elasticity of demand.

Think about what this means for a second.

What is the marginal revenue in a perfectly competitive firm?

Well, as a perfectly competitive firm, what's the elasticity of demand facing

a perfectly competitive firm?

Infinity.

Perfectly elastic.

So marginal revenue by L'Hopital's rule equals p.

So for a perfectly competitive firm where elasticity is infinity, marginal revenue equals p.

Now, instead, if we took a firm where the elasticity of demand was minus 1,

the electricity demand was minus 1, the marginal revenue would be 0.

Why is that?

What that says is, if you're a monopolist facing an elasticity of demand of minus 1,

then you make no money by selling the next unit.

Because these two effects exactly cancel.

It turns out with elasticity of demand of negative 1, these two effects exactly cancel.

Exactly what you make by selling one more unit is offset by how much you have to lower

the price on all your previous units.

So, an elasticity of demand of minus 1, marginal revenue equals 0.

And as you can see as the elasticity of demand gets below minus 1, as it approaches 0 from below.

As the elasticity of demand approaches 0 from below -- I should have said perfect competition,

I'm sorry, was negative infinity, not infinity.

Negative infinity.

As the elasticity of demand approaches 0 from below, then you're going to see

that the marginal revenue -- as you approach 0 from below, marginal revenue

is going to become negative.

So for example, if the elasticity of demand equals minus 0.5,

then the marginal revenue equals minus p.

So if this is minus 0.5, then this becomes minus 2.

So, marginal revenue equals minus p.

You lose money.

So as that elasticity of demand approaches 0,

you're going to have a negative marginal revenue from selling the next unit.

And why is that?

With a very inelastic good, you have to push the price down so much to sell the next unit

that you lose money.

Think about a very elastic versus very inelastic good.

With a very elastically demanded good, to sell another unit you don't have to change

the price much, because the demand curve's very flat.

So there's not much of a poisoning effect.

dp dq is small, or dq dp is big.

This is the inverse.

So, dq dp is big with elasticity, so dp dq is small.

With a very inelastically demanded good, to sell one more unit you're going to lower

the price a ton, which is going to poison the revenues you get from selling that extra unit.

So that's why marginal revenue will be higher, or will be a larger fraction of p

as this elasticity becomes more negative.

For more infomation >> Elasticity and Marginal Revenue (derived from video lecture by Jonathan Gruber) - Duration: 4:43.

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Firm Demand vs. Market Demand (derived from video lecture by Jonathan Gruber) - Duration: 5:42.

Now a very important distinction to draw-- and that's why it's important to remember

that these are little q's not big Q's-- is the distinction between firm demand

and market demand, firm versus market.

And this is something which is confusing.

It confuses me at times.

I may even get it wrong at times.

I'll need you to correct me.

Even if a given firm faces perfectly elastic demand, it doesn't necessarily mean that market demand

is perfectly elastic.

That is the overall demand for little, fake Statues of Liberty around Port Authority

in New York is not perfectly elastic.

As the price goes up, fewer people will buy them.

As the prices goes down, more people will buy them.

But for any given vendor selling them, it is perfectly elastic because there's always someplace

next door you can go.

So it's very important to distinguish between the demand facing the firm being perfectly elastic

and the demand facing the market not being perfectly elastic.

And the way to think about this is to think about the concept of residual demand.

We have a demand function for market D of p.

We have a demand function for a market which is that as the price goes up demand goes down.

Now the demand function for a given firm, we'll call the residual demand D super r of p,

is equal to what?

It's equal to the demand for the market minus the supply that all other firms in the market provide,

S super 0 of p, the supply that all other firms in the market provide.

So the demand for my product as a firm is my residual demand.

It's the market demand minus what other firms supply.

Well, if you differentiate this with respect to price, you'll see that dDr/dp equals dD/dp minus dS0/dp.

This first one is the market demand curve.

We know that's a negative number, because demand curves slope down.

We're not assuming Giffen goods.

We know that's a negative number.

But this is a positive number: supply curves slope up.

The amount that other firms in the market will supply as the prices goes up is positive.

Supply curves slope up.

So this is a negative number.

But this is a positive number which means, by definition, this is a very negative number.

The firm's residual demand responds more to price than the market's demand does

because the firm's residual demand is after all the supply of other firms.

So we can rewrite this in terms of elasticities.

So let's assume, for a second, that all firms are identical.

Assume, for one second, that we're in a market where all firms are identical,

that little q equals big Q over N.

Assume that all firms are identical.

And so, therefore, the amount produced by other firms, Q super 0 is (n - 1) x q.

So, basically, the amount that's produced by other firms is (n - 1) x q.

So the last is demand facing a given firm, epsilon sub i is n times the elasticity of demand

for the entire market minus (n - 1) times the elasticity of supply for the market.

So, for example, let's say you've got a market with 100 firms in it.

It's a big market but not outrageously big.

We have plenty of markets with more firms than that.

And let's say that the elasticity of demand for this market equals minus 1,

so it's in between elastic and inelastic, not a crazy number, and the elasticity of supply is 1.

Let's just say that's the example.

Then what you get is that for a given firm, if you used this formula, the elasticity of demand

facing a given firm is minus 199.

It's a huge negative number.

So even though the market demand is modestly elastic, minus 1-- it's elastic but not crazy--

the demand facing the given firm is crazy elastic.

So, basically, the point is that even if a market does not have super elastic demand,

a given firm can face very elastic demand.

And that's what can lead to perfect competition.

It's very important to keep those distinct.

When we talk about demand, think about demand at the firm level versus demand at the market level.

Demand at the market level, that's about substitutability with other goods and the things we've talked about

deriving demand curves.

When we derive demand curves, we're not deriving firm demand curves.

We're deriving market demand curves.

And so the demand curve was a function of elasticities and substitutability across goods.

The firm demand curve is a function of all that, but also how many firms are in the market.

If there are a lot of firms in the market, it's going to be very elastic

in a perfectly competitive market.

For more infomation >> Firm Demand vs. Market Demand (derived from video lecture by Jonathan Gruber) - Duration: 5:42.

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Long Run Market Supply Curve with Perfect Competition (derived from video lecture by J. Gruber) - Duration: 5:01.

So through both entry and exit, we get this condition that's illustrated in Figure 11-5.

In 11-5, we see that in the long run, firms always supply not on a single curve,

but at a single point.

In the long run, with a perfectly competitive market, for a given firm,

there is no longer even meaningfully a supply curve to a firm.

There's just literally a supply point.

Every firm produces at exactly the point where marginal costs equal average costs.

So in some sense, once again, for a given firm-- this is not the market-- but for a given firm,

there's not even meaningfully a supply curve anymore.

For a given firm, in the long run, they literally choose one production point which is technologically given.

So this is interesting.

For a given firm, the market doesn't matter.

For a given firm in a perfectly competitive market, we don't need to know anything about demand.

All we need to know is the firm's production function.

That's all we need to know.

We don't even need to know anything about costs.

Well, we need to know cost.

We need to know their cost function.

All we need to know is their cost function.

And then all we need to do is derive where marginal costs equals average costs,

and we're done.

This is the power of the perfectly competitive equilibrium.

This is why economists love it so much.

Because we don't need to go through all this.

This is all short run stuff.

In the long run, it's easy.

You just say, give me a cost function, I'll tell you what the firm will produce.

And I'll tell you what the price is.

The firm will produce where marginal cost equals average cost.

And the price will be where marginal cost equals average costs.

I can tell you the p and the q in equilibrium just if you give me a cost function.

And that's the beauty of the long run perfectly competitive equilibrium.

That's why it's so attractive to economists for modeling purposes and other things.

It's incredibly easy to work with.

Because all you need is a cost function, and you're done.

The key lesson is what is true at the point where marginal costs equals average costs?

Well, look at our graph.

That is the point of cost minimization.

Note that that is the very minimum point of the long run average cost curve.

So where marginal cost equals average cost is the point of cost minimization.

So we're saying further-- this is even more powerful-- we're saying that in the long run

of perfectly competitive equilibrium firms will, by definition, minimize their costs.

They will produce as efficiently as possible not because God told them to,

but through the power of the market.

Because what happens if you start a firm and you aren't cost minimizing?

What happens?

What happens is, in the short run, you might make money even if you aren't cost minimizing

but, in long run, you'll get driven out of business.

Because if there's someone else who can produce more cheaply than you, they'll be able to charge

a lower price and drive you out of business.

Your price will end up above the long run equilibrium price if you're not cost minimizing.

So any firm that is not cost minimizing will get driven out of business.

And the equilibrium will be a market where all firms are producing

at the cost minimizing level.

And that's why we get the high tech Figure 11-6, which is that the long run market supply curve

is perfectly elastic.

Now this comes all the way back to what I talked about at the beginning of the last lecture.

Remember, I said, what determines perfect competition?

Two things: the demand curve to the firm was perfectly elastic, and the supply curve

to the market is perfectly elastic.

And we talked last time about why the demand curve to the firm is perfectly elastic,

because with lots of firms, any given firm has a perfectly elastic demand.

Now we've just derived why the market supply curve is perfectly elastic.

It's perfectly elastic at the cost minimizing point.

If the price ever rises above that cost minimizing point, what happens?

What happens if the price should suddenly rise above it?

What happens?

Firms enter and drive the price back down.

If the price ever drops below that cost minimizing point, firms exit, and the price goes back up.

So through the power of firm entry and exit, in the long run, you end up with a horizontal

or perfectly elastic supply curve.

And that's perfect competition.

For more infomation >> Long Run Market Supply Curve with Perfect Competition (derived from video lecture by J. Gruber) - Duration: 5:01.

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Amazing Cakes Decorating Techniques 2018 #26 🎂 Most Satisfying Cake Style Video🎂 - Duration: 11:16.

Thank you for watching! Hope you enjoy & like it!

For more infomation >> Amazing Cakes Decorating Techniques 2018 #26 🎂 Most Satisfying Cake Style Video🎂 - Duration: 11:16.

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Profit Maximization and Shutdown Conditions (derived from video lecture by Jonathan Gruber) - Duration: 7:09.

Profit Maximization for a Monopolist.

Now, this is a lot more confusing than perfectly competitive firms, so let's follow along here.

This is a case the cost function here is 12 plus q squared.

So I'm doing the cost function, which is 12 plus q squared.

That's the cost function.

And the demand function, as before, is Q equals 24 minus p.

So that's what's graphed here.

Now, recall the rule that profit is maximized where marginal revenue equals marginal cost.

Well, we know marginal revenue.

We know marginal revenue -- we derived that above -- is 24 minus 2Q.

What's marginal cost with this expression?

Well, marginal cost, differentiation of the cost equation, which is 2Q.

So the optimization term for a monopolist is going to where marginal revenue,

which is 24 minus 2Q, equals marginal cost, which is 2Q.

Or Q equals 6.

That's going to be the optimal production level for the monopolist.

So we can see that graphically that's where the marginal cost curve hits the marginal revenue curve.

If you go downward from that point, you get that the sales are 6 units.

So marginal revenue equals marginal cost at 6.

You should be able to see that graphically, it's just where the curves intersect.

Mathematically I just did it here.

It's actually pretty straightforward.

Here's the hard part.

What's the price?

We might say, well, marginal cost and marginal revenue intersect at 6.

I'm going to draw the dashed line over that means the price is going to be 12.

Why can that not be the price?

Why is that wrong?

What would that violate if the price was 12?

If you tried to sell 6 at a price of 12?

AUDIENCE: [INAUDIBLE].

It's not on the the demand curve.

The monopolist still has to respect the demand curve.

So monopolists in setting their quantity, gets the intersection of marginal revenue

and marginal cost.

But then in setting the price, they still have to read off the demand curve.

They can't change consumer tastes.

So they charge a price of 18.

That's where you sell a quantity of 6.

So monopolists it's a little bit trickier in a perfectly competitive firm.

You set marginal revenue equal marginal cost to derive Q.

But then to get p, you've got to go back and plug that into the demand curve.

So with a Q of 6, I have my Q of 6.

Well, what's the p?

Well, to get that p, I've got to go back and plug this in here.

At Q equals 6, p is 24 minus q, or 18.

So I've got to respect the demand curve.

The monopolist has to respect the demand curve.

The monopolist picks both price and quantity, but he has to pick them

such that you get a point on the demand curve.

And the way we solve it, is the monopolist chooses a quantity to set marginal revenue

equal to marginal cost, and then chooses the price that's consistent with demand for that quantity.

Questions about that?

Now one last thing.

In the short run, we still have another condition for profit maximization, which is the shutdown rule.

Remember the shutdown rule we talked about perfectly competitive firms in the short run,

which is even if profits are negative, you might not shut down.

You only shutdown if price is less than average variable cost.

So there's still the shutdown rule.

So you only shut down if price is less than average variable cost.

Now in this case, what's the monopolist profits?

Well, the monopolist made a profit of 60.

How do we see that?

Well, that's graphically the box, the rectangle,

that's the difference between the average cost curve and the price they get.

So they're charging 18.

Now once again, marginal revenue is gone.

Think about marginal revenue like an imaginary concept.

Marginal revenue isn't something that actually exists in the market.

Marginal revenue is just something the monopolist draws to pick what they're going to do.

But then it disappears.

What the monopolist cares about then is price.

They're charging 18.

Their average cost for that unit is only 8.

So they're making a profit of 10 per unit on 6 units.

So they're making a profit of 60.

And what you can see, what you should be able to demonstrate to yourself is

if a monopolist sold 5 units.

I'm sorry, selling 6 units.

If the monopoly sold that seventh unit, what you'll be able to see is they would lose money

on the seventh unit.

Because if they sold that seventh unit, what happened if they sold the seventh unit?

Well, then, their price would have to be what, if they wanted to sell a seventh unit?

The price would have to be 17.

So to sell a seventh unit, they'd have to have a price of 17.

So basically at a price of 17, the price was 17.

Then what would happen?

Well, they'd sell one more unit at 17.

That'd be good.

But they'd lose $1 on the previous 6 units, which is bad.

So how much revenues would they make?

What would be their marginal revenue?

Well, the marginal revenue would be they make 17 minus the 6 poisoning effect.

So marginal revenue equals 11.

What's their marginal cost?

Their marginal cost is 2Q.

Marginal cost is 14.

So they lose money.

So you should be able to walk through this exercise yourself.

You might say: the marginal cost of that next unit is only 14.

They sell it for 17.

They should do it.

What you're missing is by selling it for 17, they've lost the dollar extra they make

on each of the previous 6 units.

And that poisoning effect makes it unprofitable to do this.

And that's why the monopolists stop short of what would be the perfectly competitive outcome.

What would the perfectly competitive firm do?

The perfectly competitive firm would set marginal cost equal to demand.

And they would end up producing where marginal cost equals demand.

So demand here is 24 minus p.

Marginal cost is 2Q.

So they would end up producing where marginal cost equals demand at a much higher level

charging a slightly lower price.

So what you see is the monopolist ends up selling fewer units at a higher price.

For more infomation >> Profit Maximization and Shutdown Conditions (derived from video lecture by Jonathan Gruber) - Duration: 7:09.

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Shocking the Budget Constraint (derived from video lecture by Jonathan Gruber) - Duration: 3:59.

Let's talk about what happens when we shock the budget constraint.

Let's imagine the price of pizzas

rose from $16 to $24.

Pizzas got really expensive.

We decided we only want gourmet pizzas or something.

The price of pizzas went from $16 to $24.

What does this do? Well, let's look at figure 5-2.

It'll show what that does.

What that does is it says our new budget constraint,

instead of being 16P plus 8M equals 96,

which is what the budget constraint was in our example,

it's now 24P plus 8M equals 96.

That's the new equation for the budget constraint.

Or, more relevantly, the slope of the budget constraint has flattened

from minus 1/2 to minus 1/3.

The slope has fallen from minus 1/2 to minus 1/3.

The price ratio has been reduced from 1/2 to 1/3.

Now, forget utility for a second.

Forget the fact that we thought about utility.

Just looking at this,

can you tell whether you are better or worse off from this price change?

So in fact, the answer is your opportunity set has been restricted.

So we can think about the opportunity set.

Your opportunity set is the set of choices you can make given your budget.

Before, you could make choices all the way up to the upper line.

Now your set of choices that are available have just fallen.

Now, you're no poorer-- it's not like your parents have cut you off.

They still give you the $96.

But you're effectively poorer.

You're effectively worse off, and why is that?

Because the set of things you could afford with that $96 has just been restricted.

And unless you truly have no value on pizza,

unless all you care about's the movie -- you're gluten and cheese allergic or something,

you have no value on pizza -- then you're worse off.

Your opportunity set's restricted. And that's the key insight here,

is that you are worse off because the price has increased.

A price increase makes you worse off. It restricts your opportunity set,

because with the same amount of income, you can now afford fewer goods.

Your opportunity set has been restricted.

Likewise, now let's talk about what happens when your income falls.

That's the next figure.

Now, let's suppose your parents are pissed at you and they cut you down to $80.

Because you didn't do something.

You don't write enough or call enough, so they cut you down to $80.

Well, here the slope of the budget constraint has not changed.

Because what determines the slope of the budget constraint?

It's prices, and no prices have changed.

The slope of the budget constraint is unchanged because prices haven't changed,

but your opportunity set is once again restricted because you now have lower income.

So you can now afford fewer pizzas and movies.

So now, instead of being able to afford up to 6 pizzas and up to 12 movies,

you can now only afford up to 5 pizzas and up to 10 movies

because your income has fallen.

So once again, you're unambiguously worse off.

Your opportunity set has contracted.

So your opportunity set will contract whenever income falls or whenever price increases.

And how it affects the graph will depend on whether it affects prices, which affects the slope,

or just income, which affects the intercepts.

For more infomation >> Shocking the Budget Constraint (derived from video lecture by Jonathan Gruber) - Duration: 3:59.

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Marginal Rate of Substitution (derived from video lecture by Jonathan Gruber) - Duration: 1:41.

So the very first movie gives you marginal utility of 1.4

because you go from 0 to square root of 2.

That's right. My bad.

So you go from 0 to square root of 2

to get a marginal utility of 1.4 for the first movie

From square root of 2 to 2, you get 0.6 the next movie.

From 2 to square root of 6, you get 0.45 for the third movie.

For square root of 6 to square root of 8,

you only get 0.38 from the fourth movie, and so on.

So the key point is that these marginal utilities are ever decreasing.

Each additional movie gives you less incremental utility.

And if you stop and think about it, it's kind of intuitive.

Just stop and think, think about the movies you want to see right now.

The four movies you want to see.

Presumably whichever you ranked first

would give you more utility to see than whichever you ranked second.

And if you think the movies that are out right now are pretty crappy like I do,

by the time you get to the fourth movie, you're not getting much utility from it at all.

Thinking about movies that are out now,

you're getting a lot of utility from that first movie you see.

Marginal, extra utility from the first movie you see.

But each additional one is giving you less and less.

And that's the idea of diminishing marginal utility.

Likewise with pizzas, if you haven't eaten all day,

that first pizza can give you a very high marginal utility.

The enjoyment you get from eating that first pizza can be very large.

But the second pizza, not so much.

You're already pretty full.

Third pizza, even less.

And then fourth pizza would probably violate non-satiation.

For more infomation >> Marginal Rate of Substitution (derived from video lecture by Jonathan Gruber) - Duration: 1:41.

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Impact of a Demand Shift (derived from video lecture by Jonathan Gruber) - Duration: 5:14.

Let's talk about what happens when we shock that equilibrium.

This is the market for pork.

Imagine that the price of beef rises.

The price of beef rises.

So when the price of beef rises, what has that effect people's demand for pork?

Increases it.

Exactly. Because they're substitutes.

What we're going to learn critically as we go through is what's going to determine

these demand curves importantly is going to be substitutability across goods.

So here we have a situation where the substitute for pork has gotten more expensive.

As a result, people want more pork.

That is a shift out in the demand curve, or a shift up in the demand curve.

A shift up or out, depending on it's out into space or up vertically in the demand curve.

So what happens here is that folks shift to consuming pork, so they want more of it.

So we're initial equilibrium -- we just made up some numbers -- we're initial equilibrium

here at 220 millions of kilograms of pork a year and a price of $3 a kilogram.

That was the initial equilibrium.

That was the point where demanders and suppliers were happy.

Now the price of beef has gone up, maybe because -- I don't know why --

Mad cow disease or something like that has raised the price of beef.

So now people are saying, hey, we want more pork.

That shifts the demand curve out.

Initially, if the price stayed at $3, if the price remained at $3, what would happen?

What would happen is people would now-- and once again, these numbers are made up.

But this is just to illustrate an example.

People would now say, gee, at a price of $3 and this further out demand curve

-- now I'm on Figure 2-2, if you haven't picked that up--

I want 232 millions of kilograms of pork a year,

that person would be like Homer.

Everybody wants 232 millions of kilograms of pork a year.

I hope you guys don't get tired of Simpsons references.

So what that says is consumers say, gee, I want a lot more pork at that price.

If it's going to be $3, and the price of beef just went up, I'm going to want a lot more pork.

So what you're going to have initially is excess demand, because at that price of $3,

suppliers are only willing to supply 220 million kilograms.

They were happy, right?

They were happy at point e1.

When you come along, and you say consumers now want more, they say, well, we're not happy

to provide more at that price.

If you want more, we're going to have to charge a higher price.

So they say, if you want more pork, we're going to have to produce more.

So we are going to slide up the supply curve.

So if you start at a point like e1, they say, gee, you want more pork?

Well, we're going to have to slide up that supply curve.

So we're moving up the supply curve and saying, we're going to have to charge you a higher price

if you want more.

Well, as the price goes up, consumers say, well, wait a second.

If the price is going up, I don't want quite as much more.

And you meet at the new equilibrium e2.

So what happens is producers say, gee, if you want more,

I'm going to charge you a higher price.

Consumers say, well, gee, if you're charging a higher price,

I'm going to go back up the demand curve.

I don't quite want as much at that higher price.

And the new equilibrium is e2.

That's where consumers and producers are now happier with that outward shift in demand curve.

But the key point is consumers are not getting as much as they originally wanted at the original price,

because the original price will not hold.

The price is going to change.

Given the price is going to change, the quantity is going to change.

And you end up with both a higher price and a higher quantity for pork.

So think about it. This is pretty interesting.

The price of beef rising raised the price of pork.

It didn't just increase the demand for pork,

but through increasing the demand, it raised the price.

So price in one market affects the price in another market,

not just the quantity but the price in another market.

And that's our new equilibrium.

That's the shift in the demand curve.

And once again, suppliers and demanders are happy.

They're happy at this new point e2, this new equilibrium,

because given the new demand curve, at a price of $3.50 a kilogram,

producers are happy to produce the 228 million kilograms of pork a year that consumers want.

And at that price, that's what consumers want.

If they're going to say, oh, it's $3.50, I want about 228.

I want more than I wanted before, because beef's gotten more expensive,

but not as much as I would have wanted if you hadn't increased your price.

For more infomation >> Impact of a Demand Shift (derived from video lecture by Jonathan Gruber) - Duration: 5:14.

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Long Run Market Equilibrium: Firm Entry and Exit (derived from video lecture by Jonathan Gruber) - Duration: 6:18.

So, in long run, the first thing is now we only have one condition to worry about,

which is price equals marginal cost.

Price equals marginal cost is what we need to worry about.

And you're only going to be in a situation, in the long run, where you're only going

to be making either 0 or positive profits.

If you're making negative profits, you'll be gone.

Now, the key difference in the long run, is now we can't take the number of firms as given.

Now we need to derive the number of firms.

And the way we do that is by thinking about entry and exit.

Now, what's going to determine entry and exit?

Well, it's quite simple.

If in the market, as it stands today with some number of firms,

there's profit to be made, new firms will enter.

If in the market, as it stands today with some number of firms,

there's losses being made, some firms will leave.

Remember, no one stays in making losses anymore.

And that continues until you reach a situation where all firms make zero profit.

And here's the key lesson.

In a perfectly competitive long run equilibrium, all firms make zero profit.

It's the fundamental lesson about perfect competition.

Obviously, there's no place that works like this in the world.

This is an extreme.

But, nonetheless, you should understand this extreme.

In a perfectly competitive long run equilibrium, all firms make zero profit.

Why?

Because if there's any profit to be made, a new firm will enter and take it away.

And if there's any unprofitable industry, a firm will exit until the profits go back to zero.

So profits will always be zero in the long run equilibrium.

This is the market for PCs.

The supply curve was pretty steep because there weren't many firms making PCs.

So the market price was P1.

So on the right, you have the market.

We should label this actually.

On the right, you have the market.

On the left, you have Dell.

On the right, you have the market.

In the market, in initial equilibrium, there's a price of P1 with big Q1 being sold.

So Q1 PCs are being sold at a high price of P1.

It's the novel technology.

People want it, but not many firms are doing it.

What happens with Dell?

Now let's go to the left-hand side diagram.

Well, Dell is producing where that price equals their marginal cost.

That price equals their marginal cost at little q1.

So Dell's producing little q1.

But its average costs at that point are all the way down.

It's not really labeled.

But you can see it's where that vertical line for Q1 intersects average total cost.

That's where their costs are.

So, in each unit, they're making the height between marginal cost and average total cost

at that Q1.

They're making that vertical bar.

So they make that entire rectangle of profit.

So Dell makes a big profit, because not many firms are in this business.

And yet demand for PCs are high.

And that's where things are circa 1990.

And they came and said look, we can do this.

OK, we can produce.

This is a profitable business.

We can make PCs.

It's not that expensive.

It's largely a variable cost business.

You just have to build your plant first.

So they built their plant, and then they come in.

Well, what happens when a new firm comes in?

The market supply curve flattens.

Because now, at any price, you're producing more.

So the market supply curve flattens to the point SR2.

In fact, maybe it's not just Gateway.

Maybe you get a bunch of entrants until you get the market supply curve SR2.

Well, SR2 intersects demand at a new higher market quantity big Q2.

Well, that higher market quantity going to the left, there's now no longer profits to be made.

Because at that market quantity, Dell is going to produce little q2.

Little q2 is exactly at the minimum of the average total cost curve.

It's where the marginal cost curve intersects the average total cost curve,

the minimum of that average total cost curve.

So Dell no longer makes profits.

So the entry of Gateway and other firms into the PC business has removed the profit

from the PC business.

Now note what's interesting here.

Market quantity has gone up.

Big Q2 is bigger than big Q1.

But Dell's quantity has gone down.

Little q2 is smaller than little q1.

That's because more firms are in the market producing.

So, as more firms come in, total market quantity goes up.

But any given firm is going to produce less.

And that will continue until profits go to zero.

That is how firm entry wipes out profits.

So, in the long run, firms make zero profit because, first of all,

entry drives price down to average cost.

Entry drives price down to average cost.

And when price equals average cost, profits are zero.

Profits are zero when price equals average cost.

Because profits are pq minus C. So if you divide by qp profits are p minus average costs.

So if price equals average cost, profits are zero.

So entry drives profits to zero.

It drives price to equal average cost.

Since price equals marginal cost, it's the point where marginal cost equals average cost.

For more infomation >> Long Run Market Equilibrium: Firm Entry and Exit (derived from video lecture by Jonathan Gruber) - Duration: 6:18.

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Overview of Supply and Demand (derived from video lecture by Jonathan Gruber) - Duration: 2:42.

So to review, let's go to our basic supply and demand graph, Figure 2-1 in the handout.

You talked in section about the market for pork.

That's the market Perloff uses.

Seems good as any, so we'll continue to rely on that, the market for pork.

And in this pork market, you have a demand curve and a supply curve.

Now, it's critical to remember what these curves represent.

Once again, for this course, ideally, you understand all concepts on three levels,

intuitively, graphically, and mathematically.

But the intuitive is the most important, especially for those of you who aren't going to go on

and do a whole lot of economics.

For instance, where it's just one of the few economics courses you'll take, it's very important

for your lives and using economics you understand this intuitively.

So intuitively, let's talk about what the demand curve represents.

Each point in the demand curve represents the price

consumers are willing to pay for that quantity.

And it's downward sloping.

The demand curve is downward sloping because as the price goes up, consumers are willing

to buy less of a good.

So their willingness to pay changes.

So that's the demand curve.

Now what about supply curve?

What's a supply curve represent?

So how much they're going to charge for a given quantity of the good.

And once again, that is upward sloping because as the price rises,

they're willing to supply more.

So as the price rises, consumers demand less.

As the price rises, producers produce more.

And equilibrium is that point where supply equals demand.

Equilibrium equals happiness.

It's the point where suppliers and demanders are both happy.

They're both happy because at a point such as e, the amount that consumers demand at

that price is equal to the amount suppliers are willing to supply at that price.

So jointly happy.

You've reached a point where consumers want a certain amount at a certain price.

At that price, producers say, great, you want e, I'm happy to produce e at that price.

So we've reached equilibrium.