ECON 217 Introduction Guidelines

Econ 217 is the intermediate microeconomics course. It builds on the principles of

microeconomics course (211). It also requires a little more math than 211.
The textbook has a short chapter 1 which does not appear inside Moodle. So, we
begin with chapter 2: Demand and Supply.
The chapter goes over the difference between quantity demanded and demand,
and the difference between quantity supplied and supply as we do in 211.
Quantity demanded is a point on the demand. Change in quantity demanded is a
movement on the demand due to a change in the price of the product. Demand
or change in demand is a shift of demand due to a change in one of the
determinants of demand such as: income, tastes, prices of related products such
as substitutes, …
We don’t want to forget the Law of demand where demand is downward sloping
or negatively sloped. Many theories explain or prove this law such as the law of
diminishing marginal utility, and the theory of SE (substitution Effect) and IE
(Income Effect). We see this later in the context of the utility function.
Quantity supplied is a point on supply. Change in quantity supplied is a movement
on the same supply due to a change in the price of the product. Supply or change
in supply is a shift of supply due to a change in one of the determinants of supply
such as: costs, technology, market structure, …
Also don’t forget the Law of supply where supply is upward sloping or positively
sloped. One important theory to prove the law of supply is the law of increasing
opportunity cost or marginal cost. This law also depends on the law of diminishing
returns as we see later when we discuss the production function.
Shifts of demand alone and shifts of supply alone (or ceteris paribus) are easy to
analyze. An increase in demand is a shift to the right or upwards. It leads to an
increase in price and an increase in quantity. The vice versa is true. An increase in
supply is a shift to the right or downwards. It leads to a decrease in price and an
increase in quantity. The vice versa is true.
I want to focus on simultaneous shifts of supply and demand. Here we have 4
scenarios’:
 1. An increase in demand and supply
2. A decrease in demand and supply
3. An increase in demand and a decrease in supply.
4. A decrease in demand and an increase in supply.
Study these scenarios. These scenarios are interesting because the result on P and
Q is ambiguous. In each scenario there are 3 possible outcomes. Why 3? Because
the outcome depends on the magnitudes of shifts, or which shift is bigger? We
could have a shift of demand bigger than the shift of supply; we could have a shift
of supply bigger than the shift of demand, and finally we could have a shift of
demand equal to the shift of supply.
∆D ˃ ∆S
∆D ˂ ∆S
∆D = ∆S

I posted one scenario inside Moodle called the Market for Bulbs. Study this
scenario carefully. Can you figure out the equation for demand P = a – bQ? What
is the value for a, and the value for b?
Can you figure out the equation for supply P = c + dQ? What are the values for c
and d?
Repeat for the new demand and new supply.
What happened to P and Q after both demand and supply shifted together?
Which shift is bigger? The shift of Demand or the shift of supply?