Econ 101

scotchs insertion economical questions arise bc we want more than than we rear end everywherehear. inability to satisfy want scarcity Incentives rewards t put on encourage action or penalties that caution action. Economics studies the allocation of scarce recourses among muckle Alfred marshell (1842-1924) shaped macro economics Joan robinson the main origin to study econ is to avoid being fooled by it deuce main parts A) Microeconomics studying the choice of individual decision makers. And how they move in market places B) macroeconomics how the all overall economic system performs. 2 big questions 1.What, how and for whom do substantiallys and operate get god? 2. When do choices made in self interestingness range with the accessible interest? Answer 1) what experts and run ar objects that people place and are produced to satisfy human wants how factors of employment. A) Land natural recourses. B) labour arrive at time & effort. quality of labour (human groovy). C) capital tools, equipment, machines, computers, buildings.. D) entrepreneurship human resource hat organizes the above. For whom who gets good services depends on the in exercises people earn. oLand=rent oLabour=wages oCapital=interest oEntrepreneurship=profitAnswer 2) We make choices in self interest oChoices you think are crush for you Choices that are best for society are said to be in the social interest oUses resources efficiently oDistri thoes goods fairly When does self-interest align with social interest? (important) Environmental issues Bad corporate responsibility The Economic port of thinking Choice under scarcity = consider offs Opportunity represent the highest regard asd alternative that you give up to get something. Choices at the mete We look at the tradeoffs at the margin Marginal service (MB) welfare from an additive increase in an drill.Marginal toll (MC) opportunity personify from an incremental increase in an body process. People respond to incentives MBMC= do more of an activity MB does slight of an activity Lesson 2 recap Economics oMicro oMacro 2 big question owhat, how, for whom oself interest vs social interest opportunity m hotshottary grade otrade-offs thinking at the margin Lesson 2 Water vs. diamonds Water essential but almost costless Diamonds not essential but truly costly What is foster? What gives things value? Labour theory of value the value of a commodity is proportional to the amount of labour that goes into it. Aband unmatchabled ex. cementum lifejacketEconomists think about value contraryly 1. the value of something is what youre voluntary to give up to get it. 2. Economists think about fringy value instead of total value. Water is plentiful= fringy value depleted Diamonds are scarce= marginal value high Positive and prescriptive put forwardments Positive statements of facts about observable data Normative statements about what ought to be. order judgments Ex. 20% of teens wood pussy Positive are you more likely to smoke if your parents do? Does living location affect likelihood of smoking? Are smoking rates different across education levels? Self report reasons for smoking Do termss affect smoking rates? Normative Kids shouldnt smoke Ca go for and resultant role Just because two things happen unneurotic doesnt blotto that one causes the some other. Ex ice cream sales & deaths by drowning Both related to temperature Economists try to unscramble cause and effect by building models. Model a purposeful simplification of the echt world. Ex paper airplane Simplification. Learn about aerodynamics, wind complex body part Cant learn about thrust, fuel capacity, engines Maps are models Sub steering chromosome mapping Lines Stops Doesnt show curves or turns Road map road names Turns/curves Sa classite photo Adds detailGraphs Reveal relationships among variables 3 main types 1. conviction series 2. Cross sectional 3. Scatter plots Lesson 3 Recap water/diamond s Value what youre departing to give up to get something Positive vs normative Cause & effect oModels Graphs in economics The Economic problem professional personduction possibilities frontier (ppf) Model focus on tradeoffs between 2 goods. (holding other goods constant) PPF shows boundary between what we dope produce and what is unachievable Building a PPF First good numbers Ex. X + 3=7 Second good actors line Our PPF for Xs & words EX. In textbook PFFs show marginal cost. opportunity cost of producing one more unit Preferences& marginal benefit your likes and dislikes marginal benefit what your willing to give up to get an additional unit of something what does MB look like? Principle the more you pay off of a good, the less youre willing to pay for an additional unit. Allocative efficiency $ up the unexpended side of graph, pizza across the bottom. MC is a positive incline, MB is a negative decline at pt Awe have allocative efficiency. We cant produce more of any one godd wi thout giving up some other good that we value more highly lesson 4 recap allocative efficiency (MB=MC)Economic emersion isnt free 2 make factors Technological flip-flop oresearch and development Capital accumulation oDevote resources to production of capital Both require resources that could be used for current consumption Economic growth doesnt eli secondate scarcity Opportunity cost of growth is reduced current consumption yardbirdsuming outside your PPF. Gains from trade envisage if you produced everything you consume(Autarky) Producing one (or a few) goods and trading with others is called metier Gains from specialization come from exploiting comparative advantage Absolute Advantage More racy at somethingComparative Advantage Producing at a lower opportunity cost Ex textbook smoothie bar example On run on paper Liz lordly advantage in smoothies. And comparative advantage in smoothies Joe no absolute advantage but comparative advantage in salads Where does Comparative a dvantage come from? Over time people or countries can develop comparative advantage through repeated production. acquirement by doing (dynamic Comparative advantage) Economic Coordination? Who organizes all this? Centrally planned economy USSR, china Decentralized market system most countries Decentralized markets deposit on 4 institutionsON MIDTERM . Firms hire and organize factors of production 2. foodstuffs any arrangement that connects buyers and sellers 3. Property Rights social arrangements that govern ownership and use 4. Money any commodity or token that is generally pass judgment as a means of payment commercialises coordinate economic activity through legal injury adjustments. Lesson 5 requisite and proviso In a market system, economic coordination happens through worth adjustment Competitive markets some buyers and many sellers tolls determine the rate at which goods can be transfer Money monetary value number of dollars Relative wrong $price of one good rel ative to anotherEx coffee bean$2, gum$1 (Money), one coffee costs 2 gums want different than want To regard something you mustiness a. Want it b. Be able to afford it c. Plan to buy it legality of occupy holding everything else equal, the higher the price of the good the lower the measuring rod strikeed 2 effects cause this a. Income effect when price increases, your money doesnt buy as much b. Substitution effect when a price increases people substitute to purchasing other goods Ways of representing demand a. Demand schedule b. Demand curve When the price of this good changes we move along the demand curveChanges in Demand when things other than the price of the good change, the demand curve shifts. Things that shift demand Nature Quality Tastes/preferences Income Price of other goods oComplements consume these goods together (Ex. Shoes, always imply both) oSubstitutes consume one or the other Expected future prices Population return a upstanding supplies a good if it a . Has the resources and technology to produce it b. Can profit from producing it c. Plans to produce and sell it Law of fork out holding everything else equal, the higher the price of a good, the more is supplied The leave curveIN binder Example Changes in Supply Input prices Prices of related goods produced Expected future prices Number of suppliers applied science nature Lesson 6 Market labyrinthine sense Equilibrium a state where opposing forces balance apiece other consists of a market price and metre Changes in sense of rest (pg 74) 1. French fry demand 2. Market for cocaine 3. Market for kitchen sinks 4. Market for barrels of crude oil 5. Market for fresh orange juice Midterm exam review 20 multiple choice 2 in short answers Multiple choice charge 2points Short answers worth 10 Exam worth 60 Chapters 1-3 Ch 1 What is microeconomics Scarcity and tradeoffs What is value 2 big questions owhat how and for whom oself interest vs. social interest positive vs normative stat ements graphs in econ Ch 2 ppf and opportunity cost marginal benefit and marginal cost allocative efficiency growth specialization and trade absolute and comparative advantage economic coordination Ch3 demand curve (law of demand) causa along vs shifts of the demand curve factors that shift the demand curve supply curve (law of supply) movement along vs shifts of the supply curve factors that shift the supply curve equilibrium pg 74, 75 changes in equilibrium Lesson 7 October 11, 2011 mould demand 1. Demand schedule (table) 2. Demand curve (picture) 3. Demand equivalence Ex in notebook computer In general P=a-bQ. (a and b are some numbers) A vertical intercept B absolute value of slope simulation supply* 1. G 2. G 3. Modeling equilibrium At equilibrium price (P) quantity demanded equals quantity supplied Equilibrium quantity Q Ex finding equilibrium Demand p=800-2Q Supply P=cc+Q Make the right hand side of each equation equal 800-2Q=200+Q 600=3Q 200=Q Elasticity (Ch 4) Law of de mand when price increases quantity demanded falls This gives us direction Elasticity measures how much demand changes Ex Good X Price increases by 1$ Demand drops by 100 unts Good Y Price increases 200$ Demand drops by 1000 units Cant compare the 2 In order to compare goods we need a measure of responsiveness Price of cracking demand= % change in quantity demanded over % change in price Ex ticket price 21$- 9tickets/hr 19$-11 tickets/hr Find elasticity of demand 1. % change in quantity =change in Q =2/(over) 10 (from 9 to 11) over Average Q Fuck it. In notebook What does elasticity number mean? In notebook Lesson 8Elasticity of demand = % change in quantity demanded/ over % change in price If elasticity is 1 elastic Tuesday October 18, 2011 What affects elasticity? 1. Closeness of substitutes 2. Proportion of income spent on a good 3. epoch since price change Other Elasticities 1. Cross elasticity = %change in demand for x % change of price of good Y if X & Y are Substitutes posit ive Complements negative 2. Income elasticity = %change in demand %change in income bigger than 1 income elastic. As income increases demand increases a lot Between 0 &1 income inelastic. Income increases, demand increases by a littleNegative inferior good. Income increases, demand decreases Elasticity of Supply = % Change in quantity supplied % Change in price What affects supply elasticity? 1. Resources substitutions possibilities 2. Time frame for supply decisions competency and Equity (Ch5) Markets are one way of allocating goods Do they do a good job? A. Efficiency (do the goods go to those that value them the most? ) B. Fairness Ex. X pins how should we allocate them? 1. Contest 5 highest grades Ex sports, performance bonuses Pros May encourage effort Cons Goods may not go to those people that value them the most 2.First come, beginning serve first 5 people to show up get them Ex walk of life in clinics Pro People who value the good highly will line up early Con May get allo cated to those with a low opportunity cost of their time 3. Command System I decide who gets them Ex how tasks get allocated inside a firm Pro May work head when tasks/people are familiar and place well defined Con I cant tell who values the good the most 4. Lottery draw names from a hat. Ex. Dorm directions Pros Faireveryone gets an equal shot Cons No reason to expect that high value people will get the good 5. Majority rule voteEx, voting politicians Pro everyone gets an equal say Con special interest group 6. Personal characteristics If you have a embrown belt Ex. Relationships Pros may work if characteristic highly related to value people have for the good Cons discrimination 7. Force everybody fights Ex nonionized crime/war Cons strongest might not value the highest Pros Force can work well in the background oCourts can forcibly reallocate goods 8. Market Mechanism oWhoever is willing to pay the price gets the good Pros people who have high values are willing to pay more and are more likely to get itCons people might not have full money Tuesday October 18, 2011 Midterm 2 November 3 (Ch 4,5,6) Demand and supply Elasticity (ch 4) Efficiency and loveliness (ch 5) Obstacles to efficiency Price and quantity regulations (govt actions) Taxes and subsidies (govt actions) Externalities your actions impose costs or benefits on others Ex. Smoking. A person might take into study only their own in-person benefits and costs but ignore social costs. (second and smoke) OR. Pollution. Firm doesnt account for external social cost that its production creates. Public Goods A.Consumption by one person doesnt use up the good. B. Anyone can consume the good without paying Ex lighthouse people want to use these goods without paying. freeriding. These are usually under provided Monopoly a single firm sets the market price Price is higher, quantity is lower Fairness 1. Utilitarianism, (Jeremy bentham, John Stuart mill) The Greatest happiness for the greatest number peo ple are roughly the same the marginal value of money is lower when you have more of it Redistribute wealth to achieve equality (tax rich, subsidize poor) Problems A) levy income less income generation (work)B) taxing capital less capital produced (slower growth) C) costs in administering taxes (more fair but size of the pie shrinks) 2. Rawls theory of Justice Fairness of society judged by the well being of the person who is poorest (Equal shares of a small pie) may be worse than (unequal shares of a larger pie) 3. Fairness in Rules, not outcomes Emphasis on equality of opportunity Robert Nozick A. Strong private retention rights B. Private property should only be transferred through voluntary exchange Problems A. No room for redistribution after the fact B. No taxes or government since these arent voluntaryGovernment Actions in Markets (Ch 6) Price ceiling govt regulations that makes it illegal to charge a price higher than some specified level Set above equilibrium price= no eff ect Set below equilibrium price= Example in notebook smutty market Illegal market in which price is higher than price ceiling Graph in notebook Thursday October 27, 2011 20 m/c few short answer midterm review Note on demand on supply equations (end of ch 3) Elasticity (Ch 4) know how to calculate and know what it is Efficiency and equity (Ch 5) *consmer and producer surplus Government actions in markets (Ch 6) Price ceilings oPrice flooring oTaxes Price Floors Mandatory minimum price Ex. Minimum wage Graph in notebook Unemployment increases search costs More power to firms in hiring decisions Black markets oEx. Illegal labour markets where people are stipendiary below the min wage oIn notebook Taxes When the government taxes a good the price paid by consumers and the price received by producers are now different Ex. Govt puts a $5 (per unit) tax on producers In notebook Tuesday November 1, 2011 Midterm Thursday Material 1. Note on demand and supply equations. (end of Ch 3) 2. Ela sticity (Ch4) Price elasticity Elasticity and total revenue (figure 4. 5 in text) Cross elasticity and income elasticity Supply elasticity 3. Efficiency and equity (Ch 5) Alternative allocation methods Consumer and producer surplus Efficiency of equilibrium fairness 4. Government Actions (Ch 6) Price ceilings Price floors Taxes Tuesday November 14, 2011 Global Markets Many of the goods and services you consume arent produced in Canada Ex. Iphones (all over), clothes (china), tech support (india) reveal of the globalization process oImports goods we buy from other countries oExports goods we sell to other countriesGlobal Imports Exports in 2008 =$35 trillion Canada exports $535 billion. Agriculture, forestry, energy, mining, machinery, automotive, aircraft Imports $503 billion In binder example Tariffs a tax imposed by the importing country on goods that come from another country Arguments for protection 1. Infant industry Argument We need to protect domestic industries when they st art so that they can mature enough to compete on world markets. Develop comparative advantage Everyone can argue this 2. Barriers to trade to protect jobs. Trade costs jobs There isnt a fixed number of jobs Trade also creates jobs