advanced economics week #1
DESCRIPTION
Advanced Economics Week #1. Spring 2012. Advanced Economics 3/19/12 http://mrmilewski.com. OBJECTIVE: Examine course syllabus & beginning of class administration stuff. I. Administrative Stuff -Welcome Back -Syllabus II. Structure of the Class III. Textbook - PowerPoint PPT PresentationTRANSCRIPT
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Advanced Economics Week #1
Spring 2012
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Advanced Economics 3/19/12http://mrmilewski.com
• OBJECTIVE: Examine course syllabus & beginning of class administration stuff.
• I. Administrative Stuff-Welcome Back -Syllabus
• II. Structure of the Class• III. Textbook• Notice: 62 Days until the Senior’s Last Day!
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Advanced Economics 3/20/12http://mrmilewski.com
• OBJECTIVE: Examine the fundamental economic concepts from Chapters#1&2.
• I. Journal#1 pt.A-Watch the following:-Colorado Students Begin to Learn Financial
Discipline• II. Journal#1 pt.B
-notes on microeconomics (Chapters#1&2)• Notice: 61 Days until the Senior’s Last Day!
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The Fundamental Economic problem is:• Scarcity - the condition that results from society not
having enough resources to produce all the things people would like to have.
• Since people have unlimited wants & limited resources, scarcity leads to choices.1.) What to produce?2.) How to produce?3.) For whom to produce?
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The Factors of Production• LAND – the gifts of nature• LABOR – people with all their efforts & abilities• CAPITAL – the tools, equipment, machinery, and
factories used in the production of goods & services
• ENTREPRENEURS – a risk taker in search of profits who does something new with existing resources
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The Circular Flow of Economic Activity
http://upload.wikimedia.org/wikipedia/commons/thumb/b/b8/Circular_flow_of_goods_income.png/350px-Circular_flow_of_goods_income.png
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Division of Labor• Division of Labor – work
is arranged so individuals do fewer tasks than before.
• Specialization – factors of production perform tasks more efficiently than others.
• Human Capital – the sum of the skills, abilities, health, and motivation of the people.
http://cdn.fuuzio.com/assets/Fuuzio-Main-Site-Template/images/adam-smith.jpg
Adam Smith – Wealth of Nations 1776
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Production Possibilities Frontier• PPF is a diagram that
represents various combinations of goods and/or services an economy can produce when all productive resources are fully employed.
• See Figure 1.6 page23
http://upload.wikimedia.org/wikipedia/commons/thumb/4/4c/PPF_opportunity_cost.svg/220px-PPF_opportunity_cost.svg.png
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Trade-offs & Opportunity Costs • Trade-offs – alternate
choices• Opportunity costs –
the cost of the next best alternative use of money, time, or resources when one choice is made rather than another. http://reason.com/assets/mc/psuderman/2012_02/simpdoc.gif
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Types of Economic Systems
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Roles in Market Economy• Entrepreneur –
-organizes land, labor, and capital in order to make a profit • Consumer –
-determines what is made “the customer is always right”• Government –
-protector of private property, enforcer of contracts, and definer of fairness-provider of services like defense, education, and public welfare-consumer of goods-regulator charged with preserving competition-promoter of national goals
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Advanced Economics 3/21/12http://mrmilewski.com
• OBJECTIVE: Examine the fundamental economic concepts from Chapters#3&4.
• I. Journal#2 pt.A-Watch the following:-Video: Wants vs. Needs
• II. Journal#2 pt.B-notes on microeconomics (Chapters#3&4)
• III. Notice: 60 Days until the Senior’s Last Day!
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Price stability• Price stability adds a degree of certainty to the
future.• If inflation–a rise in the general level of prices–
occurs, workers need more money to pay for food, clothing, and shelter.
• How inflation works:-Wendy’s Jr. Cheese Deluxe-Cost $.99
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CPI• Consumer Price Index – an index
used to measure price changes for a basket of frequently used common items.
• The CPI reports on price changes for 90,000 items in 364 categories from 85 geographic areas of the country and are compared to their 1982-84 base year prices.
• Produce Price Index – measure price changes paid by domestic consumers for their inputs and is based on a sample of about 100,000 commodities and uses 1982 as the base year.
http://www.danielstrading.com/resources/newsletter/2011/03/15/comparitive-consumer-price-index.png
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Types of Firms• Sole proprietorship – a business owned and run by one
person. • Partnerships – business jointly owned by two or more
persons.• There are two types of partnerships:
*general partnerships – all partners actively run the business*limited partnership – at least one partner is not active in running the business
• Corporation – a form of business organization that is recognized by the law as having all the legal rights of an individual.
• They have the right to buy & sell property, enter into legal contracts, and to sue & be sued.
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What is demand?• Demand – the desire, ability, and willingness to
buy a product.• In a market economy, you compete with other
consumers who demand the same products as you.• If a lot of people demand the same product, the
price will rise.• If there are a lot of the same product, and very few
people who demand it, the price will fall.
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Simplistic view of demand• As price increases, demand decreases• As price decreases, demand increases• This is an inverse relationship• When an inverse relationship is graphed,
the slope is negative
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Demand Changes• Change in quantity
demanded – movement along the demand curve
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Demand Changes
• Change in demand – shift in the demand curve
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Elasticity• Elasticity – a measure of responsiveness that tells
how a dependent variable such as quantity responds to an independent variable such as price.
• 3 Types of Demand Elasticity Elastic Demand - A small change in price causes a
big change in quantity demanded Inelastic Demand - A big change in price causes a
small change in quantity demanded Unit Elastic Demand - Any change in price causes a
proportional change in quantity demanded
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Advanced Economics 3/22/12http://mrmilewski.com
• OBJECTIVE: Examine the fundamental economic concepts from Chapter#4.
• I. Journal#3 pt.A-Watch the following:-How Uncertainty, Speculation Factor Into Gas
Prices• II. Journal#3 pt.B
-notes on microeconomics (Chapter#4)• Notice: 59 Days until the Senior’s Last Day!
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Change in Demand v. Change in Quantity Demanded
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Elastic Demand• A small change in price causes a big change
in quantity demanded.• Slope is less than -1• Example
-fresh foods (green beans, tomatoes, apples)
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Inelastic Demand• A big change in price causes a small change
in quantity demanded.• Slope is greater than -1• Examples:
-table salt-gasoline
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Unit Elastic Demand• Any change in price causes a proportional
change in quantity demanded.• Slope equals -1
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Elasticity Formulas• Formula to determine elasticity
% change in Q = elasticity% change in P
• Formula to determine % change in P or Q(NEW P or Q) – 1 = decimal equivalent(OLD P or Q)
• Answer x 100 = % Change in P or Q.
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Example #1• The manufacturer of a pain medication
reduces the price for medication by 30% and the percent change in quantity demanded is 30%. What is the elasticity for the pain medication?
• % change in Q = 30%• % change in P = -30%• Elasticity = -1
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Example #2
• A Chinese Buffet increased prices from $4.95 all you can eat to $5.95 all you can eat. The number of big eaters went from 58 to 36. What is the elasticity for All You Can Eat Chinese?
• First we need to figure out the % change in P & the % change in Q.
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Chinese Buffet• % change in P• NEW P = 5.95• OLD P = 4.95
(5.95) – 1 =(4.95)
• .20• 20%
• % change in Q• NEW Q = 36• OLD Q = 58
(36) – 1 =(58)
• -.37• -37%
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Chinese Buffet• % change in Q =-37%• % change in P =20%
-37% = 20%
• Elasticity = -1.85
• The elasticity for the Chinese Buffet is elastic
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If you owned the Chinese Buffet, would you keep the price of the Buffet at 5.95?
• 5.95 x 36 = $214.20• 4.95 x 58 = $287.10
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Law of Supply• The principle that suppliers will
normally offer more for sale at higher prices and less at lower prices.
• As price goes up, quantity produced also goes up
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Supply Curve• At high prices more
will be supplied. At lower prices, less will be supplied.
• Price and quantity supplied are directly related.
• The drawing to the right is a typical supply curve.
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Change in supply• A change in supply
occurs when something happens to cause suppliers to offer different amounts of products for each price in the market.
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Advanced Economics 3/23/12http://mrmilewski.com
• OBJECTIVE: Examine the fundamental economic concepts from Chapters#5&6.
• I. Journal#4 pt.A-Watch the following:-NBR
• II. Journal#4 pt.B-notes on microeconomics (Chapters#5&6)
• Notice: 58 Days until the Senior’s Last Day!
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What can cause a change in supply to the right?• Lower cost of inputs such as
cheaper labor or cheaper packaging
• More productive/better trained labor.
• New technology like more fuel efficient delivery vehicles, better/faster machines
• Lower taxes/government subsidies (subsidy is a government payment to an individual or business to encourage or protect a certain economic activity.)
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What can cause a change in supply to the left?• More expensive labor• Higher taxes• Less efficient workers• Broken technology• Withdrawal of
subsidies
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Supply ElasticityType of Elasticity Change in Quantity
Supplied Due to a Change in Price
Elastic More than proportional
Unit Elastic Proportional
Inelastic Less than proportional
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Supply Elasticity• Supply elasticity is caused by the ability of
a producer to change output. • If producers can increase output quickly,
supply is elastic.• If producers can not increase output
quickly, supply is inelastic.
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Theory of Production• The relationship between the factors of
production (land, labor, capital, entrepreneurs) and output of goods and services.
• Short run – change in the variable of labor• Long run – change in land & capital
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Law of Variable Proportions• Stage I – Increasing returns
*output rises at an increasingly faster rate (each new worker makes more than the previous worker did)
• Stage II – Diminishing returns*output rises at a diminishing rate (each new worker increases output, but not as much as the previous worker did)
• Stage III – Negative returns *output decreases as each new worker is added
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Where will profits be maximized?• When marginal
cost & marginal revenue are equal.
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How is price determined?• Price is determined
by the intersection of supply & demand.
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Prices as Signals• Price – the monetary value of a product as
established by supply & demand.• Price is a signal that helps us make
economic decisions.• High prices are a signal for producers to
produce more and consumers to buy less.• Low prices are a signal for producers to
produce less and consumers to buy more.
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Inelastic Demand v. Elastic DemandFigure 6.3a Figure 6.3b