Transcript Document

ECONOMICS
- “Science of scarcity”
-the study of the choices people make in an effort to satisfy
their unlimited needs and wants from limited resources.
The science of “scarcity”
Then, after many
With pressure from
At first the job seeker rejections, he
bill collectors (and his
optimistically looks becomes a reluctant
wife), he holds up a
for his next job.
discouraged worker. 7-11 & shoots a clerk.
And his kids will
And – the Texas
Eventually he is cry because they Justice System will
tell him to,
no longer can go
caught and
incarcerated. to private school. “Take that.”
And – how did President George W.
Bush do in college economics?
Let’s take a look at his
college transcript.
Gov 73 /71
Econ 71/ 72
“So - If your son or daughter
is having a hard
Kerry’s overall college ave. was 76.
Overall average 77
time in economics, don’t worry about it. They are
on schedule to be President of the United States.”
iPod
Nano
$250.00
D
Reasons For Downsloping “D” Curve
1. Income Effect –current buyers buy more.
2. Substitution Effect– new buyers now purchase.
3. Diminishing Marginal Utility - because buyers
of successive units receive less marginal utility,
they will buy more only when the price is lowered.
Change in QD
1. Price change
2. Movement
Price
QD
[up/down the demand curve]
3. Point to point [along the curve]
Inverse
relationship
“D” refers to the
“whole
curve”. [“all prices”]
QD
1 QD2
“QD” refers to a “point on the curve”
based on a “particular price.”
“Demand Shifters” [TIMER]
1.
2.
3.
4.
Taste [direct]
Income [normal-direct] [inferior-inverse]
Market Size [number of consumers-direct]
Expectations [of consumers about future *price-direct,
about future availability-inverse, or about future income–direct.
5. Related Good *Prices [substitutes-direct] [complements-inverse]
D3
D
1
D3
D1 D2
P
Butter
D1
D2
P
P2
Complement
[inverse]
P
P1
D
QD1 QD2
Bread
Substitute
[Direct]
Bagels
Changes in “D” [curve]
1. Non price change [“TIMER”]
2. Whole “D” curve shifts
QD3 QD1 QD2
[There is a change in “QD” but it is
not caused by a change in “price.”
[QD-”single price”; D-”all prices”]
C
Consumption
Mariah Carey Concert
1. “Non price Level” change-either C, Ig, G, or Xn
2. “Whole AD curve” shifts
[There is a change in AQD but it is not caused by
a change in price level.]
Ig
AD1 AD2
AD3
G
PL
Let there be more
military weapons
XN
Chevy
Ferarri
[Exports-Imports]
AQD3 AQD1 AQD2 RDO
Price Level increases; AQS increases
Direct
Price Level decreases; AQS decreases
“AS” refers to the “whole AS curve” & refers to “all price levels”
“AQS” refers to a “point on the AS curve” & refers to a “particular price level”
Change in “AQS”
1. Price Level change
2. Movement (up/down) “AS” curve)
3. Point to point (along “AS” curve)
AS
PL2
PL1
AQS1 AQS2
Reasons For Upsloping “AS” Curve
1. There is increasing opportunity cost if firms don’t produce.
2. Current producers produce more [overtime/more shifts]
3. New producers are attracted to the market.
Tax $
Ben Stein’s part in this
movie as a boring econ
prof was voted one of the
50 most famous scenes
in American film.
0%
Tax Rate
100%
Ben Stein [from “Ferris Bueler’s Day Off”] graduated from
Columbia University in 1966 with a degree in economics
and from Yale Law School in 1970 as valedictorian. He was
a speech writer for Nixon. He has written 16 books, including
his latest humor book, “How To Ruin Your Life”.
Adaptive expectations view - SRPC & LRPC
There is a SRPC [output prices are changing] and a LRPC
[output & input prices chg after unanticipated inflation or disinflation]
LRPC - when unemployment = the natural rate and there is
no tendency for PL to be incr/decr. PL is stable & contracts reflect it.
LRPC
My salary just
isn’t keeping up.
Let’s say that inflation
has averaged 3% for three
years. 3% is anticipated.
15%
SRPC3
Wow, my raise exceeds inflation.
12%
But my raise
was only 6%.
SRPC2
9%
b3
a3
b2
SRPC1
a2
6%
But my salary went up
by only 3%.
3%
0
But when it comes time to sign
a new contract, his boss says …
It can’t get any better.
My raises exceed inflation.
c3
b1
a1
c2
Inflat.
Gap
2%
4%
Recess.
Gap
6%
Let’s say that inflation
has averaged 9% for
the past few years.
9% is anticipated.
C1
8%
10%