Transcript Document

Economics 10/10/11
mrmilewski.com
• OBJECTIVE: Demonstration of Chapter#5 and begin
examination of price. MCSS E-1.2.2
• I. Administrative Stuff
-attendance & distribution of test
• II. Chapter#5 Test
• III. Journal #19 pt.A
-Read “Business Week Newsclip” p.126
-Answer questions (1-2) p.126
• IV. Journal #19 pt.B
-notes on prices
• V. Journal#19 pt.C Film: I Pencil
• NOTICE: Journals 11-20 Due Wednesday!
How is price determined?
• Price is determined
by the intersection
of supply &
demand.
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.
Advantages of Prices
• 1.) Prices in a competitive market favor
neither the producer nor the consumer.
• 2.) Prices in a market economy are
flexible.
• 3.) Prices have no administrative costs and
answer the questions WHAT, HOW, and
for WHOM to produce.
• 4.) You have known it your entire life.
Life without prices?
• Prices help allocate scarce resources, but
what if there was no such thing as price?
• Rationing – the government determines
everyone’s “fair” share.
• Problem with determining what is fair.
• High administrative stuff (cost,
enforcement, etc)
• No incentive to work hard.
I Pencil
Questions on “I Pencil”
• 1.) What does Milton Friedman mean by saying
there is nobody in the world who knows how to
make a pencil?
• 2.) What kind of transaction makes a free market
possible?
• 3.) What must be true for all parties in a
voluntary transaction?
• 4.) What is the price system?
• 5.) What is the zero-sum game philosophy?
• 6.) What is meant by the invisible hand?
Economics 10/11/11
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• OBJECTIVE: Examine how change in demand can
affect the prices of goods. MCSS E-1.3.3
• I. Journal #20 pt.A
-Read “Profiles in Economics” p.141
-Answer question #1 p.141
• II. Quiz#11
• III. Return of Chapter#5 Test
• IV. Journal#20 pt.B
-notes on how inelastic & elastic demand effects prices
• V. Journal#20 pt.C
-Questions on NBR
NOTICE: Journals 11-20 Due Tomorrow!
How is price determined?
• Price is determined by
the intersection of the
supply and demand
curves.
Inelastic Demand v. Elastic Demand
Figure 6.3a
Figure 6.3b
Changes in Demand
• A change in demand, like a change in
supply, can also affect the price of a good or
service.
• All of the factors we examined in Chapter
4–changes in income, tastes, prices of
related products, expectations, and the
number of consumers–affect the market
demand for goods and services.
Demand for Gold
Figure 6.4
• One example is the
demand for gold.
Figure 6.4 shows why
gold prices have
changed so
dramatically over a
20-year period.
Why Gold Prices Fell
• Whenever economic conditions or political instability
threatens, people tend to increase their demand for gold
and drive the price up.
• Whenever the supply of gold increases dramatically–as
when a major holder of gold like the Bank of England sells
half of its gold holdings–the supply of gold increases,
driving the price down.
• Price of gold 10/26/06: $584.40
• Price of gold 10/6/08: $886.40
• Price of gold 1/20/09: $846.94
• Price of gold 10/13/09: $1066.07
• Price of gold 10/11/10: $1340.36
2 Year Gold Price
10 Year Gold
36 Year Gold
NBR – segments 6-7
• 1.) Why did farmers adjust their milk
production following the holiday season of
1998?
• 2.) Why did Kodak cut jobs in 1999?
• 3.) What does leaner & meaner mean?
• 4.) What is the elasticity of vacation homes?
• 5.) What is the elasticity of prescription
drugs?
Economics 10/12/11
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• OBJECTIVE: Examine the success of Wal-mart & its
effect on the United States. MCSS E-1.2.2&E-2.1.9
• I. Administrative Stuff
-Attendance
-Journals 11-20 Due!
• II. Frontline: “Is Wal-mart Good for America?”
-questions on film about Wal-mart
• NOTICE: Chapter#6 Test Monday!
Economics 10/13/11
http://mrmilewski.com
• OBJECTIVE: Examine the price system at work.
MCSS E-1.4.1
• I. Journal#21 pt.A
-Read “The Global Economy” p.138
-Answer questions (1-2) p.138
• II. Journal#21 pt.B
-notes on the price system at work
• III. Mindjogger
-video quiz on price
Price Adjustment Process
• “Because transactions in a market economy
are voluntary, the compromise that
eventually takes place must be to the benefit
of both parties, or the compromise would
not occur in the first place.” p.142
Market Equilibrium
• When prices are relatively stable, and the
quantity of goods and services supplied is
equal to the quantity demanded.
Surplus & Shortage
• Surplus – a situation in which the quantity
supplied is greater than the quantity
demanded at a given price.
• Shortage – a situation in which the quantity
demanded is greater than the quantity
supplied at a given price.
The Price Adjustment Process
Explaining and Predicting Prices
• Economists use market models to explain how
the world around us works and predict how
certain events such as changes in prices might
occur.
• A change in price is normally the result of a
change in supply, a change in demand, or
changes in both.
• Elasticity of demand is also important when
predicting prices.
Inelastic Demand v. Elastic Demand
Figure 6.3a
Figure 6.3b
Economic goals
• The seven broad economic and social goals we
examined in Chapter #2 often conflict with each
other. This is why the government has been
playing a larger role in the economy than someone
like Adam Smith would have liked.
• One way the government tries to achieve equity
and security is by setting prices at “socially
desirable” levels.
• What does “socially desirable” mean?
Distorting Market Outcomes
• Price ceiling – a maximum legal price that can be
charged for a product.
• Price ceilings can be found in places like NYC
who put rent controls on housing in an attempt to
make it affordable.
• Price floor – the lowest legal price that can be
paid for a good or service.
• Minimum wage – the lowest legal wage that can
be paid to most workers is an example of a price
floor.
Rent control
• For example, without rent controls the equilibrium
price for housing in NYC might be $900 per
month. At this price, suppliers would be willing
to provide 2 million units of housing.
• REMINDERS:
Law of Demand – as price drops quantity demanded increases.
Law of Supply – as price drops quantity supplied decreases.
• If NYC were to put a price ceiling of $600 per
month on rent, what would happen to quantity
demanded? What about quantity supplied?
• What is it called when quantity demanded exceeds
quantity supplied?
Rent control in NYC
Federal Minimum Wage
Economics 10/14/11
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• OBJECTIVE: Begin examination of taxes.
MCSS E-1.4.3
• I. Journal #22 pt.A
-Examine “Economics at a Glance” p.225
-Answer question #1 p.225
• II. Quiz#12
• III. Journal #22 pt.B
-notes on taxes
• III. Tax Film
• NOTICE: Chapter#6 Test Monday!
Chapter#9
• We will cover sections (1-3)
• Section#4 can take a long walk off a short
pier.
Why taxes?
• An enormous amount of money is required to run
the federal, state, and local governments of the
United States.
• Total revenue collections by all levels of
government have grown dramatically over the
years.
• Even when adjusted for inflation and population
growth, these revenues increased by nearly 800%
since 1940.
Figure 9.1
Growth of Taxes
Economic Impact of Taxes
• Taxes and other gov’t revenues influence the
economy.
• It affects resource allocation, consumer behavior,
and the nation’s productivity and growth.
• The burden of a tax does not always fall on the
party being taxed, because some of the tax can be
transferred to others.
Figure 9.3
Types of Taxes
Taxing Suppliers
http://www.heritage.org/Research/Taxes/images/11632469.gif
• A tax placed on a good or
service at the factory
raises the cost of
production, which shifts
the supply curve to the
left.
• If demand remains
unchanged, the
equilibrium price of the
product goes up.
• People react to the higher
price in a predictable
manner–they buy less.
Corporate Tax Rates
Criteria for Effective Taxes
http://www.businessweek.com/the_thread/economicsunbound/archives/texttaxprogressive_4142_image001.gif
• Some taxes will
always be needed,
so we want to make
them as effective as
possible.
• Taxes must meet
three criteria:
• 1.) equitable
• 2.) simple
• 3.) efficient
Quintiles
Minimum household income
Lowest Quintile $0
Second Quintile $17,900
Middle Quintile $30,500
Fourth Quintile $45,200
Highest Quintile $67,400
Top 1% $307,500
Simple v. Complex Taxes
• Individual income
tax–the tax on
people’s earnings–is a
prime example of a
complex tax.
• Sales tax–a general
tax levied on most
consumer purchases–
is much simpler.
Sin Tax
• Often taxes are used
to encourage or
discourage certain
types of activities.
• Sin taxes are designed
to raise revenue and
reduce consumption
of a socially
undesirable product.
http://msnbcmedia4.msn.com/i/msnbc/Components/Art/BUSINESS/070215/CigaretteTax.gif