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ASU / Economics / ECN 212 / What are the laws of supply and demand?

What are the laws of supply and demand?

What are the laws of supply and demand?

Description

School: Arizona State University
Department: Economics
Course: Microeconomic Principles
Professor: William foster
Term: Spring 2016
Tags: economy
Cost: 25
Name: ECN212 Week 02 Note
Description: Introduction #2- The Economic Approach (Social Science) ** If you would like an original pdf file, please contact me via my email Phoebe.Chang@asu.edu **
Uploaded: 01/21/2016
4 Pages 98 Views 1 Unlocks
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ECN 212 Introduction #2


What are the laws of supply and demand?



SpringSEMESTER 2016

Professor: Dr. William Foster

Elite Notetaker: Phoebe (phoebe@studysoup.com)

1. Political Planning (Socialism)

○ Political organization = alternative to the use of markets

○ Government decide what how and for whom goods and services will be produced

○ Democratic political planning


What are the secondary effects of supply and demand?



■ Election prospects is an important factor to consider for political decision makers

○ Socialism

■ The government owns income-producing assets

■ The government directly decide what goods to produce

■ E.g. Margaret Thatcher

● Created financial mess

● Spending too much other’s money

2. Laws of Supply and Demand has consequences

○ Consequences

■ Trying to control prices will have unwanted reactions Don't forget about the age old question of Who is poultney bigelow?

■ Trying to control quantity will have reactions too

■ Good intentions might not have good results


What are the resources in production?



■ E.g. Prohibition, new restriction laws, black markets

○ Cannot ignore the demand and supply desire

○ Secondary Effects are important

■ Increasing bad behavior due to insurance, car safety equipment (E.g. Apple Care, Seatbelt, etc)

■ Price Controls (E.g. minimum wage, rent control)

1Don't forget about the age old question of What is the content of the ideal gas law?

Don't forget about the age old question of What are the main themes and thematic structure?

3. Definitions

○ Microeconomic

■ aka Price Theory

■ Branch of economic that focus on smaller human units

■ E.g. individuals households, small businesses decisions

○ Macroeconomic

■ Branch of economic that focus on a complex human

■ How human behavior affects outcomes in highly aggregated markets (E.g. labor / consumer products) If you want to learn more check out What is the study of the overall aspects and workings of an economy?

○ Theory

■ Shows connections of facts

■ Based on assumptions

■ Need confirmation of the fact

■ Then can be used to predict and explain real-world situations without justification since it’s proven already

■ Can show cause-and-effects

○ Models

■ Based on someone else’s feet

■ Built to simplify things and reduce dimensions of the world

○ Association / Correlation

■ Doesn’t show causation

■ Statistics never allow us to prove cause-and-effects If you want to learn more check out How to find the temperature in fahrenheit?

○ Fallacy of Composition

■ The wrong concept of ‘individual view = group views'

4. Interest of Economists Don't forget about the age old question of Expensive income statements refer to what?

○ Positive Analysis

■ “What is” = facts

■ The actual relationship between different aspects of the world

■ Can be supported or corroborated by evidence

■ E.g. The increase in the cost of diving insurance due to DUI (measuring dollars)

○ Normative Analysis

■ “What ought to be"

2

■ An opinion that is involved with some judgement

■ Cannot be supported or corroborated by evidence

■ NOT discussed in economics because cannot share same values with everyone

5. Trade

○ Foundation of the trade = mutual gain

○ Value

■ Created by exchanges

■ Letting go least value items

■ Getting more value items

○ Transaction costs

■ Time

■ Effort

■ Resources needed to be used for a trade

■ Reduce our ability to gain from potential trades

○ Middlemen

■ Person who buys, sells or arranges trades

■ Reduce transaction costs

■ E.g. Online selling websites, local grocer

6. Production Possibilities Frontier

○ Frontier

■ Due to limited resource, there are limitations for input and output

○ Resources in production

■ Capital

■ Entrepreneurship

■ Labor

■ Land

○ Production possibilities curve (PPC)

■ On the PPC = efficient

■ In the PPC = inefficient

■ Out of the PPC = impossible

○ Shifting PPC Outward

3

■ Increase in economy resources

■ Advancing technology

■ Improvement in rules of economy

■ Increasing labor and work time

● E.g. WWII increase of PPC

7. Division of Labor

○ Break down the production to different tasks

○ Specialization + Division of Labor = Increase Output

■ Allow individuals take advantages of their existing skills

■ Allow individuals to expertise on certain skill

■ Allows for mass production technology to work

8. Law of comparative advantage

○ When one specialize on a good that has lower opportunity cost, one will have an increase on the total economic welfare

○ Having absolute advantage​at all production doesn’t mean you will have advantage on all comparative advantage

○ Opportunity cost calculation = losing / gaining

○ Example

■ German vs French Production (mL)

● Beer: 60 vs 30

● Wine: 20 vs 15

■ German production opportunity cost

● 1 mL Beer: 20/60=1/3 wine

● 1 mL Wine: 60/20=3 beer

■ French production opportunity cost

● 1mL Beer: 15/30=1/2 wine

● 1mL Wine: 30/15=2 beer

■ Conclusion

● German produces beer

● French produces wine

● Due to having lower opportunity cost in each item

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