Econ-1200 Week 1
Econ-1200 Week 1 1200
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This 3 page Class Notes was uploaded by Chris Fall on Friday January 29, 2016. The Class Notes belongs to 1200 at Rensselaer Polytechnic Institute taught by Sarah M. Parrales in Spring 2016. Since its upload, it has received 147 views. For similar materials see INTRODUCTORY ECONOMICS in Economcs at Rensselaer Polytechnic Institute.
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Date Created: 01/29/16
Chris Fall 2/3/16 Intro to Economics Lecture Video Note Set 2 Section 2.4 1. Circular Flow Model 1.1.Visual model of the market economy which shows how economic players interact and control the market 1.1.1. Market: a group of buyers/sellers of a good/service, and the facilities by which they meet to trade 184.108.40.206. Buyers give demand 220.127.116.11. Sellers are the supply 18.104.22.168. The facilities can be on either side of the issue 1.2.The Players 1.2.1. Firms, Gov’t and Households 1.3.The Markets 1.3.1. Product Market: market for goods and services 22.214.171.124. Households buy/demand from firms and firms sell/supply to households in this market 1.3.2. Factor Market: market for input into the processes of producing goods and services 126.96.36.199. Firms buy/demand from households and households sell/supply to firms this market 1.3.3. These two markets combine to create a “circular” flow of money between the two sides, before the gov’t steps in 1.3.4. Profit = Revenue – Cost 188.8.131.52. Revenue and Profit are NOT the same 1.3.5. The Gov’t Input 184.108.40.206. In the product market, they receive goods and services they need to function as a gov’t, but also pays for these goods and services 220.127.116.11. In the factor market, the government pays for land and labor 18.104.22.168. The government also supplies public duties, such as a police force, roads, and various other similar products to firms and consumers, and in return they pay various taxes to help with the upkeep of these duties 22.214.171.124. Lastly, the government provides subsidiaries to certain companies who they feel have promise and just need some help getting off the ground, and also provide certain payments, such as Social Security and Welfare, to the consumers Section 3.1 1. Explaining Trade 1.1.2 Countries: US and Japan 1.2.2 Industries: computer and wheat 1.3.Product Specs 1.3.1. US 126.96.36.199. Hours needed to make 1 ton of wheat = 10 188.8.131.52. Hours needed to make 1 computer = 100 184.108.40.206. Available labor hours = 50,000 1.3.2. Japan 220.127.116.11. Hours needed to make 1 ton of wheat = 25 18.104.22.168. Hours needed to make 1 computer = 125 22.214.171.124. Available labor hours = 30,000 Production Possibilities US Japan Frontier Hours for 1 ton of wheat 10 Hours 25 Hours Hours for 1 computer 100 Hours 125 Hours Available Labor Hours 50,000 Hours 30,000 Hours Max Wheat possible 5,000 Tons 1,200 Tons Max Computers possible 500 Computers 240 Computers An Even split of Labor 2,500 Tons of Wheat, 250 600 Tons of Wheat, 120 hours gives(w/o trade): Computers Computers Consumption without Wheat Computers Trade US 2,500 Tons 250 Computers Japan 600 Tons 120 Computers 1.3.3. Advantages in Production 126.96.36.199. Absolute advantage: the ability to produce a good using fewer inputs than a competitor 188.8.131.52.1. In this example, the US has the absolute advantage over Japan 184.108.40.206. Despite this, it is possible that both countries can gain from a trade 220.127.116.11. Comparative advantage: the ability to produce a good at a lower cost than a competitor 18.104.22.168. Specialization in the activity in which a producer has a comparative advantage will improve productivity Section 3.2 1. Using the Previous US/Japan example Opportunity Cost US Japan Giving up 1 Ton of Wheat 1/10 of a Computer 1/5 of a Computer can make: Giving up 1 Computer can 10 Tons of Wheat 5 Tons of Wheat make: 1.1.These numbers will always be reciprocals in a linear PPF such as this 1.2.Who has the Comparative Advantage? 1.2.1. In terms of wheat, the United States has the comparative advantage, while Japan has the comparative advantage in computers 1.3.Possible Specialization Scenario 1.3.1. The US will specialize more in wheat, producing 3,400 tons of wheat and 160 computers 1.3.2. Japan will specialize more in computers, producing 240 computers 1.4.Proposed Trading Scenario 1.4.1. US will trade 700 American-grown tons of wheat for 110 Japanese computers Consumption with Trade Wheat Computers US 2,700 Tons 270 Computers Japan 700 Tons(from America) 130 Computers Gains from Trade Wheat Computers US +200 Tons +20 Computers Japan +100 Tons +10 Computers 1.5.When countries specialize in producing in a good for which they have a comparative advantage and trade for what they don’t produce, they can reach levels of consumption that before were deemed impossible Section 3.3 1. Gains from trade are made possible by differences in comparative advantage and the terms of trade 2. “Terms of trade” refers to the price at which one good trades for another 3. In the US/Japan example, the terms of trade can be found by using the trade proposed 3.1. 700 Tons of Wheat = 110 Computers 4. As a result, 1 Ton of Wheat is equal to 0.16 Computers, and 1 Computer is equal to 6.4 Tons of Wheat 5. Gains from trade exist when the term of trade of a good lies between the range of opportunity costs
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