ECON 2105, Week 2 Notes
ECON 2105, Week 2 Notes ECON 2105
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This 4 page Class Notes was uploaded by Randi on Sunday August 28, 2016. The Class Notes belongs to ECON 2105 at University of Georgia taught by McWhite in Summer 2016. Since its upload, it has received 17 views. For similar materials see Macroeconomics in Macro Economics at University of Georgia.
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Date Created: 08/28/16
Week 2 Notes ECON 2105 PROF. MCWHITE HOW DO WE STUDY MARKETS? CONCEPTS: • Ceteris paribus – “Other things the same” o This term is used to describe static analysis of markets o In a theoretical/perfect market where everything holds constant, what will we observe? • De qustibus non es disputandum – “To each his own” o This term means there is no accounting for tastes/preferences of individuals o Every person has their own likes and dislikes • PRODUCTION POSSIBILITIES FRONTIER (PPF) o Economist use the PPF to show combinations of outputs in an economy given the available factors of production and the production technology o The PPF demonstrates that the economy is constrained by the ability to produce § One product must be given up in order to produce a different product. • At point A, more units of Good A are being produced than Good B. • Point B is not on the PPF curve. There are not enough resources in this market to obtain this output. • Point C displays that the market is under producing and not maximizing their • resources. • At point D, more of Good B is being produced. Week 2 Notes o A PPF shows: § Efficiency: Optimal use of resources § Tade-‐Offs: Constraints to what’s possible, forcing a substitution of one thing to attain another § Opportunity cost: highest forgone alternative § Economic growth: Increase in output • Comparative advantage o Comparative advantage deals with the differences in opportunity costs between producers. This is the basis for specialized production and trade! o Who is the low-‐cost producer of a good? § Who has the lowest opportunity cost of producing a good? • Absolute advantage o The ability to produce more of a good in comparison to someone else *Just because a producer may have absolute advantage, does not mean they have comparative advantage!!! For example: Hotdogs Buns Murr 20 10 Sal 90 30 Sal has absolute advantage in the production of both hotdogs and buns because he can produce the most. However, Murr has the comparative advantage in the production of buns because he has the lowest opportunity cost. For every 1 bun he produces, he only gives up producing 2 hamburgers, while Sal gives up 3: Murr: 20 Hamburgers = 10 Buns 1 Bun = 2 Hamburgers 10 10 Sal: 90 Hamburgers = 30 Buns 1 Bun = 3 Hamburgers 30 30 On the other hand, Sal has comparative advantage in the production of hamburgers. For every hamburger he produces, he only gives up 1/3 of a bun, while Murr gives up 1/2 a bun: Murr: 20 Hamburgers = 10 Buns 1 Hamburger = 1/2 Bun 20 20 Sal: 90 Hamburgers = 30 Buns 1 Hamburger = 1/3 Bun 90 90 Week 2 Notes WHAT DO WE KNOW ABOUT THE MARKET/TRADE? Ø Unemployment is about people trying to trade their skills. Ø Taxes affect trade, as well as monetary policy Ø Competition is good for the consumer o It allows them to pay lower prices than what they would in a monopoly Ø Being self-‐sufficient (independent) is time consuming… it is easier to trade. Ø Patterns of production/trade depend on opportunity costs Ø Trade makes us interdependent o People are better off when they specialize in what they are best at and then trade that skill/product with others VOCAB: • Consumer good: o Any good that’s produced for present consumption o Satisfies wants now • Capital goods: o These goods help in the production of other valuable goods/services in the future o For example: roads/trucks/computers/factories/education • Investment: o Investing is where someone uses their resources to create/buy new capital • Competitive market: o There are so many buyers/sellers that each has a negligible impact on the market § This means that because there is such a large quantity of people in the market, if one person decides not to buy or sell a product, it’s not going to make a difference. The market will continue on unaffected o There are little to non transaction costs § Transaction costs are the time/money/effort spent before buying a good o All information is known by both groups • Quantity Demanded: o The amount of a good buyers are willing and able to purchase Week 2 Notes § You must be willing AND able to be apart of this market § Quantity demanded is different from Demand! • Law of Demand: o Ceteris paribus o As prices decrease, quantity demanded of a good will increase o As prices increase, quantity demanded of a good will decrease § This is an inverse relationship!! o ONLY a change in PRICE causes a change in QUANTITY DEMANDED What causes a change in DEMAND? Everything EXCPET price of the product! • Consumer income • Prices of related goods • Consumer tastes • Expectations of future events • Number of buyers in the market
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