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ECO 131 Week Three

by: Alexandra Wolfe

ECO 131 Week Three ECO 131

Marketplace > Miami University > Economics > ECO 131 > ECO 131 Week Three
Alexandra Wolfe

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About this Document

-Ten Principles of Economics - Supply and Demand Model
Economic perspective on inequality in America
Selcuk Misirlioglu
Class Notes
Economics, supply and demand
25 ?




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This 2 page Class Notes was uploaded by Alexandra Wolfe on Thursday September 22, 2016. The Class Notes belongs to ECO 131 at Miami University taught by Selcuk Misirlioglu in Fall 2016. Since its upload, it has received 4 views. For similar materials see Economic perspective on inequality in America in Economics at Miami University.


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Date Created: 09/22/16
ECO 131—Week Three Word = Important term word= Important idea word= Example Ten Principles of Economics (Cont.) 8. Country’s standard of living depends on its production possibilities - GDP: Gross Domestic Product - GDP in the US = 17 Trillion in 2015 - GDP Population Capital GDP 9. National Debt does not include money we owe to other countries - We are currently 19 Trillion dollars in debt - If we print too much money, it will cause inflation - Inflation: The general increase in prices and decrease in monetary value - If prices increase, monetary value decreases 10. There is a short term tradeoff between unemployment and inflation - Decreased interest rates = decrease opportunity cost in spending money -Opportunity Cost: The cost incurred by not picking the second best option - Spending Money creates jobs = less unemployment To paraphrase, Decreased interest rates allows people to feel at ease when spending money; then spending money allows forunemployment to decrease. Supply and Demand Model Assumptions for this model to work - Must have a competitive market o Competitive Market: A market where suppliers are generally free to enter and exit. - Buyers and Sellers are clearly defined - Perfect information – No seller has an advantage over other sellers - Property rights are well defined Demand - Demand: The amount of goods/ services a customer is willing and able to purchase. o Therefore, while you may want to buy a Ferrari, you do not have a demand for Ferraris - Quantity Demanded: Amount of goods/ services the customer is willing and able to purchase at a certain price point. - Law of Demand: Relationship between price and quantity demanded o Price Increases = Decrease in Quantity demanded Inverse Relationship o Price Decreases = Increase in Quantity demanded - Income Effect:The amount of money you earn versus the amount of goods/ services you can purchase o (Ex.) If you make $100 a week, and a bottle of Pop costs $2, then your monetary income is $100 but your real income is $50. - Substitution Effect: If the Price is too high then you will buy something else P 3 - 2.5 - 2 - 1.5 - 1- 5 7 9 10 12 Q -The solid line represents the Demand -The points along the line represent the Quantity Demanded IMPORTANT: CHANGE IN PRICE DOES NOT MEAN DEMAND CHANGES. CHANGE IN PRICE = CHANGE IN QUANTITY DEMANDED Determinates of demand (Demand shifters) - Income  Normal goods: Increase income = Increase Demand Decrease income = decrease Demand  Inferior Goods: Increase income = Decrease Demand Decrease income = Increase Demand  Example of inferior goods: Ramen Noodles, Thrift Stores, Check Cashers - Taste o (Ex.) Cold Weather = Hot Drink Sales Increases - Expectations o (Ex.) You know that the price is going to drop on a certain good in a few weeks so your demand decreases. - Price of Related Goods o Substitutes: Price of X Increased = Demand for Y Increases o Complements: Price of X Increased = Demand for Y Decreases  Substitute Example: The price of pencils goes up, results in the demand for pens to increase  Complement Example: The price of gas goes up, results in the demand for cars to decrease - Taxes and Subsidies o This is where the government puts their hand in the market  Example: High Tax on Cigarettes and sugary drinks - Population o Number of customers


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