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Macro Economics Week 2

by: Cassie Lee

Macro Economics Week 2 Econ 401

Cassie Lee

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Lecture 2,3 and 4
Marco Vincenzi
Class Notes
PPF, Law of Demand and Law of supply
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This 4 page Class Notes was uploaded by Cassie Lee on Thursday October 6, 2016. The Class Notes belongs to Econ 401 at University of New Hampshire taught by Marco Vincenzi in Fall 2016. Since its upload, it has received 2 views. For similar materials see Macroeconomics in Economics at University of New Hampshire.

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Date Created: 10/06/16
Lecture 2 (continued) September 6, 2016 GAINS FROM TRADE MOVE BEYOND THE PPF (figure 2.5) Specialization and trade can move beyond the PPF:  1. Clearly show the level of consumption before trade on each PPF You Mary 8 lb apples 9lbs apples 12 lb cherries 2. Calculate the opportunity cost of each task for each producer You Mary Opportunity cos of picking apples 60 Cherries/ 30 Apples = 2 (#of Cherry) / (# of apple) =  30 apples/ 60 Cherries= 0.5 20Cherries/20apples =1 Opportunity cost of picking Cherries  (# of apples)/(# of cherries)=20 cherries/20  apples= 1 3. Specialize in your comparative advantage: lower opportunity cost;                                                             Production   Apple: You have a comparative advantage 1< 2                   (20 Apples; 0 Cherries) Cherries: Mary has a comparative advantage 0.5 <1             (0 Apples; 60 Cherries) 4. Trade one good for another based on the given terms of trade  (From the Textbook) Mary trades 15lbs of cherries for 10lbs of apples  5. Determine the level of consumption after trade(C.A.T.): check for  gains from trade You Mary C.A.T. (20-10=10apples; C.A.T. (0+10=10apples; 60- 0+15=15cherries) 15=45cherries) G.F.T.(10-8=2apples; 15- G.F.T.(10-9=1apples; 45- 12=3cherries) 42=3cherries) Lecture 3 September 6,2016 THE LAW OF DEMAND:  Ceteris paribus, when the pric)of a product fals), the quantity demanded  (QD ) increases.   This price change causes only a movement along the demand curve. (Warning)  Graphical representation and negative slop(QD ) (Figure 3.1). Two effects at work behind the law of demand:  Substitution: the fall in price causes to substitute away from other goods P Tab QD  Smartphone, Laptop  Income: the fall in price increases the consumer’s purchasing power PTablt Fixed Income= $1,000 PTab= $800 QD =1 PTab= $500 QD =2 “Feeling Richer PTab= $300 QD =3 Effect” Warning: a movement along the demand (price) vs. a shift in demand (other  factors) Lecture 3 (continued) September 8,2016 What shifts the market demand? (Table 3.1)   Income:  From $1,000 to $1,500 Normal good: a rise in income → its demand  shifts right  Inferior good: a rise in income → its demand shifts left. o (Noodles) Fast food vs. Gourmet Food o Used Cars vs. New car Price of related goods: (A and B). Substitutes: the price of good B increases → the demand of good A increases o Ketchup vs. Mustard o IPhone vs. Galaxy o Coke vs. Pepsi o Powerade vs. Gatorade  Galaxy Price changes, $600 →$650 The demand Galaxy decreases  therefore the demand for iphones will increase Complements: the price of good B increases → the demand of good A decreases.  o Chips and Salsa o P.B. and Jelly/Nutella o Pasta and Meatballs  o Hot Dogs and Buns  If Chips prices increase, the demand for chips will decrease.  Since the chips price increase and the demand has decreased. The market  for salsa has dropped Tastes and preferences (include demographics)  If a product becomes more popular → its demand shifts right.  o Ex. “Baby Boomers” o Population increased after WWII (late 40’s early 50’s) therefore  they need more health care Expected future prices (the role of expectations)   f buyers expect lower future prices → the current demand shifts left. o Ex. Tomorrow is “Black Friday” o Price for electronic will drop tomorrow therefore no one will demand  electronics before “Black Friday” Lecture 3 (continued) September 8,2016


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