Week of August 31 - September 4
Week of August 31 - September 4 EC 2113
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This 4 page Class Notes was uploaded by Grey Garris on Friday September 4, 2015. The Class Notes belongs to EC 2113 at Mississippi State University taught by Heriberto Gonzalez Lozano in Summer 2015. Since its upload, it has received 233 views. For similar materials see Principals of Macroeconomics in Economcs at Mississippi State University.
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Date Created: 09/04/15
Chapter 2 EC 2113 Lecture Notes Week of August 31 September 4 0 Economic Systems A set of instituted arrangements and coordinating mechanisms that decide on the production and exchange of goods as well as the use of resources 0 Differences 39 misses Emma O E Fmtw Eminma L mgw l 5 l e l mi39 r l Wmon Straw 39 No Grammars er Cmm fl wa EPWMMEWV QWW39W g Qam mmtgm goeim Sm Differences Exist By I Degree of Decentralized use of market and prices in decision making I Degree of centralized government control 0 Market System 0 O O O A mix of decentralized decision making and some government control Found in much of the world Private markets dominate Incorporates I Private Property I Freedom of Enterprise and Choice you can choose to start a business and what you do with it I SelfInterest Everyone does what is best for themselves I Competition Only the best in a chosen industry stay I Market and Prices Supply and Demand determine price Technology and Capital Goods I Market Systems encourage advancement in technology Specialization I Market systems allow for specialization of labor or geographical specialization Money a medium of exchange that takes place of the the barter system Government might be needed to fixalleviate market failures and can potentially increase the effectiveness of a market system 5 Fundamental Questions I What will be Produced o Goods and Services that produce profit Consumer Sovereignty and the Dollar Vote consumers choose what is produced by choosing whether they buy something or not where their money goes is where production is allocated I How will it be produced 0 At the minimal cost depending on the price of technology and the availability of resources I Who gets the product 0 Anyone who is willing and able to pay I How will the market accommodate change 0 What gets producedhow much is produced depends on consumer tastes technological advancement and resource prices I How will the market deal with riskpromote progress 0 Incentives profit for dealing with risks are the reason that markets continue 0 Circular Flow Model Like the law of conservation of energymatter for physics in economics money does not ever disappear it is exchanged for goods and services by four basic groups Factor Markets resource markets Product Markets Households and Businesses FASTER MARKET i Households sell 9 Firms thug BUSINESSES 1 HOUSEHGILDS a Buy factors oi prudiuctiian a Salli products a Eelll fa more of production w Buy products PHDDUGT MARKET Firms sell i Households tillllr Chapter 3 Demand Supplv and Market Equilibrium 0 Market A market is anything that allows interaction between a buyerbuyers and a sellersellers 0 Markets exist on the local national and international scale 0 The market for a goodservice determines its price 0 When looking at markets assume I They are competitive I Individual sellersbuyers cannot affect the entire market both are price takers I Perfect Information exists and there is Full Disclosure buyers are aware of all other options and sellers are aware of all potential buyers 0 Demand Curve 0 Mnemonic Hint Qemand goes gown o Represents the sum demand of all individuals willing and able to buy a goodservice 0 Law of Demand as price increases the quantity demanded of a product decreases I Explanations a Price is an obstacle Price Supply Curve 0 Mnemonic Hint Supply goes Q9 Law of Diminishing Marginal Utility As people consume more of a product they will get less satisfied with additional units so to get them to buy you have to lower the price Income and Substitution Effect 0 Average Demand Curve slopes downwards vou must label the price and quantitv axes Demand Q Q Quantity I Change in Quantity Demanded vs Change in Demand a change in the quantity demanded of a product is shown by movement along the demand curve A change in demand is a movement of the entire curve left or right Change in QDemanded Reasons change in the market equilibrium Change in Demand Reasons Consumer Tastes if more people like a product the demand curve will increase shift to the right if more people dislike a product the curve will decrease shift to the left Availability of Substitute and Complementary Goods 0 Substitute Changes that happen to one good can change the demand of a good that can replace the former Example If the price of Pepsi increases the demand for Coke will increase Complementary Changes that happen to one good can change the demand of a good that usually goes with it Example If the price of movies goes up the demand for popcorn will decrease Number of Buyers More buyers higher demand Less buyers lower demand Change in Income with Respect to Inferior and Normal Goods Inferior Goods Products whose demand decreases as income increases Ex Ramen Normal Goods Products whose demand increases as income increases Ex Cars Consumer Expectations If the consumer expects a future price increase the current demand will increase If the consumer expects a future price decrease the current demand will decrease o Represents the sum amount of goods producers are willing and able to sell 0 Law of Supply As price increases the quantity produced increases I Explanations Money is an incentive At some point the costs of production will increase 0 Average Supply Curve slopes upwards vou must label the price and quantitv axes A P rlce 8 Quantity Just ignore S1 and S2 They re irrelevant for now I Change in Quantity Supplied vs Change in Supply a change in the quantity supplied of a product is shown by movement along the curve A change in supply is a movement of the entire curve left or right 0 Change in Quantity Supplied Reasons change in the market equilibrium 0 Change in Supply Reasons 0 Change in Price of Resources an increase in the price of a resource used to make a product will decrease the supply and a decrease in the price of the resource will increase the supply Number of Sellers More sellers increased supply Less sellers decreased supply Taxes and Subsidies Taxes will decrease supply usually and subsidies will increase supply usually Prices of Substitute Goods If the price of Coke increases the supply of Pepsi will increase If the price of Coke decreases the supply of Pepsi will decrease Producer Expectations If the price is expected to increase in the future the supply will decrease now If the price is expected to decrease in the future the supply will increase now
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