Notes week 2
Popular in Macroeconomics
Popular in Economcs
This 7 page Class Notes was uploaded by Cierra Notetaker on Saturday September 12, 2015. The Class Notes belongs to ECN 150 at La Salle University taught by Francis Thomas Mallon in Summer 2015. Since its upload, it has received 28 views. For similar materials see Macroeconomics in Economcs at La Salle University.
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Date Created: 09/12/15
Principles of Macroeconomics Notes 2 Production Probability Curve identifies maximum output a nation can achieve an operating an optimal efficiency anxi at full utilization of all productive resources no resources are being wasted csnsumer gssds capital gssds Every point on the curve represents a nation that utilizes fully and at optimal utilization standards of living are enhanced if this is the case a nation will find themselves on the curve exactly where will be dependent on how the resources are deployed Rama there rmnxa capital goods t uni consumer vice versa etc Example and explanation of graph Point a nation has a lot of consumer goods and zero capital goods so this nation uses its productive resources at optimal efficiency and at full utilization Point b produces exclusively capital goods with its productive resources quantity of consumer goods are 0 Any point on the resulting curve is combination of consumer and capital goods that we can produce by allocating our resources between production of cnnsumer and capital goods at cptimal efficiency and full utilization Point e not optimal efficiencyfull utilization compromises standard of living obtainable not desirable Society that is not producing what it should at the quantity and quality it should under the curve is a recession businesses close unemployment rises etc Unemployment adversely affects the quality of the standard of living not maximized Point g represents a nation that has consumer and capital goods as 51 nation are rncapable IE producing39 given their current capacity and capability When we talk about economic growth We enhance labor force with factors such as better education and health insurance These factors will influence productive capacity of nation society in total reaps benefits that government can regulate education land and health care like when the government invests in programs to help farmer s utilization of land government health care and school systems they ck these things because they vwn to achieve economic growth This leaves us TX think about socialistit and capitalistic societies allocation of resources and economic growth determination are so different In the United States we have mixed capitalism predominantly market driven with government influence Public goods goods that have external consumption effects such as public roads amp national defense One of the reasons government intervention and involvement is justified within our system and society is presence of public goods essential for best interests of society because no one person will take on that cost but the government Mechanics of Supply and demand Demand quantity willingly demandeda each potential market price Change iJ1 quantity demanded definition price IE good under consideration changes while all other variables capable of influencing demand are lm ri constant graphically this ii a movement from one point on the demand curve to another point on the same curve Change in demand occurs when outside variables outside of price change For example purchasing a vehicle Q1 P A Pc DI C Inside the box are variables that influence demand outside of the price so when you purchase a vehicle A is advertising a direct relationship PC is price in complementary goods like gas inverse relationship Disposable Income amount that you have to spend direct relationship and lastly C for interest rates an inverse relationship Price will always have an inverse relationship iJ1 a normal good Change in demand and change in quantity demanded example and in graph form in class example Let s say you purchase a good for 10 and the money you have in your wallet disposable income DI is 19 you can then only purchase 1 unit of that given good As the price of the good goes down there is more to purchase a sale occurred and lowered it to 8 and now you are able to purchase 2 then moments later the sale went down to 6 and now you are able to purchase 3 What good luck you must have if this occurred within the same line in the store in this shopping trip The only change that occurred in this scenario was price therefore this is a change in the quantity demandedm Now let s go back in time and before you left to go to the store you found your way to 7 more dollars and now you have 26 dollars in your pocket the same situation happened once you got to the store and the price loweredm Blue scenario is graphically represented as blue in table and chart Blue is a change in demand because it created an entire new line and black is a change in quantity demanded because it only changed a point on the same line Bl 19 DI 26 law of downward 8 W sloping demand Price in S Quantity purchased P Q Q Law of downwards sloping demand says for 10 l 2 all normal goods there will be an inverse relationshipgtbetween jarice Mj quantity 8 2 3 as one goes up the other goes down and Vice versa 6 3 4 Income effect says as price of a good declines a fixed amount of income can afford greater quantities it is as if the purchaser experienced an increase in income Substitution effect individuals predisposed to purchasing an alternative good may shift their buying preference in favor of the good with a falling price Supply Price is what the product sells for in the market place Cost is what the supplier incurred to be capable of offering the product for sale Producer of jproduct jpurchases raw Inaterials labor equipment necessary to be used to make product utilities to keep function management customer service etc these factors are the cost for producing the product Total cost quantity of the things they make the cost per unit Cost in market place must be higher than cost per unit to profit FOR EXAMPLE Simplifying assumptions 0 As long as market price exceeds suppliers cost per unit the supplier will elect to produce good and offer it for sale 0 The greater the positive differential between price and cost per unit the greater will be the quantity of the product the supplier will elect to produce and offer for sale We have the same product by different suppliers A B C D Cost per unit 7 9 3 3750 If market price ii P suppliers A EL C and I are capable of producing a certain quantity given their cost per unit mentioned above P Su lier A lO 4 2 O 8 6 104 9 839 61 l I l I l I 20 I I I 1 l a 5 10 15 20 Q Direct relationship 39thereforea the slope ii upwards opposed to demand which is downwards Change in quantity supplied change in price in good under consideration only change no outside variable changes no shift in curve and graphically this is a movement along existing curve Outside variables that affect supply of good are typically the things that can affect suppliers cost per unit
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