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Week 2 Notes

by: Greg Caceres-Munsell

Week 2 Notes ECON 103

Greg Caceres-Munsell
U of I
GPA 3.6
Macroeconomic Principles
Baer, W

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About this Document

Week two covers the third and fourth lectures, which include the very important (and somewhat arbitrary concept of elasticity), as well as the real world example given by Baer. Also a quick look at...
Macroeconomic Principles
Baer, W
Class Notes
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This 4 page Class Notes was uploaded by Greg Caceres-Munsell on Wednesday September 23, 2015. The Class Notes belongs to ECON 103 at University of Illinois taught by Baer, W in Summer 2015. Since its upload, it has received 34 views. For similar materials see Macroeconomic Principles in Economcs at University of Illinois.

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Date Created: 09/23/15
9232015 OneN ote Online Lecture 3 Monday August 31 2015 1000 AM Defining Elasticity Percentage change in quantity vs percentage change in price oOn a graph quotPrice Level vs Quantityquot with supply andor demand curves l i If this ratio to right is gt 1 then elastic If lt 1 then inelastic oIf 1 then unit elastic meaning it is neither elastic nor inelastic Elasticity is NOT the same as slope Along different points on curve but relating to it on the same point 0 XQOQ DJD U Q The term quotperfectquot here means that a line is either completely vertical or completely H horizontal oCurves can have any varying amount of F elasticity expressed by a constant this J erfectl Elastic Demand Curve can include curve with non11 ratios atter what quantity is demanded the price 011 doesn t is constant and unchanging quot necessarily mean Any price above a perfectly elastic price here that it39s a straight 50 WILL NOT SELL m prices below it can but line more detail on suppliers may avoid charging less this at quotUnit XCgt Elasticityquot below dng MD 90 Can be sold Perfectly Elastic Supply Curve No matter what quantity is supplied the price is constant and unchanging Any price below a perfectly elastic price here 70 WILL NOT BE SOLD m prices above it can sell but consumers may avoid paying more C C n be sold https onenoteoffi ceapps ivecomoonenoteframeaspxF i SD F483C578388F D48D 413ampH em ul ampC 5810D M 2 SKY WACWSH ampui en U Samprsen U S 13 9232015 Perfectly Inelastic Demand Curve oNo matter what price is charged the quantity demanded is constant and unchanging Unit Elastic Tax ll ratio demand and supply curves express not that the curves are straight lines but that for any Percent Change of Price there is an equal Percent Change of Quantity and vise versa percentage is key here oDespite their non straight nature imagine a 90 degree intersection of supply and demand This displays that if both supply and demand are quotunit elasticquot then their behaviors due to percent changes are exactly the same and they will mirror each other perfectly l IO I lt1 I Me Q Sales Tax Increase In Cases of Elasticity Unit Elasticity Tax Burden oConsumers and producers share costs 5050 The more Inelastic the heavier the tax burden oIE inelastic suppliers take on all the loss in revenue when sales tax increases and inelastic consumers take on all the extra costs when sales tax increases https onenoteoffi ceapps ivecomoonenoteframeaspxF i SD F483C578388F D48D 413ampH em ul ampC 5810D M 2SKY WACWSH ampui en U Samprsen U S OneNote Online Perfectly Inelastic Supply Curve No matter what consumers are willing to pay the quantity supplied is constant and unchanging fo 00quot quot 39 507 23 9232015 OneN ote Online Historicity of Elasticity US Agricultural Growth Causes oLand grants oPublic Land grant universities human capital and research Extended their knowledge to farms and populace oquotAgricultural Implementsquot producers Pre modern quotengineering technologiesquot Effects o Food Supply boom despite lack of demand Engel39s law discovered Elasticity of demand in low income homes for food leads to declining of consumer spending on food as their incomes rise People don t buy more food simply because their incomes rise proportion of foodincome decreases when income increases Lack of agricultural demand leads to price support OR subsidies by the government both possibilities broken down in Lecture 4 Notes https onenoteoffi ceapps ivecomoonenoteframeaspxF i SD F483C578388F D48D 413ampH em ul ampC 5810D M 2SKY WACWSH ampui en U Samprsen U S 33 9232015 OneN ote Online Lecture 4 Wednesday September 2 2015 1005 AM See Lecture 3 for American agricultural history Agriculture39s declining terms of trade PaPi ratio of agricultural selling prices to the input prices or costs for farmers Price support vs Subsidy Price support Any surplus crops will be paid for despite market39s desire to lower price Government pays the difference 0 Problems with PS Keeps food prices artificially high low income households suffer Does not de stimulate surplus production huge amounts of extra food basically going to waste Subsidy Keeps prices lower with direct payments to farmers essential welfare 0 Problems with Sub Preferential handouts Does not discourage output IE free market is distorted Historically price support was more common than subsidies excess food bought through price support resulted in quotFood for Peace giving away food to poor countries actually ended up undermining agricultural improvement in poor countries Circular Flow Diagram Households decide to take jobs so they put themselves into the job or resource market and businesses then take the households resources and use them to further their business but households expect some kind of return for their human capital so they are paid by the businesses Consumption Households Expenditures Consumes Goods Offers and Services Resources Income Product Resource Market Market Offers Goods Uses and Services Resources Reven ue Costs Businesses This is the circular flow model then because the money that businesses and households handle is all the same and each time you buy or sell you are effectively transforming your money or your labor or you workforce39s efforts or your profits into different forms of money GDP and National Income Sum of market value of goodsservices produced in given period Expenditure method for GDP Avoidance of double counting 0 Only new and final products are counted No products such as Iron Ore should be counted if it later becomes part of a car for ex Used cars are not counted 0 Sum of all factor incomes Income method for GDP 0 National income 0 Transfer payments not included 0 This method fails to account for amount of savings vs amount consumed GDP generally largerthan National Income 0 Subtract depreciation from Gross Domestic Product to measure Net Domestic Product 0 Net Domestic Product minus indirect taxes National Income Indirect defined as non income taxes usually sales tax 0 National Income minus Direct Taxes plus Transfer Payments Disposable Income Businesses set themselves up in the product market to give goods and services and make profit off of people who make use of these goods and services IE households Households are given goods and services businesses are given money from households 4 httpsonenoteofficeappsivecomoonenoteframeaspxFiSD F483C578388FD48D I413ampHem uIampC5810DM2 SKY WACWSH ampuien USamprsen US 11


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