Micro w/ Prof. Mike: Week 2 Lecture Notes
Micro w/ Prof. Mike: Week 2 Lecture Notes ECON 201
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This 6 page Class Notes was uploaded by Cal Clark on Saturday October 10, 2015. The Class Notes belongs to ECON 201 at Portland State University taught by Mike Paruszkiewicz in Summer 2015. Since its upload, it has received 30 views. For similar materials see Microeconomics in Economcs at Portland State University.
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Date Created: 10/10/15
Portland tate Ll NlVIERSITY Prof Mike ECON 201 October 6th 2015 Lecture Notes I39M WORRIED m WORRIED ABOUT You may THESE NUts on low E CHIN 0 Prof Mike is a big nutshell guy 0 Econ is what gets made how it gets made and who makes it I Resources are limited 0 Theory of Comparative Advantage o No matter what a person s advantages even if low it is profitable for the individual to interact with the economy instead of stay selfsustainable 0 Learn more about David Ricardo httpwwwbritannicacombiographyDavidRicardo I Ex When Prof Mike was in film school he wasn t very good He is good at analysisbreaking down issues to the core In the trade between making movies and rigorous economic analysis it makes sense for Mike to do analysis as opposed to make movies Lower opp cost for a movie producer 0 Developing countries have a comp advantage in laborintensive goods Portland Stte UNlVlERSITY Ex Cameron and Ferrissoda and pizzaThiS Will be on the exam 0 0 Cam has 500 hours of labormonth Producing 1 keg requires 10 hours Producing 1 pizza requires 1 hour I Opp cost of 1 keg is 10 pizzas I Opp cost of 1 pizza is 110 keg Ferris has 300 hours of labormonth Producing 1 keg requires 125 hours Producing 1 pizza requires 25 hours I Opp cost of 1 keg is 5 pizzas I Opp cost of 1 pizza is 1a keg Suppose Cam produces 340 pizzas How many kegs can he make I 340 hours gt pizza leaves 160 hours for kegs He can make 16 kegs Suppose Ferris specializes in kegs If he makes 24 kegs and O pizzas he can trade kegs for pizza at a mutually beneficial rate of 1 keg for 8 pizzas He can then achieve 192 pizzas above and beyond his PPF Could only make 130 pizzas without trade The ability to produce a good using fewer inputs than another producer I Cameron has and absolute advantage in pizza producing uses 1 labor hour for Cameron vs 25 for Ferris I If each person has an absolute advantage in one good and specializes in that good then both people can gain from trade Prtlland tate ll PEI l iul ii it E 1 if If DrLebron has a pHD in economics then he has an absolute advantage over Prof Mike in both bbal and rigorous economic analysis LlEBHDN i H z TS EUNDUEHEU L gtucHEH 0 Comparative Advantage and Trade 0 Gains from trade come from comp advantagedifference in opp cost 0 Through in goods w comp advantage total prod is higher Therefore all individuals benefit from trade bc the whole economic pie is bigger I The same applies to countries on a large scale Portland State UNIIVIERSITY Prof Mike ECON 201 Human o t b 8th 2015 C 0 er Elm martian wanna It is not from the benevolence of the butcher the brewer or the baker that we expect our dinner but from their regard to their own interest Adam Smith Wealth of Nations Greed is good LaissezFaire let the market go free Assume that producers create products out of their own selfinterest and if you want dinner you better pay up He is in this case led by an invisible hand to promote an end which was no part of his intention Adam Smith Wealth of Nations Societal benefit from individual labor is an accident Market forcesthe Iead to advantageprofit is a real problem Market failure is often caused by trustsmonopolies Ex f health insurance jacks up the price of insulin demand from diabetics does not fall in correspondence with the Law of Demand The insurance company is pricegouging and taking advantage of diabetic people Markets 0 Comparative advantage tells us that everyone benefits from trade 0 So how do markets regulate o A is a group of sellers and a group of buyers 0 A has many buyers and many sellers where each has a negligible effect on price 0 In a I All goods are exactly the same I Buyers and sellers so numerous that no one individual can affect the marketeach is a o The of any good is the amount of the good that buyers are willing and able to purchase 0 Observation that as a general rule the quantity demanded for a product varies inversely with its price lower prices stimulate demand and higher prices dampen it 66 Portland Stte UNlVlERSITY o A table that shows the relationship between the price of a good and the quantity demanded Ex Chunk s demand for candy bars Notice that Chunk s preferences obey the law of demand Price of Candy Bars Chunk s quantity of candy Mikey s Q Q Demanded bars demanded Demanded of for the M candy bars 0 16 8 24 1 14 7 21 2 12 6 18 3 1O 5 15 4 8 4 12 5 6 3 9 6 4 2 6 You can graph this table on a demand curve It s going to be a downward sloping curve on a typical xy plane The curve for the Q Demanded of the market looks the same just bigger The demand curve shows how price affects quantity demanded other things being equal 0 Demand for a is positively related to income 0 Increase in income causes increase in Q039 0 Demand for an is negatively related to income 0 Increase in income casues decrease in Q039 0 2 goods are if an increaes in the price of one causes an increase in demand for the other 0 Ex Pizza and hamburgers An increase in the price of pizza increases demand for hamburgers shifting hamburger demand to the right Thoughts Portland Stte UNlVlERSITY o 2 goods are if an increase in the price of one causes a fall in the other 0 Ex Bread and peanut butter lfthe price of bread increases the Q039 for peanut butter will decrease 0 Ex Computers and software If the the price of computers rises people buy less computers and therefore less software 0 Anything that causes a shift in preferences toward a good will increase demand for that good and shift its D curve to the right 0 Ex New study shows that candy bars improve test scores D curve shifts to the right for candy bars but to the left for ice cream sandwiches o Expectations affect consumers buying decsions 0 Ex If people expect their incomes to rise their demand for meals at expensive resaurants may increase now 0 EX If the economy sours and people worry about their future job security demand for new autos may fall now 0 Ex If the chairperson of the federal reserve indiciates rising interest rates sometime in the future previously marginal buyers in the housing market will enter the market and demand will increase Must know the difference between wand other variables for test Price causes a movement along the curve whereas Other variables cause a shift in the curve to the right or left Supply The inverse of demand Just think that all laws and principles are the reverse of demand 0 The 05 of any good is the amount that sellers are willing and able to sell 0 the claim that the quanity supplied of a good rises when the price of the good rises other things equal The QS in the market is the sum of the QS of all members of the market 0 Input prices Production costs 0 Wages 0 Prices of raw materials 0 A fall in input prices makes production more profitable at each output price so firms supply a larger quantity at each price and the S curve shifts to the right