Principles of Microeconomics
Principles of Microeconomics ECON 106
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This 5 page Class Notes was uploaded by Elva D'Amore Sr. on Monday October 19, 2015. The Class Notes belongs to ECON 106 at Radford University taught by Seife Dendir in Fall. Since its upload, it has received 90 views. For similar materials see /class/224740/econ-106-radford-university in Economcs at Radford University.
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Date Created: 10/19/15
Ch 4 Markets Forces of Supply and Demand HW Ch3 du 092209 check solutions bring text book Wednesday TEST WEDFRI NEXT WEEK OUTLINE Supply and Demand is the workhouse of mircoeconomicstogether they determine 1 Which goods are produced in an economy and what in what amount of the goodsqamount 2 The price at which each good is soldpprice STEPS 1 Markets different types of results 2 Demand a Definition demand curve determinants 3 Supply a Definition supply curve determinents 4 Equilibrium 5 Shifts in equalibrium relates to supply and demand 0 Markets 0 Defintion a collectiongroup of buyers and sellers I It is an institution 0 Four major types 6 Monopoly oligopoly monopolistically competitive perfect competitive market 1 Perfectly comp etive a Characteristics i Many buyers and sellers ii Identical homogenous product iii Free entry and exits by firms 1 Amount of capital required for entry is small I and II implication quoteveryone is a pricetaker 9 no one can affect the price level in the market iV Examples groceries retail gas financial markets stock markets foreing exchange markets 2 Monopoly a market with a single sellet a Characterisitics the product or service should not have close substitutes b Implication quotmonopolists are price makers 9 they can determine their own price c Examples Walmart Microsoft utility companieselectricity telephone cable satellite provider Oligopoly a Definitnio a market with a quotfewquot sellers b Characteristics can carry identical or similar products oligopolies have some power over price but that depends on how aggressive they compete c Examples Crude oil autoindustry PC s cell phone carriers airlines 4 Monopoliotically Competeive a Definition markets with many sellers competitive each selling a slightly differentiatedmonopoly product b Examples clothingapparel consumer productivity magazines books newspapers etc c Most common type of market 539quot Assumptions economits assume that there is a perfectly competitive market in order to do demand supply analysis 1 Demand a Definition a description of the behavior of buyers b Qd fprice tastepreferenceincomeprice of related goods etc quality demanded lt gt demand shift factors c Demand schedulecurve show the relationship between the price of the good p and the quality demanded of the good qd while holding all other factors variables constant i EX pg 689 demand for ice cream by Catherine d NOTES i Law ofdemand as p goes up q goes down 1 Implications P y axis q x axis 2 The demand curve is always negatively shaped ii Market Demand the horizontal sum of individual demands in the market 1 Pg 69 9 market demand for ice cream 2 D 9 market demand d 9 individual demand 3 Shift factors holding price of a good constant if any of the other determinants of demand change then the demand curve shifts moves gt hence those variables are called shift factors a Income ifincome increases demand may or may not increase 39 Normal goods as increse rises demand increases the curve shifts forward 1 Clothing cars housing Inferior goods as income rises demand decreases Chapter 2 September 7 Thinking like an Economist Intro What is different about economics as a quotsciencequot What is the quoteconomic methodology Three common themes in the economic methodology 1 The scientific method most research questions are carried through 3 stages a Three stages of research in economics 1 Devise a theoryhypothesis Usually based on a observation 0 As money supply rises so should prices 0 As economies grow poorer population rises ii Collect Data 0 NOTE unlike the natural sciences economists mostly cannot generate data through experiments 0 They have to use historical data TWO TYPES a Crosssectional data across subjects but at a given point in time i Collect data on money supply and prices for 200 countries in 2008 b Timeseries data across time but for a given subject i Collect quarterly data on US money supply and prices for the last 50 years ii Test the theory using the data collected 1 Usually statisics techniques 2 Roles ofassumptions a Assumptions are extensively used in econoics quot the science of assumptions i Study of international trade 1 150 countries in the world 2 thousands ofgoods 3 what resources a Labor b Capital c Skilled resources d Land Etc 4 Other variables a government taxes b currency c exchange d transportation costs 5 regulations World Trade Organization WTO b Start with assumptions i Examples 1 Two countries country a and b 2 Two goods good 1 and good 2 3 Two resources labor and capital 2X2X2 model of international trade Assume no transportation cost no currency no government etc 3 Economic Models a Basically these are ways of representing actually phenomenom in a simplified easytounderstand manner b Just like a biologist used to replica of a human anatomy economists use quotmodelsquot Use figures graphs mathematical model 9 d Always models are used to answer a particular question i EX Circular Flow Diagram CFD 1 QUESTION WHAT IS AN ECONOMY ANYWAY 2 ANSWER CFD AVERY SIMPLE VISUAL MODEL OF AN ECONOMY ii Assume 1 Two actorsparticipants Consumershouseholds and firms 2 Two markets a Markets for goods and seVices b Markets for factors ofproductionFOPinputs into a production process land labor capital resources etc 3 Firms are sellers and households own all factors of production e Analysis MARKETS FOR GOODS AND SERVICES MARKET FOR FOP HOUSEHOLDS BUYERS SPEND SELLERS EARN FIRMS SELLERS EARN BUYERS SPEND Diagrams on Page 25 0 Green loop ow of dollarsmoney 0 Red loop ow of goods and services and FOP f Production Possible Frontier PPF 39 Question how does an ecomony allocate to resources What are the tradeoffs involved in production Answer PPF a graph showing the allercation of resources by an economy Assumptions 1 Only two goods cars and computers 2 All resources are devoted to the two goods and the economy use the latestcurrent technology 3 DIAGRAM PG 26 Note 0 Poitnts like quotCquot are called quotinfeasible points 0 Points like quotdquot are quotfeasiblequot but quotinefficientquot 0 Example recession and unemployment 0 Points like quotaquot and b are efficient 9 ii39 4 Opportunity cost DC a The OC ofproducting 100 more cars by moving firm A to Bis 200 computers DC of good 1 in terms of good 2 slope ofPPF riserun 200 pcs100 cars 2pcscar 5 What is time about the slope of a PPF The slope changed along the the PPF now linear curve 90c does not stay the same along a ppf Why a Typically the ppfis curved bowed out b WHY is the ppflike this i Reason Specialization of resources In most economies resources are specialized to produce one good have efficiently than other goods 1 For instance at a point like A the economy is already producing way too many PCs that to add even more PC s it has to take away specializaed resources from the car industry Therfore the eXtra of PCs come at the expense ofa large of cars The opposite happens to B 6 Ecomonic Growth a Hwo does an economy grow and how drive show that using a PPF b Sources i More Resources ii Technological Implement c PPF can grow if there is an improvement in the technology for cars d PPF can grow if there is an improvement in the technology for PCs
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