Part I

Introduction to Economics Overview What is Economics? Wy do we need to study economics? Economics as a part of life Every day decisions Make choices because a resource is SCARCE What are resources?

What is Scarcity? History of Economics Plato Mercantilism

The Wealth of Nations

Capitalism Communism Keynesians Definition of Economics one who manages a household Formal Definition (allocation of scarce ) Efficiency Equity Opportunity cost Social Science Why is it a social science? Role of Assumption and Models

Economics is the study of man, man is ever changing Basic Questions in Eco What goods to produce? How many will be produced? Who will produce it? How will it be produced? For whom will it be produced? Economic goals of a nation Different Economic Systems As a nation what do we need to achieve? Material Survival Command Economy

Traditional Economy Free Market Disadvantage and advantage of each Branches of Economics Microeconomics Macroeconomics Econometrics Mathematical Economics

defined as a service, or other asset used to produce goods and services that meets human needs and wants. Land, Labor, Capital [ productive inputs ]

UTOPIA The country with most gold is the richest wealth of the nation is measured by the size of its treasury A lot of wars, getting wealth from other nations Spanish Bullions etc Adam Smith Invisible hand Market will take care of itself

a lot of wards Greek Word how society manages scarce resource the most it can from s.r. fair distribution Singit after Efficiency how to make decisions Why is it different from other social sciences? (use math, models etc ) Interaction of members of the society Just to model Reality Cant capture all factors Models may not be always correct

Dictated by the government, supply and price of goods

dictated by the tradition of the people prices, demand and supply are dictated by the market

analysis on how the allocation of scarce resources is conducted by small economic units, sectors, and institutions in the econo deals about the allocation of scarce resources but takes the analysis at the perspective of the entire economy

The Republic

islamic, culture, religion

nstitutions in the economy

Part 2

Demand and Supply Analysis Law of Demand

Direct Demand Derived Demand Demand Function

Demand Schedule

Demand Curve

Graphing the Demand Curve

Law of Supply

Supply Function

Supply Schedule

Supply Curve

Graphing the Supply Curve

Market Equilibrium

Graphing the Market Equilibrium

Market Dynamics

Findingfor the market equilibrium

Solving for the Market Equilibrium

Market Dynamics Part 2

Govt Interv Price Ceiling

Price Floors

Price as a determinant of allocation of resources

Tax Effects on Market Equilibrium

Elasticities

Price elasticity of demand

Types of elasticity computation

Computing for the coefficient of elasticity

Graphing the Elasticity

What is quantity demanded? What determines demand?

What is the law of demand? Demand for consumption of products Demand for inputs for production ( Chair, derived demand is wood)

Assume that only price affects demand Qd = 500-2P Express in Terms of P P=250-.5Qd

What is a demand schedule?

Slope of the Demand Curve Why is it downward sloping? Difference between Market Demand Individual Demand

MOVEMENT ALONG a Demand Curve Shift of the demand curve

What is quantity Supplied? What Determines Supply?

Law of supply?

Qs=100+50P (all others constant) Expressing in terms of Price, P=$2+(1/50)$Qs

table show relationship b/w price and QS

graph of relationship of P and QS Why is it upward sloping? Difference b/w Market Supply Individual supply

Movement along a supply curve Shift of the supply curve

What is a market? What is equilibrium? Market Equilibrium Rarely happens though Equilibrium Price Equilibrium Quantity Shortage Surplus Price 10 16 22 30 39 45 Qd=500,000-50,000 Qd=Qs Solve for Equilibrium Price Solve for Equilibrium Quantity What happens if demand and supply changes Away from equilibrium value? INITIAL TO NEW EQUILIBRIUM Give events that can shift both demand and supply What happens to the new EQ price and quantity? What are price ceilings? What can this create? Examples of this? Real world. What are price floors? Examples of this?

Why? (goes to those who can pay more. Need it more)

What is elasticity? Point and Arc elasticity? Application of Elasticity

What determines this?

own price elasticity cross price elasticity income elasticity of demand Inelastic Elastic Unitary Elastic Price and Quantity and Axis

amt of a good buyers are willing to buy. Taste and preferences Trends Income & Wealth availability and price of substitutes Price Expectations ceteris paribus, Quant Demanded goes down as price goes up.

What is 500? What is 2 (average price) ? What is .5? For every 1 dollar increase in the Price, Qd will decrease by 2. a table that shows the relationship b/w P and QD Price 10 16 22 30 39 45

Graph of the relationship b/w P & QD

sum of all indivudal demands demand schedule of one person

Price 10 16 22 30 39 45

Changes in Price of the Good Any factor that is not the price of the good i.e.

Price of substitutes Tastes of subsitutes Tastes for the good Income of the consumer Expectations. Price and tastes for product it complements

amt of good a seller is willing to sell. Price Input Prices Technology Expectations of the producer ceteris paribus, QS increase as P increases (why?)

What is 2? People will not supply if the price is below 2. For every 1 dollar increase in the price, 50 cars will enter the market

Price 10 16 22 30 39 45

sum of all supply of sellers amount willing to supply by one seller at a given price

Price changes CHANGES IN: Input Prices Technology Expectations of the producer Supply of Inputs Number of Sellers

Where sellers and buyers meet a situatoin of no room for change supply and demand are balanced a certain price and quantity wherein supply meets demand buyers are willing to buy all that is produced by sellers

See images

Demand 350 325 225 175 150 75 QS=-100,000+100,000P

Supply 75 85 150 175 230 270

See images See images

Can create black markets ( kasi may shortage)

black markets have steeper supply curves More risky kasi

Creates surplus (what will happen to the market?)

sensitivity of change in demand because of a change in a factor in business (toll gate)

necessities vs luxury availability of substitutes time horizon ( might be inelastic in short but elastic long run )

absolute value

see graphs

Demand 350 325 225 175 150 75

Demand Catherine 350 325 225 175 150 75

Demand Ana MarketDemand 250 600 225 550 200 425 150 325 100 250 50 125

Supply 75 85 150 175 230 270

black markets have steeper supply curves More risky kasi

For Shortage and Surplus

Initial to new equilibrium

Market Dynamics

Elasticity

1 Yesterday, the price of envelopes was $3 a box, and Julie was willing to buy 10 boxes. Today, the price h elasticiy = .8

2 If Neil's elasticity of demand for hot dogs is constantly 0.9, and he buys 4 hot dogs when the price is $1. Answer: 5.2

3 Katherine advertises to sell cookies for $4 a dozen. She sells 50 dozen, and decides that she can charge To find the elasticity of demand, we need to divide the percent change in quantity by the percent change Answer Elasticity =.4 if 10 per box 150% new demand 20 dozen

uy 10 boxes. Today, the price has gone up to $3.75 a box, and Julie is now willing to buy 8 boxes. Is Julie's demand for envelo

hot dogs when the price is $1.50 per hot dog, how many will he buy when the price is $1.00 per hot dog?

nd decides that she can charge more. She raises the price to $6 a dozen and sells 40 dozen. What is the elasticity of demand? quantity by the percent change in price.

es. Is Julie's demand for envelopes elastic or inelastic? What is Julie's elasticity of demand?

What is the elasticity of demand? Assuming that the elasticity of demand is constant, how many would she sell if the price were

would she sell if the price were $10 a box?

Theory of Demand Market B undle Utility

Relation of Utility and Demand A few assumptions we need to make

Rationality Cardinal vs Ordinal

Total Utility

Marginal Utility,

Law of Diminishing Marginal Utility

Representing Preferences Indifference Curves Shape of the Indifference Curve Preference Map Properties of the IC

Marginal Rate of Substitution

Budget Line Optimal Choice of the Consumer

Consumer Surplus

Additional Types of Goods Normal Inferior Giffen Complements Substitutes

Combination of goods and services that a consumer buys happiness perceived value of goods and services

Utility drives demand Complete Information Non satiation Can establish Ranking of goods Transitivity property Continuity Cardinal Ordinal All know the information knows which good is better > < = A>B B>C TF A>C if A > C; bundles closely related to A > Bundles

problem, however, with this concept, con simply denotes consumer preferences wit

What is Total utility (Why is it important to do marginal analysis?) What is Marginal Utility? Change in U / Change in Consumption Nagsasawa

a curve that shows bundles that give the consumer same level of satisfaction Convex Indiferrence Map Higher IC = Higher TU IC are Downward Sloping IC do not Intersect Bowed Inward

Because of MRS Transitivity MRS willing to trade more kapag mas madami

Slope of the IC (Mux / Muy) The limit of what a consumer can have given his resources Combination of goods that he can buy givenhe spend all his income Slope of BL = Slope of IC

Rate at which a consumer is willing to trade on

WHY? Illustrate the graph can view demand as willingness to pay What is it? Willingness to pay - price he has to pay Wow effect

y related to A > Bundles closely related to C

with this concept, convenient though it may be: consumers don't as a rule calculate the numerical utility value of their pur sumer preferences without assigning them numerical values.

ore kapag mas madami

mer is willing to trade one good for the other ( Units of Y for 1 Unit of X )

erical utility value of their purchases

Production What is Production? Production Process (input process Output) Factor of Production Land Labour Capital Technology Products of The Inputs Average Product Marginal Product Isoquants Combinations of Input that Yield sa total Quat. Prod Returns to Scale Exemptions Economies of Scale What does a firm Want? Profit TR-TC What is TR? (PxQ) What is TC? (all the costs involved Cost Concept of Cost Explicit Implicit Accounting Cost Economic Cost Cost Curves Total Cost Total Variable Cost Total Fixed Cost ATC AVC AFC Marginal Costs Graphing the costs explain the behaviour of each cost Isocosts Explicit Only Explicit and Implicit Diminishing Marginal Product of L/K Why is it happening? QP/QFP ChQP/ChQFP

See Image

Combination of Inputs that will yield Long Run Costs

Costs differ in time horizons (Why?) take time to adjust inputs Such as capital (factories) Short Run vs Long run

Firms get to choose in the long run Kung ano ung gagamitin nilang short Diseconomies of scale Economies of scale Constant returns to scale lrac falls as Q goes up

Cost Minimization

Where ISOCOST is tangent with ISOQ Producers Surplus

Difference between Willingness to p

Slope MPl/MPk = MRTS

require outlay of money not require outlay Example is opportunity cost

behaviour of each cost

on of Inputs that will yield same total cost

in time horizons (Why?) o adjust inputs ital (factories)

see images

o choose in the long run ng gagamitin nilang short run cost currve

COST is tangent with ISOQUANT

between Willingness to produce Selling Pirce

Iso Cost IsoQuant

Costs

Graphing the costs

Costs

DMP

TFC

TVC

Long run and Short run costs

nd Short run costs

Perfect Competition Characteristics

many buyers many sellers homogenous goods freely exit and enter Revenue Average Revenue Marginal Revenue Profit Max for the Firm MR=MC WHY? MR goes down MC Goes up What if MR>MC MR<MC Demand in a PC mkt P is elastic P=MR=MC Shut down Prices When? P>ATC P=ATC P=AFC P<AVC

Monopoly Characteristics
Only one Seller in the MKT Mkt Power Why is there a monopoly Key resource is owned by the monopoly Government intervention Natural monopoly Scale barriers

Types of Monopolist
Natural monopoly Discriminating Monopolist

Profit-Maximizing Condition
Still MR=MC But price is > MR=MC

Why because demand Is not perfectly elastic ( a downward sloping deman Revenue A mono marginal revenue is Always less than the price Graph See at Images Profit of a monopoly Square Deadweight loss Not socially efficient Monopoly produces less because Price is higher no one will buy

TR/Qs CTR/CQs

if Rev in producing < variable costs of Production

Ability to influence Qsupplied & Price

(legal barriers) the cost of production for a single producer is better than multiple ones (economies of scale) too large to enter sa market, a lot of resources are needed

Price dis. Same goods but different prices to different customers (SEE IMAGES) NOTE

Because a competitive firm can sell all it wants at t

ctly elastic ( a downward sloping demand curve) possible na cant afford na yung iba sa market

s less than the price

effect. When it increases production by 1 unit, it re unit, and it does not receive any less for the amoun because the competitive firm is a price taker, its m of its good. By contrast, when a monopoly increase reduce the price it charges for every unit it sells, an Figure 15-3 graphs th Because the firms price equals its average revenue curve is also the average-revenue curve.) These tw same point on the vertical axis because the margin equals the price of the good. But, for the reason w marginal revenue is less than the price of the good

Price is higher no one will buy

firm can sell all it wants at the market price, there is no price

es production by 1 unit, it receives the market price for that eceive any less for the amount it was already selling. That is, ve firm is a price taker, its marginal revenue equals the price t, when a monopoly increases production by 1 unit, it must rges for every unit it sells, and this cut in price reduces revenue on the units it was already selling. As a result, a monopolys marginal reve

ce equals its average revenue, the demand ge-revenue curve.) These two curves always start at the tical axis because the marginal revenue of the first unit sold good. But, for the reason we just discussed, the monopolists ss than the price of the good. Thus, a monopolys marginalrevenue curve lies below its demand curve.

esult, a monopolys marginal revenue is less than its price.

Monopoly

Profit Max

Oligopoly Characteristics
few sellers that offer identical products What can happen Collusion agreement among firms Form a cartel act as a monopoly Independent action Game Theory Price wars Competing What are the benefits of this? leaders-followers

Monopolistic Competition many sellers but sell products that are NOT similar Differentiation

A monopolistic competition possesses the characteristics of both competitive and monopolistic markets. This is b in the market and there are no barriers to entry while at the same time the products can easily be differentiated t The implication of this is that even if there are plenty of firms in the market, each has their own niche wherein the

nd monopolistic markets. This is because there are many sellers ducts can easily be differentiated to create market power h has their own niche wherein they can influence both the price and demand.

Market Failure
What is a market failure? Types of Market Failure Part 7 images Common Good

oceans fish one shared by the whole community Tragedy of the commons non rival non exclusionary

Public Good Negative Externality Positive Externality Information Asymmetry Agency Problem Adverse Selection Moral Hazard

atmosphere depletion of the resources shared by all free rider problem congestion