Escolar Documentos
Profissional Documentos
Cultura Documentos
of Economics
Principles (Tradeoff, OC, Marginal Analysis,
Incentives, Specialization(Trade)
Economic Models:
- Production Possibilities Frontier/ Curve;
application of: opportunity cost; Efficiency,
Economic Growth, Law of Diminishing
Returns
- Circular Flow Diagram simple diagram on
how the economy works
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Markets
A
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Markets
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Market Type:
A Competitive Market
A competitive market is a market. . .
with many buyers and sellers.
that is not controlled by any one person.
Competition:
Perfect and Otherwise
Perfect Competition
Products
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Competition:
Perfect and Otherwise
Monopoly
One
Oligopoly
Few
sellers
Not always aggressive competition
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Competition:
Perfect and Otherwise
Monopolistic
Competition
Many
sellers
Slightly differentiated products
Each seller may set price for its own
product
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Demand
Quantity demanded
is the amount
of a good that buyers are
willing and able
to purchase.
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Law of Demand
The law of demand states
that there is an inverse
relationship between price
and quantity demanded.
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Demand Schedule
The demand schedule is a table
that shows the relationship
between the price of the good
and the quantity demanded.
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Demand Schedule
Price
$0.00
0.50
1.00
1.50
2.00
2.50
3.00
Quantity
12
10
8
6
4
2
0
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Determinants of Demand
Market
price
Consumer income
Prices of related goods
Tastes
Expectations
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
4.
5.
6.
7.
8.
Income
Ceteris
Number of Buyers (Population)
Paribus
Tastes and Preferences
- Other factors
Weather and Climate
does not
Season and Occasion
change
Expectation on changes in prices and
supply
Prices of related products
Other factors (special influences)
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
does not
change
Price /
scoop
Annes Qd
of ice cream
Sophies Qd
of ice cream
Total Qd
20
15
10
11
10
17
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Bot
h
girls
D
Determinants of demand
3. Tastes and Preferences (example new flavours)
Halo-halo flavor may raise Qd, and the demand curve will shift to
the right
Ceteris Paribus - Other factors does not change
Mangosteen flavor may lower Qd and the demand curve will shift
to the left
Ceteris Paribus - Other factors
Determinants of demand
Ceteris
Paribus
- Other factors
does not
change
eg.: ice cream and ice candy or ice drop) Give more examples.
What happens to Qd and D of ice cream when the price of ice candy
increases? ... When the price of magnum drops?
Complementary products (products that go together. If you buy one, you have to
buy the other product eg.: car and gasoline)
8. Other factors (special influences)
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Demand Curve
The demand curve is the downwardsloping line relating price to quantity
demanded.
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Demand Curve
Price of
Ice-Cream
Cone
Price
$0.00
0.50
1.00
1.50
2.00
2.50
3.00
$3.00
2.50
2.00
1.50
Quantity
12
10
8
6
4
2
0
1.00
0.50
0 1
2 3 4 5 6 7 8 9 10 11 12
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Quantity of
Ice-Cream
Cones
Ceteris Paribus
Ceteris paribus is a Latin phrase that
means all variables other than the
ones being studied are assumed to be
constant. Literally, ceteris paribus
means other things being equal.
The demand curve slopes downward
because, ceteris paribus, lower prices
imply a greater quantity demanded!
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Market Demand
Market
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Determinants of Demand
Market
price
Consumer income
Prices of related goods
Tastes
Expectations
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Price of
Cigarettes
per Pack
$4.00
Changes in Quantity
Demanded
A tax that raises the
price of cigarettes
results in a movement
along the demand
curve.
2.00
D1
0
12
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
20
Number of Cigarettes
Smoked per Day
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Changes in Demand
Price of
Ice-Cream
Cone
Increase in
demand
Decrease in
demand
D2
0
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
D3
D1
Quantity of
Ice-Cream
Cones
Consumer Income
As
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Consumer Income
Price of
Ice-Cream
Cone
Normal Good
An increase
in income...
$3.00
2.50
Increase
in demand
2.00
1.50
1.00
0.50
D1
0 1
2 3 4 5 6 7 8 9 10 11 12
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
D2
Quantity of
Ice-Cream
Cones
Consumer Income
Price of
Ice-Cream
Cone
Inferior Good
$3.00
An increase
in income...
2.50
2.00
Decrease
in demand
1.50
1.00
0.50
D2
0 1
D1
2 3 4 5 6 7 8 9 10 11 12
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Quantity of
Ice-Cream
Cones
A Change in
This Variable . . .
Price
Represents a movement
along the demand curve
Income
Prices of related
goods
Tastes
Expectations
Number of
buyers
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Supply
Quantity supplied is the amount of a
good that sellers are willing and able
to sell.
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Law of Supply
The law of supply states that there is a
direct (positive) relationship between
price and quantity supplied.
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Determinants of Supply
Market
price
Input prices
Technology
Expectations
Number of producers
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Supply Schedule
The supply schedule is a table that
shows the relationship between the
price of the good and the quantity
supplied.
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Supply Schedule
Price
$0.00
0.50
1.00
1.50
2.00
2.50
3.00
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Quantity
0
0
1
2
3
4
5
Supply Curve
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Price of
Ice-Cream
Cone
Supply Curve
Price
$0.00
0.50
1.00
1.50
2.00
2.50
3.00
$3.00
2.50
2.00
1.50
1.00
Quantity
0
0
1
2
3
4
5
0.50
1 2 3 4 5 6 7 8 9 10 11 12
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Quantity of
Ice-Cream
Cones
Market Supply
Market
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Determinants of Supply
Market
price
Input prices
Technology
Expectations
Number of producers
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
S
C
$3.00
1.00
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Quantity of
Ice-Cream
Cones
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Change in Supply
S3
Price of
Ice-Cream
Cone
S1
S2
Decrease in
Supply
Increase in
Supply
0
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Quantity of
Ice-Cream
Cones
Price
Input prices
Technology
Expectations
Number of sellers
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Equilibrium Quantity
The
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Price
$0.00
0.50
1.00
1.50
2.00
2.50
3.00
Quantity
19
16
13
10
7
4
1
Supply Schedule
Price
$0.00
0.50
1.00
1.50
2.00
2.50
3.00
Quantity
0
0
1
4
7
10
13
Equilibrium of
Supply and Demand
Price of
Ice-Cream
Cone
Supply
$3.00
Equilibrium
2.50
2.00
1.50
1.00
Demand
0.50
0
1 2 3 4 5 6 7 8 9 10 11 12
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Quantity of
Ice-Cream
Cones
Excess Supply
Price of
Ice-Cream
Cone
Surplus
$3.00
Supply
2.50
2.00
1.50
1.00
Demand
0.50
0
1 2 3 4 5 6 7 8 9 10 11 12
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Quantity of
Ice-Cream
Cones
Surplus
When the price is above the equilibrium
price, the quantity supplied exceeds the
quantity demanded. There is excess supply
or a surplus. Suppliers will lower the price
to increase sales, thereby moving toward
equilibrium.
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Excess Demand
Price of
Ice-Cream
Cone
Supply
$2.00
$1.50
Shortage
5 6
Demand
8 9 10 11 12 13
Quantity of
Ice-Cream Cones
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Shortage
When the price is below the equilibrium
price, the quantity demanded exceeds the
quantity supplied. There is excess demand
or a shortage. Suppliers will raise the price
due to too many buyers chasing too few
goods, thereby moving toward equilibrium.
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Supply
$2.50
New equilibrium
2.00
2. ...resulting
in a higher
price...
Initial
equilibrium
D2
D1
0
3. ...and a higher
quantity sold.
10
Quantity of
Ice-Cream Cones
S2
1. An earthquake reduces
the supply of ice cream...
S1
New
equilibrium
$2.50
2.00
Initial equilibrium
2. ...resulting
in a higher
price...
Demand
1 2 3 4
7 8 9 10 11 12 13
3. ...and a lower
quantity sold.
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Quantity of
Ice-Cream Cones
No Change
In Demand
An Increase
In Demand
A Decrease
In Demand
No Change
In Supply
An Increase
In Supply
A Decrease
In Supply
P
Q
P
Q
P
Q
P
Q
P
Q
P
Q
P
Q
P
Q
P
Q
same
same
up
up
down
down
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
down
up
ambiguous
up
down
ambiguous
up
down
up
ambiguous
ambiguous
down
Summary
Economists
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Summary
According
Summary
The
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Summary
In
Summary
Supply
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Graphical
Review
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Price of
Ice-Cream
Cone
Supply
2.00
Initial
equilibrium
D1
0
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
10
Quantity of
Ice-Cream Cones
Supply
2.00
Initial
equilibrium
D1
0
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
10
Quantity of
Ice-Cream Cones
Supply
$2.50
New equilibrium
2.00
Initial
equilibrium
D2
D1
0
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
10
Quantity of
Ice-Cream Cones
Supply
$2.50
New equilibrium
2.00
2. ...resulting
in a higher
price...
Initial
equilibrium
D2
D1
0
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
10
Quantity of
Ice-Cream Cones
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Supply
$2.50
New equilibrium
2.00
2. ...resulting
in a higher
price...
Initial
equilibrium
D2
D1
0
3. ...and a higher
quantity sold.
10
Quantity of
Ice-Cream Cones
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Supply
$2.50
New equilibrium
2.00
2. ...resulting
in a higher
price...
Initial
equilibrium
D2
D1
0
3. ...and a higher
quantity sold.
10
Quantity of
Ice-Cream Cones
S1
2.00
Initial equilibrium
Demand
1 2 3 4 5 6 7 8 9 10 11 12 13
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Quantity of
Ice-Cream Cones
1. An earthquake reduces
the supply of ice cream...
S1
2.00
Initial equilibrium
Demand
1 2 3 4 5 6 7 8 9 10 11 12 13
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Quantity of
Ice-Cream Cones
1. An earthquake reduces
the supply of ice cream...
S1
2.00
Initial equilibrium
Demand
1 2 3 4 5 6 7 8 9 10 11 12 13
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Quantity of
Ice-Cream Cones
1. An earthquake reduces
the supply of ice cream...
S1
$2.50
New
equilibrium
2.00
Initial equilibrium
Demand
1 2 3 4 5 6 7 8 9 10 11 12 13
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Quantity of
Ice-Cream Cones
1. An earthquake reduces
the supply of ice cream...
S1
$2.50
New
equilibrium
2.00
Initial equilibrium
2. ...resulting
in a higher
price...
Demand
1 2 3 4 5 6 7 8 9 10 11 12 13
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Quantity of
Ice-Cream Cones
1. An earthquake reduces
the supply of ice cream...
S1
New
equilibrium
$2.50
2.00
Initial equilibrium
2. ...resulting
in a higher
price...
Demand
1 2 3 4
7 8 9 10 11 12 13
3. ...and a lower
quantity sold.
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
Quantity of
Ice-Cream Cones