Download dpm review F15 akw

1 S-T-O-N-E-R
• Non-price determinants for Supply
• S=Subsidy & Taxes
• T=Technology
• O=Other Related products
• N=Number of Sellers
• E=Expectations of Sellers
• R = Resource Price
1 T-I-M-E-R
• Non-Price Determinants of Demand
TASTES & PREFERENCES (tickle me elmo, furbies)
•
•
Key words: like, love, fashionable, preferred, voted
Students at CyFalls High School vote to have Chik-fil-A for lunch instead of What-a-Burger. What will happen to the
demand for Chik-fil-A?
INCOME
•
•
Key words: Bonus, gift card, salary, wages
The stores in the mall decide to give their employees a raise. What will happen to the demand for clothes?
MARKET SIZE
•
•
Key words: immigration, more students, more housing, population movement
A new sub division opens up north of 290. What happens to the demand for groceries?
EXPECTATIONS OF CONSUMERS
•
•
Key words: Future outcomes, sales, ticket purchases, time stamps
After Thanksgiving TV’s go on sale. What happens to the demand for TV’s on black Friday?
RELATED GOODS:
SUBSTITUTES (lobster instead of steak)
–
The news reports that cows in the United States are infected with Mad Cow disease. What happens to the demand of chicken?
COMPLIMENTS (peanut butter and jelly)
–
A drought causes this years peanut crop to decrease drastically. What happens to the demand for grape jelly?
2
TASTES & PREFERENCES (tickle me elmo, furbies)
•
•
Key words: like, love, fashionable, preferred, voted
Students at CyFalls High School vote to have Chik-fil-A for
lunch instead of What-a-Burger. What will happen to the
demand for Chik-fil-A?
INCOME
•
•
Key words: Bonus, gift card, salary, wages
The stores in the mall decide to give their employees a raise.
What will happen to the demand for clothes?
MARKET SIZE
•
•
Key words: immigration, more students, more housing,
population movement
A new sub division opens up north of 290. What happens to
the demand for groceries?
EXPECTATIONS OF CONSUMERS
•
•
Key words: Future outcomes, sales, ticket purchases, time
stamps
After Thanksgiving TV’s go on sale. What happens to the
demand for TV’s on black Friday?
RELATED GOODS:
SUBSTITUTES (lobster instead of steak)
–
The news reports that cows in the United States are infected
with Mad Cow disease. What happens to the demand of
chicken?
COMPLIMENTS (peanut butter and jelly)
–
A drought causes this years peanut crop to decrease
drastically. What happens to the demand for grape jelly?
2 RULES for shifting Supply.
Write this with Demand rules
OR at the bottom of the page.
(circle price, underline products)
#1 > If Price + 1 Product = 1 line = ∆ QS =
Price
#2 > If Price + 2 Products = 2 lines = ∆ S =
STONER
#3 > If no Price at all = 2 lines = ∆ S = STONER
Shift Supply
• Increase in Supply = will shift to the right
P
D
S1
S2
Q
Shift Supply
•
Decrease in supply = shift to the left
P
D
S-2
S-1
Q
Shifting Demand Curve
–
If there is an increase in demand, the
curve will shift to the right.
P
D2
D1
Q
Shifting Demand Curve
• If there is a decrease in demand,
the curve will shift to the left
P
D1
D2
Q
RULES for shifting
BOTH Supply and Demand
(circle price, underline products)
#1 > If Price + 1 Product = 1 line = ∆ QD =
Price
#2 > If Price + 2 Products = 2 lines = ∆ D =
TIMER
#3 > If no Price at all = 2 lines = ∆ D = TIMER
Graph of Demand and Supply of Pizza
P
S
D
$1.50
Equilibrium
200
Q
The equilibrium price is $1.50 and the equilibrium quantity is 200.
Shifts in Supply
 The
price of tomato sauce increases. What happens
to the supply of pizza?
 Rule #=
QS or S? Det=
EP = EQ
=
$
Pizzas
$3.50
$3.00 D
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
0
S2
S1
100
200
QD/QS
300
400
3 Government Intervention
Government intervention: gov’t regulations are
imposed to keep the market from reaching
equilibrium.
 Price ceilings: government sets a maximum price
that can be legally charged.
1. Established on “essential” goods.
2. Tends to result in shortages because consumers demand
more of the product at the ceiling, but producers do not
want to supply it.
3. Occurs below equilibrium because they work to keep
prices low and NOT achieve equilibrium.
4. Benefits consumers. Example: Rent Control.
At a price ceiling of $1.00, QD = 250 and QS = 150. As
a result, there is a shortage of 100.
$
Pizzas
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
D
S
3 Price Ceiling
0
100
200
QD/QS
300
400
$
Pizzas
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
D
0
4 Price Floor
100
200
QD/QS
300
S
400
5 Tracking the Business Cycle
TIME/INCREMENTS
5
PEAK
Raise Reserve Requirement
Raise Discount Rate
Sell Bonds
EXPANSION
Raise Taxes
Cut Spending
TROUGH
You want to:
Put money INTO the
Government/Fed
Lower Reserve Requirement
Lower Discount Rate
Buy Bonds
CONTRACTION
Lower Taxes
Increase Spending
You want to:
Take money OUT OF
the Government/Fed
5 The Phases of the Business Cycle
• Expansion:($ are flowing)
– period of economic growth
– plentiful jobs and falling unemployment
– businesses invest in NEW plants, equipment,
salaries ect…..
– Inflation (higher prices) can occur.
• Peak:
– real GDP stops rising
– high production, high employment and stable
prices.
– height of expansion
5 The Phases of the Business Cycle
•
Contraction:( going down hill)
–
–
–
–
•
Deflation (lower prices) can occur
falling output
low levels of investment
Two types:
• Recession: real GDP falls for 2 consecutive quarters,
lasts 6-18 months and
• Depression: high unemployment and low factory
output
Trough:
– lowest point of economic activity
– economy has “bottom-out”
Indicators
• Leading: stock market prices, interest rates,
orders of capital goods
• Coincident: change with the business cycle;
personal income, sales
• Lagging: change after downturn or upturn;
use of installment credit (cars, homes)
8 What is a

Production Possibility
Frontier or Curve is a graph
that shows the combination
of goods and services that
can be produced when the
Factors of Production (LLCE)
are utilized to their full
potential.
production
possibilities
frontier? (PPF or
PPC)
C
A
P
I
T
A
l
G
O
O
D
s


Consumer Goods
Shows what a country/business can
produce for any given amount of
the other.
PPF illustrates the basic economic
problem of guns or butter – which
to produce?
8 Draw a graph on your
paper
Label the X and Y
sides
-X is always on the
bottom
Y
X
Graphing the PPF
Points A – F go inside the graph
A
B
C
D
E
F
X > TANKS
Y > WHEAT
0
1
2
3
4
5
40
38
33
24
13
0
A
B
H
C
D
G
E
F
• Points A  F: Any point
along the PPF
8 Analyzing
the PPF
What do all
those points
mean?
– An efficient economy
(Perfect world… never happens)
• Point G: Any point
underneath the PPF
– Inefficiency/ Economic
Recession
8 Analyzing PPF
• Any point above the PPF (H) = currently
unattainable, however it is a FUTURE
goal
– We always want our economy to be
growing
– To reach point H, increase the following:
• technology
• debt
• investment
8 Analyzing PPF
• Any point above the PPF (H) = currently
Future – never
realizedgoal
unattainable, however it isHa FURTURE
– We always want our economy to be growing
– To reach point H, increase the following:
• technology
• debt
• investment
G
Economies are all
somewhere in here:
8 Analyzing PPF
• Any point above the PPF (H) = currently
Future – never
realizedgoal
unattainable, however it isHa FURTURE
– We always want our economy to be growing
– To reach point H, increase the following:
• technology
• debt
• investment
G
Economies are all
somewhere in here:
10
10
14 Protectionism
• Reasons to be Protectionist-ish
• Protecting jobs
– “No wonder there is high unemployment”
• Protecting infant (young) industries
– “We need tariffs to help new businesses get a start”
• National Security issues
– “What if we broke out into war and couldn’t get the
parts for our missile defense?”
13 Free Trade
• 15 Comparative Advantage
– “When you restrict foreign competition, you remove
any incentive for American Industries to improve”
• Specialization
– “each nation has its own area of expertise and should
concentrate on that”
• International peace
– “If there are no restrictions on world trade, everyone
benefits”
– “When you limit imports you hurt exports”
13 Free Trade Zone
• Treaty (such as NAFTA) between two
or more countries to establish a free
trade area where commerce in goods
and services can be conducted across
their common borders, without
tariffs or hindrances but (in contrast
to a common market) capital or labor
may not move freely. Member
countries usually impose a uniform
tariff (called common external tariff)
13. Free Trade Zone Organizations
15 Absolute Advantage
• Using the same amount of resources, one
nation can produce a product at a lower cost
and more efficiently than a second nation
– Oil  Middle East
– Diamonds  South Africa
15 Comparative Advantage
• The ability to produce the same product at a
lower opportunity cost
14 Protectionism
• Reasons to be Protectionist-ish
• Protecting jobs
– “No wonder there is high unemployment”
• Protecting infant (young) industries
– “We need tariffs to help new businesses get a start”
• National Security issues
– “What if we broke out into war and couldn’t get the
parts for our missile defense?”
13 Free Trade
• Comparative Advantage
– “When you restrict foreign competition, you remove
any incentive for American Industries to improve”
• Specialization
– “each nation has its own area of expertise and should
concentrate on that”
• International peace
– “If there are no restrictions on world trade, everyone
benefits”
– “When you limit imports you hurt exports”
16 Types of Unemployment
•
Cyclical: associated with fluctuations in the
business cycle
–
•
ex. Higher unemployment during recessions/lower in
recovery
Structural: caused by fundamental changes in the
economy
–
ex. Technological advances or discovery of natural
resources
COPY
16 Types of Unemployment
•
Seasonal: caused by changes in seasons or weather
–
•
ex. Lifeguards or Santa Clause
Frictional: temporary unemployment because of
firings, layoffs voluntary searches for new jobs, etc.
Always exists
19 Traditional
● Relies on habits, customs or rituals
● Roles are passed from generation to generation
Strengths: highly motivated citizens because your
work directly provides for your family
Weaknesses: no “down time” to create, invent,
etc
Traditional
● Property Rights – equally owned by family/tribe
● Incentives – provide basic needs for family
● Economic Freedom – none, no time for
creativity/relaxation; won’t survive if each person
doesn’t do their part
● Competition – none
● Role of Gov – (chief, tribal leader) - survival
P- Based on traditions, available resources, &
family/village size.
D- Individuals, families, or the village.
C- Trade within the village
Bedouins (Arabia)
Nomadic herders (Sahara Desert)
Command
● central government alone decides
● government owns land & capital
Strengths: guaranteed jobs & income
Weaknesses: no individual freedoms; works in
theory – not practice; allows for corruption
Command
● Property Rights – government owns property
● Incentives – none (why would you work hard if you
can’t advance/get raise, etc)
● Economic Freedom – low
● Competition – discouraged by government
● Role of Gov – dictates what is produced, who
produces, how materials are distributed
North Korea
Cuba
China
Former USSR
Free Market
● Individuals decide
Strengths: individual choices, businesses can
keep profits
Weaknesses: difficult/impossible to achieve
equality, some are very rich/poor
Free Market
● Property Rights – individuals own property
● Incentives – individuals want best price & product;
businesses want profit
● Economic Freedom – high
● Competition – encouraged by government
● Role of Gov – support competition and protect
individuals
Mixed
● Blends a market economy with government
intervention and involvement
Mixed: Free Market/US Free Enterprise
● Individuals own and operate the FOP and answer
the basic economic questions. Some government
regulation mostly for safety of consumer.
○
Examples: Canada, US, Mexico
Mixed: Authoritarian Socialism
● Government owns and controls nearly all FOP
● Government officials develop long range plans.
○ Examples: Cuba, China
Mixed: Democratic Socialism
● Government owns some FOP (key industries)
● Individuals influence economic planning through
elections.
○
Examples: Sweden, Poland, France
France
Sweden
Peru