Transcript dpm review F15 akw

1 T-I-M-E-R
• Non-Price Determinants of Demand
TASTES & PREFERENCES (tickle me elmo, furbies)
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•
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
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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
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•
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?
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
2 Change in supply – PICK ONE
2
2 Change in Demand – PICK ONE
2
3 & 4 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.
Price floor: minimum price you
can charge

1.
Established on “essential” goods.
2.
3.
4.
Tends to result in shortages because consumers demand more of the product at the ceiling, but producers do not want to supply it.
Occurs below equilibrium because they work to keep prices low and NOT achieve equilibrium.
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”
6. Consumer Price Index
an index of the variation in prices
paid by typical consumers for retail
goods and other items.
•
•
•
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)
7 GDP
• Gross domestic product (GDP) is the
monetary value of all the finished goods and
services produced within a country's borders
in a specific time period.
• Though GDP is usually calculated on an annual
basis, it can be calculated on a quarterly basis
as well.
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 Analyzing PPF
• Any point above the PPF (H) = currently
Future – never
realizedgoal
unattainable, however it is a FURTURE
H
– 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
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
9
• When the economy grows and all
other things remain constant, we can
produce more, so this will cause a
shift in the production possibilities
curve outward, or to the right.
• If the economy were to shrink, then,
of course, the curve would shift to the
left. When the curve shifts outward, or to the right,
•
•
•
•
•
that means output is increasing. When the curve
shifts inward, or to the left, that means output is
decreasing.
Shifts in the production possibilities curve are
caused by changes in these things:
• Advances in technology
• Changes in resources
• More education or training (that's what we call
human capital)
• Changes in the labor force
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10
10
11 scarcity
• Scarcity dictates that economic decisions must be made
regularly in order to manage the availability of resources to
meet human needs.
• Some examples of scarcity include:
– The gasoline shortage in the 1970's
– After poor weather, corn crops did not grow resulting in a scarcity of
food for people and animals and ethanol for fuel.
– Over-fishing can result in a scarcity of a type of fish.
– Fewer farmers raising cattle can result in a scarcity of milk and cheese.
– An embargo on imports from a country can result in a scarcity of the
resources that country exports.
• Read more at http://examples.yourdictionary.com/examplesof-scarcity.html#sI3B3qAJBcj5yW6a.99
12 Opportunity Costs
• Opportunity cost refers to the value forgone in order to make
one particular investment instead of another.
• How it works/Example:
• For example, let's assume you have $15,000 that you could
either invest in Company XYZ stock or puttoward a graduate
degree. You choose the stock. The opportunity cost in this
situation is the increased lifetime earnings that may have
resulted from getting the graduate degree -- that is, you
choose to forgo the increase in earnings when you use
the money to buy stock instead.
13 Free Trade – The unrestricted purchase
and sale of goods and services between
countries without the constraints of tariffs,
duties and quotas.
• 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 Organizations
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?”
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
•
16 Types of Unemployment
Cyclical: associated with fluctuations in the
business cycle
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•
Structural: caused by fundamental changes in the
economy
–
•
ex. Technological advances or discovery of natural
resources
Seasonal: caused by changes in seasons or weather
–
•
ex. Higher unemployment during recessions/lower in
recovery
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
17 Bonds
• DEFINITION of 'Treasury Bond - T-Bond'
• A marketable, fixed-interest U.S.
government debt security with a maturity of
more than 10 years. Treasury bonds make
interest payments semi-annually and the
income that holders receive is only taxed at
the federal level.
•
18 Liquid Assets
• A liquid asset is cash on hand or an asset that
can be readily converted to cash such as
money in a savings account
• . An asset that can readily be converted
into cash is similar to cash itself because the
asset can be sold with little impact on its
value.
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