Transcript 2. Review of economic concepts

CDAE 272
International Economic
Development
Spring 2007
Class 06
Feb. 1
Last class:
2. Review of economic concepts and methods
Quiz 1 (Chapter 1)
Today:
Result of Quiz 1
2. Review of economic concepts and methods
Class exercise 1
Next class:
2. Review of economic concepts and methods
Quiz 2 (Quiz 1 questions and sections 2.1 – 2.3)
Reading:
2. Review of economic concepts
Result of Quiz 1
N = 40
1.
2.
3.
4.
5.
6.
7.
Range 5.5 – 10 Average = 8.24
Major factors for the rapid increase in world trade
How to calculate a growth rate?
Index of openness
Average annual growth rate
How to calculate the contribution to GNP?
How to calculate the contribution to GNP?
Major reasons for the rapid increase in U.S. trade deficit
2. Review of economic concepts
2.1.
2.2.
2.3.
2.4.
2.5.
2.6.
2.7.
An overview of an economy -- How does it work?
Demand and supply
Market equilibrium and price determination
Excess supply and excess demand
Consumer and producer surplus
Impacts of market interventions
International trade & price determination
2.1. An overview of an economy
2.1.1. Who are the major players?
-- Households (consumers)
-- Firms (producers)
-- Government
2.1.2. What are their relations in the markets?
-- Output markets (commodities & services)
-- Input markets (labor, capital, etc.)
2.1.3. A closed economy vs. an open economy
2.1. An overview of an economy
2.1.4. How to express economic relations?
-- Tables, graphs and functions
-- Advantages and disadvantages
2.1.5. General notations
P = price
Qd = quantity demanded
Qs = quantity supplied
P* = equilibrium price
Q* = equilibrium quantity
2.2. Demand and supply
2.2.1. A demand curve (function): relation between
Qd and P under the condition that all other
factors are fixed
e.g., Qd = 10 - 0.5 P
2.2.2. How to draw a demand curve?
2.2. Demand and supply
2.2.3. Relations between demand and income
-- Normal goods
-- Inferior goods
2.2.4. Relations between commodities:
-- Substitutes
-- Complements
-- Independent
2.2.5. Individual demand vs. market demand: how to
derive (draw) a market demand function
(curve)?
2.2. Demand and supply
2.2.6. Shifts in a market demand curve for X:
-- A change in population in the market
-- A change in average income
-- A normal good
-- An inferior good
-- A change in the price of another good (PY)
-- X and Y are substitutes
-- X and Y are complements
-- X and Y are independent
2.2. Demand and supply
2.2.7. A supply curve (function): relation between
Qs and P under the condition that all other
factors are fixed
e.g., Qs = -2 + 2 P
2.2.8. Individual supply vs. market supply: how to
derive (draw) a market supply function
(curve)?
2.2.9. Shifts in a supply curve:
-- A change in input prices
-- A change in technology
…...
2.3. Market equilibrium & price determination
2.3.1. A cartoon presentation
2.3.2. A graphical analysis
2.3.3. A mathematical analysis: Qs = Qd
For example:
Demand: Qd = 10 - 1.0 P
Supply:
Qs = -2 + 2 P
Equilibrium quantity (Q*) & price (P*):
2.3.4. Change in market equilibrium
Class exercise 1
(Feb. 1)
Demand: Qd = 8 - 1.0 P
Supply: Qs = -1 + 2 P
(1) Draw the supply and demand curves
(2) Derive the market equilibrium price (P*) &
quantity (Q*)