Econ 101 1st Edition Lecture 4 Outline of Last Lecture I. Exchange and MarketsOutline of Current Lecture II. Chapter 3 ApplicationIII. 3.1 Comparative advantage and exchangeIV. 3.2 MarketsV. 3.3 Market Failure and the role of GovernmentVI. Chapter 4 Supply and DemandCurrent LectureI. Chapter 3 Applicationa. Question: How does the US approach impact the opportunity of having children?i. Consider what are the trade offsb. What economic and social impacts might there be from the difference in US policy relative to the rest of the world?i. We are 1 of 4 countries who do not offer paid maternity leave c. What other opportunity costs should one consider before making a normative decision about whether to recommend a change in US policy?i. Discriminate against women of child bearing ageii. Peoples wages lower while the woman is getting paid on maternity leaveiii. Affect total employmentiv. Large firms may be better suited to hire women who may get pregnant v. May have to increase taxes to support women on maternity leave and that may lead to less money going else where (i.e. military)d. What is the government hoping to get from paying women on maternity leave?i. Increase birth rateii. Bring women back to their jobse. Think about how to form an argument using this questioning method for the exami. On the exam half is multiple choice and the questions come from the myEcon Lab homework/quizzesII. 3.1 Marketsa. Market Economy: an economy in which people specialize and exchange goods and services in marketsb. People gain from trade when they engage in contractsThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.i. Remove uncertaintyii. Contract: specify the terms of exchange, facilitating exchange between strangersiii. Insurance: reduce the risk entrepreneurs faceiv. Patents: increase the profitability of inventions, encouraging firms to develop new products and production processesv. Accounting rules: provide potential investors with reliable information about the financial performance of a firmc. Virtues of Marketsi. Centrally planned economy: An economy in which a government bureaucracy decides how much of each good to produce, how to producethe good, and who gets the goodii. Before World War II the U.S. was very centrally planed and people tried tomove around to be closer to friendsiii. It was a failure for the U.S. iv. It has worked in China, but now they are shifting away from that structured. The role of entrepreneursi. Play a key role in a market economyii. Prices and profits provide signals1. You try to get into markets where there is profitiii. The competitive process makes everybody better offIII. 3.3 Market failure and the role of governmenta. Sometimes markets do not operate efficientlyb. Government steps in when it benefits the country economicallyIV. Chapter 4 Supply Demanda. Markets form a reason for trade and gains for tradeb. Supply and demand nails things down preciselyc. Perfect competitioni. Many buyers and sellers (no one has any power)1. So much competition that you cannot get away with raising your cost and forcing people to buy your productii. A homogenous productiii. No barriers to entryd. Supply and Demandi. We can use comparative advantage to predict tradeii. Depends on technology and your resourcesiii. Demand represents the voluntary nature of tradeiv. Equilibrium is present when supply = demande. Equilibriumi. No current regretsii. The producers on the supply side do not wish they’d charge either higher or lower price or supplied a higher or lower quantityiii. Occurs on perfectly competitive markets when supply demandf. Equilibrium in perfectly competitive marketsi. Another was to represent the idea of supply and demand – rather than using two equations per se – is to graph two equations1. Supply curve – graph of the supply equation2. Demand curve – graph of the demand equationii. Equilibrium occurs where the supply curve crosses the demand
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