Econ 104 Lecture 1 January 21 2014 Economics Study of choices people make to attain their goals given their scarce resources Pg 4 An individual A firm An industry A country Three Ideas When Looking at Economics Pg 4 5 People are rational People respond to economic incentives more money is always better Optimal decisions are made at the Margin o Margin A small increment or one more unit or extra or additional Pg 6 7 At the Margin The Benefits v the Cost Example Studying a little bit more for your first exam Benefit you could get a better grade Cost you could maybe lose sleep Movie Theaters and 3D Example Pg 23 Test Example Q Brian is sitting in a bar drinking vodka tonics that cost 3 each It is happy hour According to economic reasoning which is correct Brian should stop drinking when the benefit of an additional vodka tonic is greater than 3 Brian should keep drinking as long as the benefit of an additional vodka tonic is exactly equal to 3 Brian should stop drinking when the benefit of an additional vodka tonic is less than 3 Trade Off Opportunity Cost the value of the thing you didn t do or the value of the next best alternative Pg 8 Microeconomics Pg 16 A single person A singe firm A single industry Ex The major airlines are increasing passenger Ex Talking about a specific company is all micro Macroeconomics Pg 16 The economy as a whole Ex The US economy is in a recession Ex Inflation is a macro topic Normative v Positive Pg 14 Positive Normative o Statement of Fact WHAT IS Statement of what SHOULD BE This statement contains a judgment Market Economy Market set of buyers and sellers whose actions affect the price of a product or service Centrally Planned Economy v Market Economy Pg 10 11 Econ 104 Lecture 3 January 28 2014 5 Demand Shift Factors YOU NEED TO KNOW THIS Change in Income o An increase in income means an increase shift right in demand Normal Goods o Few goods an increase income means a decrees shift left in demand Inferior Goods Change in Price of Related Goods o Compliments and Substitutes Change in Taste or Preference o Popular item right o Unpopular item left Change in Expectations price o Expect the price to be higher in the future demand shifts right increase as you demand more o Expect price to be lower in future the demand shifts left decrease Population and Demographics MARKET set of buyers demand and sellers supply whose actions affect the price of a product or service Supply Slopes Up Demand Slopes Down A change in price causes a movement along the supply curve Change in Quantity Supplied A change in something else causes whole supply curve to shift Change in Supply Supple Curve When price goes up quantity goes up Demand Curve When prices go up demand goes down Demand Shifter for Supply A Change in Technology 80 o A positive technology change Break through in technology A new way of making something Causes the supply curve to shift to the right increase Example Online schooling Moving to the right o Negative Technology Shock Shifts supply to the left A decrease Example A refinery blows up A Change in the Price of Inputs everything it takes to make the food and get the food to the McDonald s o Input costumer food bought the workers running a store o Output o If the price of the input goes up supply is going to shift to the left decrease the food to the costumer A Change in Expectation o Expectations about prices affect supply in exactly the opposite way that they affect o Recall With demand if you think prices will go down in the future you will demand o With supply if you think prices will go down in the future you supply more today A Change in the Number of Firms Sellers 80 o An increase in the number of firms sellers will increase the supply shifting it to demand less today the right o A decrease in the number of sellers shifts the supply curve to the left A Change in Prices of Substitutes in Production 80 o Corn prices drop and Soy beans sky rockets o Farmers decide to grow soybeans instead Equilibrium When Supply and Demand curves meet where the market moves toward 82 Supply and Demand Together When both curves move remember these things If they move in the same direction you will know quantity but you wont know the price If they move in opposite directions you will know price but you wont know quantity Chapter 12 Macroeconomics Stagflation High prices and no growth Mercantilism A country s wealth is measured by how much precious metal gold silver it has Adam Smith said Country s wealth is measured by the amount of goods and services its citizens have Best way to HAVE a lot of goods services is to be able to PRODUCE a lot of goods services The Economy is STUFF is OUTPUT is GDP GDP is Gross Domestic Product Gross Domestic Product Total market value of all final goods and services produced in a country during a given period of time 383 GDP 16 913 000 000 000 00 16 9 Trillion how big our economy was at 3rd GDP 17 102 000 000 000 00 17 1 Trillion how big our economy was during 4th quarter of 2013 we grew 3 2 from 3rd quarter KNOW WORD BY WORD Econ 104 Lecture 4 Chapter 12 January 30 2014 GDP The Economy All Goods and Services This does not include Stock Who Measures GDP BEA Bureau of Economic Analysis Part of the Department of Commerce Stock Market measures the value of companies What is Apple worth How much a company makes each year after paying for the needed work force etc GPD measures the value of what companies produce and sell How many cares did Ford produce How many lattes did Starbucks sell How much a company makes from the products they sold GDP and Growth GDP growing means the economy is growing All countries what GDP to grow US GDP 3 is good for us China GDP 7 7 is down for them o China has a lot of people who are buying stuff duh When GDP shrinks unemployment goes down When GDP grows employment goes up Gross Domestic Product Total market value of all final goods and services produced in a country during a given period of time GDP only looks at FINAL SELL ITEMS A Final Sell Item Grapes at Grocery Store An Intermediate Sell Item Grapes Sold to Make Wine GDP only looks at items produced in OUR COUNTRY Ford trucks produced in Mexico NO Chevy trucks produced in Alabama YES GDP in a given PERIOD OF TIME Reported every quarter What s Left out of GDP 391 Non Market Activities Housewife Househusband Activities The Underground Economy Government payments like unemployment checks and social security checks 386 Anything Used 383 Financial Transactions