Chapter 2 Thursday August 27 2015 11 32 AM 8 27 2015 11 47 AM Screen Clipping Labor land capital Money 8 27 2015 11 50 AM Screen Clipping ECO 202 Page 1 Federal Reserve Regulate Financial System Monetary policy Benefits Transfer The government Corp tax tax Financial Markets borrow savings China Brb crying 8 27 2015 11 53 AM Screen Clipping Corner arrows equal themselves Ex your income equals what you contribute regarding FoP This chart is the GDP G Efficiency all things are used nothing is left over Inefficiency all things are not used some things left over Unattainable not enough things to meet production needs Only determines efficiency not whether one point is better than another Betterness is dependent on things other than efficiency Unless one point offers more of both than the other one is more efficient than the other then it is better See Point D vs Point G Think instead consumption vs investment for axes ECO 202 Page 2 Think instead consumption vs investment for axes Investment Consumption ECO 202 Page 3 Chapter 3 Tuesday September 1 2015 11 32 AM Efficiency Inv Growth Opportunity cost Comparative advantage If you wanted to move from point A to point B you must forego something cost is what you give up Cost of producing X is Y To produce one more X you must give up one more Y Opportunity Cost is measured in terms of the goods themselves USA Japan Production possibility frontier equals consumption possibility frontier without trade US will produce midpoint 5 10 and Japan will produce 10 5 Before Trade Meat Rice US Japan 10 5 Total Production 15 5 10 15 If both countries specialize and trade total production will increase 1 compute opportunity cost for each country slope of line US 2M 1R Japan 1M 2R Japan must give up more rice than the US to produce one unit of meat 2 Pick and compare the opportunity cost Lower opportunity cost comparative advantage Comparative advantage ability to produce a good at a lower opportunity cost than another producer Principle of comparative advantage each good produce by the individual that has the smaller opportunity cost of producing that good 3 find the point of specialization Produce the good and ONLY the good that you have the comparative advantage for usually the graph intersection points 4 trade After Meat Rice ECO 202 Page 4 Just by Specializing managed to increase total production After Specialization Meat Rice US Japan Total 20 0 20 0 20 20 After Trade Meat Rice US Japan Total 12 8 20 8 12 20 Before Trade Mins oz Meat Potatoes Farmer Rancher Total Farmer Rancher Total 60 20 8 24 15 10 32 48 Before Trade In 8 hrs Meat Potatoes Compare these numbers to the Before Trade table if all numbers are higher than originals then trade is beneficial to the countries The PPF of the Rancher is larger than the Farmer Absolute Advantage is the ability to produce a good using fewer inputs than another producer Still better to specialize and trade Production abilities Before Trade Meat Pot Farmer Rancher Total 4 12 16 16 24 40 Farmer 1M 4P Rancher 1M 2P ECO 202 Page 5 Rancher 1M 2P Rancher will specialize in meat production and Farmer will specialize in potatoes With Inefficient Production Meat Potatoes Farmer Rancher Total 0 26 26 32 0 32 Total potatoes is too low With Efficient Production Meat Potaotes Farmer Rancher Total 0 18 18 32 12 44 After Trade Meat Potatoes Farmer Rancher Total 5 13 18 17 27 44 Total consumption is above consumption without trade Rancher must produce at least 17 units of meat And 9 units of potatoes to beat pre trade data use the graph more than one right answer ECO 202 Page 6 Chapter 4 Thursday September 3 2015 11 34 AM A market is a group gathering of buyers and sellers of a particular good or service Markets with a large number of buyers and sellers are said to be competitively structured The Law of Demand the price of a good rises the quantity demanded of the good falls Price is the most important factor in economics Quantity demanded is point demand is line on graph if the demand changes the line will shift Demand scheduel shows negative relationship between prices and quantity demanded by an indivudual Ceterus paribus is where everything else except price and quanityty is constant Demand shifters include changes in income preferences future predicitions and price of related goods IF the good under consideration is a normal good the demand for it will increase when income wealth increases The converse is true for inferior goods The Law of Supply if all other things are equal then when the price of a good rises the quanitity supplied also rises Supply schedule shows the positive relationship bewteen prices and quantity suppplied by an individual Supply shifters include changes in production technology cost factors future predicitions and number of selers Market equilibrium Competitive market price and quantity produced consumed Most efficient allocation possible satisfies buyers sellers and maximizes welfare of the economy as a whole Surplus is a temporary situation in which quanitity supplied is greater than quantitiy demanded Shortage is a temporary situation where quantity demanded is greater than quantity supplied The law of supply and demand states that the price of any good adjusts to bring the quantity supplied and quantity demanded for that good into balance ECO 202 Page 7 Chapter 6 Tuesday September 8 2015 11 31 AM possibly read chapter 5 ECO 202 Page 8 Example iPhones Factors Technology boost plus price of Samsung phones increase leads to easier production and higher demand because competition is more expensive Since no data is given you cannot calculate the specific numbers changes and shifts ECO 202 Page 9 Since no data is given you cannot calculate the specific numbers changes and shifts Change negative supply shifter decrease technology increase demand number of buyers increases CH 6 market intervention and government policy Two forms of market intervention price controls and taxation Price controls Ceilings maximum price Floors minimum price Quantity Controls Taxation ch 8 9 Limit to market taxation midterm questions Government forcefully controls production Skip because uncommon in capitalism Non binding price ceiling ineffective will not change market demand supply ECO 202 Page 10 Binding Price ceiling effective will change market demand supply Originally non binding price ceiling change in supply Initially the price Ceiling is not binding ECO 202 Page 11 Ceiling is not binding This prevents a jump