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Bridget O' Shaughnessy

Economics Chapter 3 Opportunity cost: whatever must be given up to obtain an item eg: going to university instead of working Absolute advantage: the ability to produce a good with a smaller quantity of inputs Comparative advantage: the ability to produce a good with a smaller opportunity cost *can’t have comparative advantage in both goods Economics lecture 3 Express ideas in economics 1 english 2 algebra 3 diagram Economics is a social science Social = people Science = use scientific method  Observe  Theorize  Test theory Micro vs macro economics  Micro: individual households and firms and how they interact  Macro: economy wide such as interest rates, unemployment etc Efficiency vs equity  Efficiency is the size of the pie  Equity is how the pie is divided Positive vs normative analysis  Positive: the world as it is (facts)  Normative: the world as it should be (value judgement/opinion) Ex breast cancer is the 5 deadliest cancer is positive Women should go for screening is normative Model = simplification  Diagram or equation  Assumptions  Variables Ex map of a city Classify variables Real variables vs nominal  Real = physical quantities  Nominal = money Stock variable vs flow variables  Stock= snapshot at a point in time  Flow = time element (per year, per minute) Example of a model: circular flow model Firms and households Markets: goods/services and factor services Economics Lecture 4 What affects your decision to go to the movies? Market = group of buyers and sellers 4 types of market structure 1. Perfect competition – lots of buyers and sellers, goods are the same 2. Monopoly- one seller, they determine the price 3. Oligopoly- few firms in the market, similar to monopoly 4. Monopolistic Competition – lots of sellers but different products Demand Quantity demanded: the amount of a good that buyers are willing and able to purchase The variables that influence how much buyers want to buy are 1. Price 2. Income- normal and inferior goods 3. Price of other goods – substitutes (butter and margarine) and compliments (pasta and sauce) 4. Tastes 5. Expectations Law of demand: other things equal the quantities demanded of a good falls as the price of the goods rise Economics Lecture 5 Market demand: the sum of individual demands Shifts in demand (change in demand) are caused by a change in anything other than price Change in PRICE causes MOVEMENT change in ANYTHING OTHER THAN PRICE causes a SHIFT Movement along the demand curve (change in quantity demanded) is caused by the change in price  If demand increases demand shifts out  If demand decreases the curve shifts in What happens to walmarts pries if they unionize  Prices go up as they have to pay workers more Quantity supplied (Qs): The amount of a good that sellers are able and willing to sell The variables that influence how much sellers want to sell are: 1. Price 2. Input Prices 3. Technology 4. Expectations Law of supply: other things being equal the quantity supplied of a good rises as the price of the good rises Shifts in supply (change is supply) are caused by changes in anything other than price Movement along the supply curve (change in quantity supplied) is caused by changing price  If supply increases the curve shifts out  If supply decreases the curve shifts in Equilibrium price: the price for which q^s=q^d Equilibrium quantity: the quantity that corresponds to equilibrium price If q^s > q^d then there is a surplus Stocks build up and firms decrease price until equilibrium is restored If q^s < q^d there is a shortage If there is high demand firms increase price until equilibrium is restored 3 step program for analyzing changes in equilibrium 1. Decide whether the event shifts the supply or demand curve (or perhaps both) 2. Decide in which direction the curve shifts 3. Use the supply and demand diagram to see how the shift changes the equilibrium price and quantity Gross domestic product(gdp): market value of all final goods and services produced in a country in a given period of time.  It’s a measure of how much stuff we make  Market value  All legal market transactions  Final voids double counting  Goods and services  Produced in a country  In a given period of time 3 ways to calculate gdp 1. Output(basic prices) 2. Expenditure(market prices) 3. Income(market prices) The indifference between gdp at market prices and gdp at basic prices is  Basic prices do include sales taxes market prices do Canada’s 2010 gdp Equation: Y=C+I+G+NX Consumption (C) = durable goods semi durable, non durable, services Investment (I) = firms purchase of new capital goods; machinery and equipment; also new housing; inventory Government Spending(G) = all levels of government spending on goods and services (not transfer payments) Net Exports (NX) = purchases of domestically produced goods by foreigners (exports) minus domestic purchases of foreign goods (imports)
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