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Lecture 1

ECO349H5 Lecture 1: eco100

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University of Toronto Mississauga
Michael H O

Chapter 1 Economic issues and concepts Opportunity cost: use resource for purpose A, thus cant use it for purpose B, then give away the benefit from B Production possibilities boundary: Combinations of commodities can just be attained if “all” available resources are used “efficiently”. (inside: attainable, outside: unattainable) Small parts -- add together to be a product Specialization: only do the thing he can do, learning by doing Division of labor: production process bread down into series of specialized tasks, each done by a different worker Types of economic system Traditional economy: 接替父亲工作,物品按照传统分配 Command economy: central planning authority make economic decisions n(government) Free-market: decisions are made by buyers/seller, or demand and supply(households and firms) Mixed economy: both command and free-market characteristics Chapter 3 Demand, Supply, and Price Quantity demand: amount of goods consumers want to purchase in a period of time Not same as quantity bought pr exchanged (actual purchase) Law of demand: basically, price and quantity demanded of a product is negatively related hold other variables the same Demand schedule and demand graph: Shifts in demand curve - consumer’s income - prices of other goods ( substitutes and complements) Substitutes: coffee and tea Complements: coffee and milk - tastes - population - expectations about the future Movement along the curve VS shifts of curve - Movement along the curve: price of product Aincrease, then less Ais sold (quantity demand ofA) individual household cut back purchase ofA, upward movement along the curve - Shifts of curve: demand of product A increase, then the price of product A increase (demand curve shifts right) e.g: population increase, demand curve shifts right, price goes up Change in Demand and quantity demand - change in demand: shift of the curve - change in quantity demand: from one point to another point ( can from the shift of demand curve, movement along the curve or from both) Quantity supply The amount of product producers “want to” sell Law of supply: Basically, price of product and quantity supplied are positively related Supply schedule and supply curve Shifts in supply curve - prices of inputs - technology - taxes or subsidies - price of other products(substitutes and complements in production - number of suppliers Movement along the curve VS shifts of the curve Change in supply and change in quantity supplied Combine supply and demand curve together Graphs for excess demand, excess supply and equilibrium Affect Price Quantity Demand increase Demand decrease Supply increase Supply decrease Absolute price and relative price Absolute price: money pay for one unit of a product Relative price: ratio of two absolute price What matters is absolute price/relative price, and why? Chapter 4 Elasticity Elastic: quantity demand/supply is more responsive to changes in price More flat is more responsive, thus more elastic η = %△quantity demanded/supply/%△ in price * ignore the negative sign of elasticity of demand curve How if the price of quantity change is huge? η = ______________________ Inelastic: less than 1 Elastic: more than 1 Elasticity along a linear demand curve Elasticity at a point η = ______________________ Three demand curves with constant elasticity What determines elasticity of demand? 1. Availability of substitutes 2. Short run and long run What determines elasticity of supply? 1. Easier to shift the capital/labor, more elastic supply. 2. How fast the profit increase relative to production costs 3. Short run and long run Burden of tax & relative elasticity of supply and demand Income elasticity of demand ηy = %△quantity demanded/supply/%△ in income Luxuries VS necessaries:more necessary, lower income elasticity Cross elasticity of demand ηxy = %△quantity demanded OF X/supply/%△ in price of Y Positive/negative signs matter here Positive means: Negative means: Chapter 5 The interaction among the market When it is at disequili
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