ECO105Y1 Lecture Notes - Marginal Revenue Productivity Theory Of Wages, Marginal Revenue, Sunk Costs
Econ 105 Introduction 3/5/2012 11:18:00 AM
Econ 105
TA = Shajee
HW
- Register in the MyEconLab and do quiz zero
- Read Micro Ch1, Cassidy, Introduction and CH2
- Professor Cohen course ID cohen53454 (www.pearsonmylab.com)
Scarcity and Choice
- Scarcity: exists because of limited money, time, and energy
- Opportunity cost is the basic and most important concept in Economics
True cost of any choice
- Comparative Advantage: ability to produce at a lower opportunity cost
- Absolute Advantage: Lower absolute cost
Absolute advantage is relatively irrelevant in trade
- Read Micro Chap 2 for Monday
- Samantha produces 40 bread
- Jacqueline produces 100 wood
- They Trade 20 bread for 20 wood
- Jacqueline ends up with 20 bread and 80 wood
(compared to her original 20 bread and 60 wood)
- Samantha ends up with 20 bread and 20 wood
(compared to her original 20 bread and 10 wood)
- Both are better off with trade compared to without trade
-
The Law of Demand & Elasticity
Weighing, Benefits, Costs, & Substitutes
- status good can drive prices into obscurity/into desire for luxury
- marginal is the sum of all the additions or additional changes to the
existing amount
- Quantity demanded is ONLY changed by price. Demand is changed by all
other influences on consumer choice.
- Demand Changes with change in: preferences, price of related goods,
income, expected future price and number of consumers all these have to be
in a constant for the law of demand to ring true in every case
- the change in the price of the same good changes the Quantity
Demanded
- If product a and b are used together then if the price of one falls the other
will increase because the combined use is still cheaper. Compliment
product (car and fuel)
Economies of Scale:
Spreading the fixed costs so that your average costs are lower
-‗dimming economic out look‘ Future economic out look
- ‗shifting economic taste‘ – preferences
- ‗drinking more wine‘ - substitutes
Elasticity:
(‗The market is so sensitive to a price increase that we kid of have to eat
that‘)
- There is a lot of competition in the beer market making the product an
‗Elastic‟ product
- The measurement of how responsive quantity demanded is to a change in
price, and determines business pricing strategies to earn max. total revenue.
- change in quantity demanded = Price Elasticity of Demand
Change in price
- Inelastic Demand: small response in quantity demanded when the price
rises
- Elastic Demand: large response in quantity demanded when the price rises
- Price elasticity of demand influenced by:
substitutes
Time to adjust
Proportion of income spent
Total Revenue:
Price per unit (P) multiplied by quantity sold (Q)
When demand elastic (>1)
o Price cuts increase total revenue
When demand elastic (>1)
o Price increase total revenue
Document Summary
Register in the myeconlab and do quiz zero. Read micro ch1, cassidy, introduction and ch2. Scarcity: exists because of limited money, time, and energy. Opportunity cost is the basic and most important concept in economics. Comparative advantage: ability to produce at a lower opportunity cost. Absolute advantage is relatively irrelevant in trade. They trade 20 bread for 20 wood. Jacqueline ends up with 20 bread and 80 wood (compared to her original 20 bread and 60 wood) Samantha ends up with 20 bread and 20 wood (compared to her original 20 bread and 10 wood) Both are better off with trade compared to without trade. Status good can drive prices into obscurity/into desire for luxury. Marginal is the sum of all the additions or additional changes to the existing amount. Quantity demanded is only changed by price. Demand is changed by all other influences on consumer choice.
