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Econ 105.docx

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Department
Economics
Course
ECO105Y1
Professor
Avi Choen
Semester
Fall

Description
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 The Law of Supply 11/15/2012 11:07:00 PM Marginal Cost Additional opportunity cost of increasing quantity supplied o Changes with circumstance Marginal cost increases as you increase quantity supplied To buy inputs, business must pay price matching best opportunity cost of input owner Demand choice- Between substitutes Supply Choice Between alternative uses of that time or resources Marginal Benefit vs Marginal Cost Comparison Demand marginal benefit = satisfaction Marginal costs = money Supply Marginal Benefit = money Marginal Cost = Opportunity cost Answer to slide 2. (Xbox question) What determined the real price of the Xbox is the price you will end up paying for the Xbox Sunk costs past expenses that cannot be recovered same no matter which fork in the road you take, so no influence on smart choices not part of opportunity costs - If the price of product/services raises, quantity supplied increases Supply Businesses willingness to produce a particular product/service because price covers all opportunity costs Increase marginal opportunity costs arises because inputs not equally productive in all activities
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