Study Guides (390,000)
CA (150,000)
UBC (5,000)
ECON (100)

Economics 101 - Principles of Microeconomics

Course Code
ECON 101
Robert Gateman

This preview shows pages 1-3. to view the full 60 pages of the document.
Economics 101: Principles of Microeconomics
Markets in Action
I Interaction Among Markets
General Equilibrium: analysis of all markets simultaneously
Changes in one markets, affect all markets
Partial Equilibrium: analysis of a market in isolation, assuming no feedbacks (small
II Government Controlled Prices
Disequilibrium Price: quantity actually exchanged determined by the lessor of Qd or Qs
Price Floor: minimum price, cannot fall below
o Excess supply: labour markets (unemployed), agriculture market (stockpiling)
o Producers gain if they are lucky to sell more
o Consumers lose because of a set minimum price
Price Ceiling: maximum price, cannot go above
o Excess demand: labour market (labour shortage), agriculture market (dumping)
o Consumer gain if they are able to buy for less
o Producers lose, because they could have sold more
o Short supply leads to: black market, first come first served, rationing, seller's
III Case studies
Rental housing market
o Short term: supply of housing inelastic, effective rent ceiling increases demand
o Long term: decrease in housing supply, housing conversions, shortages
o Policy Alternatives: status quo, subsidized housing, public housing, income assistance
Labour market
o Minimum wage price floor creates excess labour → unemployment
o Existing workers benefit, producers suffer increased labour costs, and new workers
IV Introduction to Market Efficiency
Demand is a value, the maximum price willing to be paid = benefit to the consumer
Supply is a cost, the minimum price = cost to producer = lowest acceptable price
Economic Surplus = area below demand and above supply = total surplus = net value to
Market efficiency = maximized economic surplus
o Free market finds a market clearing equilibrium, perfect competition
o Demand = Supply
Government intervention in free markets:
o Reduces economic surplus
o Redistributes economic surplus (normative decision)
V Agriculture and the Farm Problem
Long term trends - farm income falls

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

Economics 101: Principles of Microeconomics
o Increasing domestic supply: high productivity, technology change = supply increase,
curve shifts right
o Lagging domestic demand: low income elasticity of food demand = small increase of
demand as income rises
o Decreasing export demand: third world countries have increased demand, EU
subsidizes production
Short term trends - farm prices fluctuate
o International markets cause farm prices to fluctuate (changes in export prices)
o Domestic markets cause farm prices to fluctuate
o Unplanned change in supply, and inelastic demand = price volatility
o Poor substitutes → D inelastic → P volatility
Government agriculture policy aims to raise farm incomes above Pe and stabilize them
o Price support and quotas
o Price support becomes a level at which governments will buy at
o Quotas are lowered, but price raised in order to increase quota holder revenue
Agriculture Policy in Canada:
o Marketing boards (supply management)
Set quotas, regulate farmers, regulate prices, tariffs
o Marketing agents
Canadian wheat board (all farmers required to see to CWB)
Farmers paid at a world-wide rate
o Income Supplements (farm safety net programmes)
AgriStability - crop failure insurance
AgriInvest - stabilize income in event of fluctuations
Government bailouts
VI Exchange Rate and Trade
e or ER = price of foreign exchange (in terms of domestic currency)
ev = external value of Cdn dollar = price of domestic currency (in terms of foreign
o e = 1 / ev
Demand for Cdn $ depends on: demand for Cdn products and capital inflow (foreign
Supply of Cdn $ depends on: demand for foreign markets, capital outflow (foreign
investments by Canada)
Tariffs: a tax on imports that is additional to the world price of the product
VII Excise Tax Incidence
Excise tax: a singular consumption tax
o Ad valorem = % of value of product
o Specific = per unit tax
Tax incidence = on whom the ultimate burden of the tax lies = % of tax paid by consumer
and producer
VIII Effects of Government Intervention
Government intervention has a cost, requires alternative allocation of mechanisms

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

Economics 101: Principles of Microeconomics
o May create excess demand or supply which both have implications
o Free market creates allocation efficiency
Chapter 1
1.1 Complexity of the Modern Economy
Economy: a system in which scarce resources are allocated among competing uses
Self Organizing Economy
An economy based on a free market system is self organizing
Individual consumers and producers act independently → creates economic order
Adam Smith: people are not generous, they do things out of their own self interest
Efficient Organizing
Adam Smith: the self organizing, self interest driven economy is relatively efficient
o Resources are organized/distributed and produced efficiently
Decision makers respond to prices determined in the market with regards to scarcity or
Main Characteristics of Market Economies
Self Interest: individuals pursue self interest, buying/selling what is best
Incentives: people respond to incentives (sellers sell → high prices, buyers buy → low
Market Prices and Quantities: prices/quantities determined by sellers competing for buyers
Institutions: all governed by set of institutions (private property, freedom of contract, rule
of law)
1.2 Scarcity, Choice and Opportunity Cost
Consumer demand < world resources (scarcity)
Cannot have everything we want, decision making process must take place
Alfred Marshall: Economics is a study of mankind in the ordinary business of life
Economics is the study of the use of scarce resources to satisfy unlimited human wants
Resources are divided into three categories: land, labour and capital (factors of production)
o Land: all natural endowments (land, forests, lakes, crude oil, minerals)
o Labour: all mental/physical human resources
o Capital: all manufactured aids to production (tools, machinery and buildings)
Scarcity and Choice
Average Canadian family makes $72,000 after taxes (still cannot satisfy all needs/wants)
Scarcity implies choices must be made, and making choices implies existence of costs
Opportunity Cost
To balance costs, one thing must be given up for another product/service
You're Reading a Preview

Unlock to view full version