Chapter 3 notes

Market equilibrium, the price mechanism and market efficiency

Equilibrium	Equilibrium- a state of rest at, self perpetuating in the absence of outside disturbances Both demand and supply are there The market is in equilibrium at point p since the amount people will buy for and the suppliers price are the same. Market clearing price- everything supplied will be sold Price is raied Quantit demanded has fallen Excess supply Producers will need to lower their prices Eventualy go back to equalibrium
The effect of changes in demand and supply upon the equilibrium	Outside disturbance A change in the determince of supply or demand The price will rise with the income to eliminate excess demand Thus price will rise till it reaches equilibrium.
The role of the price mechanism	Price mechanism Allocate resources Suppliers allocate to where the demand is too make more money The increase in price is what tells people what to make Invisible hand
Market efficiency	Consumur surplus is what he is gaining Willingness to pay vs what he paid Supplier surplus A price higher then what she was willing to accept
Allocative efficiency	Socially effecient The greatest community surplus Best for the consumer and supplier MSC- marginal social cost curve Effeciency is msb- marginal social benefit curve
Calculating and illustratin market equilibrium using linear demand and supply functions	Math of the curve QD=2000-200p QS=-400+400p Create a graph Plot the graph Where they meet is the equalibrium Qd +2000-200p Qs=-400+400p At equilibrium QD=QS 2000=-400+600p 2400=600p P=2400/600=4 dollars Substitute in the number 1400-200p Price will all until they are equal again 1400-200p Qs=-400+400p Qd+Qs Add 200 to both sides and simplify 1400=-400+600p Simplyfying further and adding 400 to both sides 1800=600p P=1800/600=3 dollar Plugit in
	the pictures above are in the correct placement in the notes on my printed copy

Emi 6

look in book

EMI5

look in book

EMI4

1. Define

a. supply is the quantity of output that producers are willing and able to provide at a given price in a given time period cetirus paribus.

b. the law of supply states that as the price per unit of a product rises the quanitity that producers are willing to offer per time period rises cetirus paribus.

2. The fourth one because as most firms specialize.

3. a-3

b- 1

c- 4

4. 5 unit

b. 7 units

EMI3

1. look at book

2. look at book

3. they are different as they start at a different price. The same with the graph.

4. 20- 1p and 22-1p

EMI2

Define

1. complements

goods that are used with other goods such as a vcr player and home video.

substitutes.

goods used instead of your good

2. it is necessary because the there is more of a demand in it so the curve shifts up.

3.look at book

EMI1

EMI 1

1. define-

a. demand is the quantity of a product that buyers are willing and able to purchase per time period at a specific price, ceterus paribus.

b. law of demand is as the price per unit of a product rises quantity demanded per time period decreases, cetirus paribus

c. Utility is happiness.

2. the weakest is number 2 as there are several other ways to get happiness such as being with your parents or friends.

3. 1-2

2- 3

3- 4

4. none, since no one produces things for zero price.

5. yes there is when the demand for it is higher such as changes in season or your taste in something is higher.

EP4

Ep4

1. Greek prime minister pledges a battle to avoid "disastrous bankrupcy" . the article talks about

NEW: Prime Minister George Papandreou says privatization is "necessary"

Clashes were reported in Thessaloniki

Greece is on the brink of default

It shows how the Greeks want to privatize companies thus giving the government less power.

2.a. the problem of economic sustainability

b. the role of government in the country

c. the problem of firm equity

d. the role of government

e. the problem of efficiency and fareness

F. the role of government

EP3

EP3

define-

opportunity cost- The loss of potential gain from other alternatives when one alternative is chosen.

accounting cost- the monetary cost

economic cost- the costs added together

production possibility curve- In economics, a production-possibility frontier (PPF), sometimes called a production-possibility curve or product transformation curve, is a graph that compares the production rates of two commodities that share the same factors of production. The PPF curve shows the specified production level of one commodity that results given the production level of the other.

law of diminishing returns- a law affirming that to continue after a certain level of performance has been reached will result in a decline in effectiveness

2. the opportunity cost is facebook and studying.

3.they decide that its more important to go to college instead of a family thus the opportunity cost is a family.

4.

a. no because they are made in different quantities

b. yes because they meet on the graph

5. the production of cola and lemon sodas

EP 2

EP2

1. define-

social science- The scientific study of human society and social relationships using the scientific method

ceteris paribus- With other conditions remaining the same.

Economic models- A collection of assumptions, often expressed as equations relating variables, from which inferences can be derived about economic behavior and performance.

Positive economics- economics based on fact that can be tested

normative economics- a statement based on opinion that can't be tested.

2. His model is a fair one as it only includes one variable- the homework being finished. However both the assumptions have no proof thus being normative. This may need to change.

3. What could have upset you're cetirus paribus is the use of real students. Also there is no way of being sure that the kids actually like economy or doing homework. Also several other come into play such as, other work that day, sports etc.

4.I think normative are more common as many political idealogies are based on opinion. such as saying raising taxes will help the economy.

EP1

Ep1-

scarcity- limited recourses cannot satisfy unlimited needs

economics- the study of how to allocate resources to satisfy unlimited needs and wants

2.

wants- computers, Xbox, car

needs- food, water, shelter

3. price- who to produce for

machinery to use- how to produce

what color t-shirts- what to produce.

4. yes

5. land- There are limited resources on earth

labor- limited educated workforce.

capital- not enough machines or inefficient machines.

6. a.

A cinema and a basketball court both have limited space and you have limited time and money to do both things. However you still want to do both things.

B. you want to create more widgets but the scarcity of the limited resource capital and labor are already stretched to the limit.

C. The limited resource here is money. But the want for both roads and perhaps many other things in the country is the wants.

7. Yes, it only studies rational human choices such as allocation of resources as anything else is outside the sphere of study.