Part 1 Part IIntroduction to EconomicsOverviewWhat is Economics?Wy do we need to study economics?Economics as a part of lifeEvery day decisionsMake choices because a resource is SCARCEWhat are resources?defined as a service, or other asset used to produce goods and services that meets human needs and wants.Land, Labor, Capital [ productive inputs ]

What is Scarcity? History of EconomicsPlatoUTOPIAThe RepublicMercantilismThe country with most gold is the richestwealth of the nation is measured by the size of its treasuryA lot of wars, getting wealth from other nationsSpanish Bullions etcThe Wealth of NationsAdam SmithInvisible handMarket will take care of itselfCapitalismCommunismKeynesiansDefinition of Economicsa lot of wards one who manages a household Greek WordFormal Definition (allocation of scarce )how society manages scarce resourceEfficiencythe most it can from s.r.Equityfair distribution Opportunity costSingit after Efficiency how to make decisionsSocial ScienceWhy is it different from other social sciences? (use math, models etc ) Why is it a social science?Interaction of members of the society Role of Assumption and ModelsJust to model RealityCant capture all factorsModels may not be always correctEconomics is the study of man, man is ever changing Basic Questions in EcoWhat goods to produce?How many will be produced?Who will produce it?How will it be produced? For whom will it be produced?Economic goals of a nationAs a nation what do we need to achieve?Material SurvivalDifferent Economic SystemsCommand EconomyDictated by the government, supply and price of goods Traditional Economydictated by the tradition of the people islamic, culture, religionFree Marketprices, demand and supply are dictated by the marketDisadvantage and advantage of eachBranches of EconomicsMicroeconomicsanalysis on how the allocation of scarce resources is conducted by small economic units, sectors, and institutions in the economyMacroeconomicsdeals about the allocation of scarce resources but takes the analysis at the perspective of the entire economyEconometricsMathematical Economics

Part 2Part 2Demand and Supply AnalysisLaw of DemandWhat is quantity demanded? amt of a good buyers are willing to buy.What determines demand?Taste and preferencesTrendsIncome & Wealthavailability and price of substitutesPriceExpectations What is the law of demand?ceteris paribus, Quant Demanded goes down as price goes up. Direct DemandDemand for consumption of productsDerived DemandDemand for inputs for production ( Chair, derived demand is wood) Demand FunctionAssume that only price affects demandQd = 500-2P What is 500? What is 2 (average price) ? Express in Terms of PP=250-.5QdWhat is .5? For every 1 dollar increase in the Price, Qd will decrease by 2. Demand ScheduleWhat is a demand schedule?a table that shows the relationship b/w P and QDPriceDemand10350163252222530175391504575Demand CurveGraph of the relationship b/w P & QDSlope of the Demand CurveWhy is it downward sloping? Difference betweenMarket Demand sum of all indivudal demandsPriceDemand CatherineDemand AnaMarketDemandIndividual Demanddemand schedule of one person1035025060016325225550222252004253017515032539150100250457550125Graphing the Demand CurveMOVEMENT ALONG a Demand CurveChanges in Price of the GoodShift of the demand curveAny factor that is not the price of the good i.e.Price of substitutesTastes of subsitutesTastes for the goodIncome of the consumerExpectations. Price and tastes for product it complements Law of SupplyWhat is quantity Supplied? amt of good a seller is willing to sell. What Determines Supply? PriceInput PricesTechnologyExpectations of the producerLaw of supply?ceteris paribus, QS increase as P increases (why?) Supply FunctionQs=100+50P (all others constant) Expressing in terms of Price, P=$2+(1/50)$Qs What is 2? People will not supply if the price is below 2.For every 1 dollar increase in the price, 50 cars will enter the market Supply Scheduletable show relationship b/w price and QS PriceSupply1075168522150301753923045270Supply Curvegraph of relationship of P and QSWhy is it upward sloping? Difference b/w Market Supplysum of all supply of sellersIndividual supplyamount willing to supply by one seller at a given priceGraphing the Supply CurveMovement along a supply curvePrice changesShift of the supply curveCHANGES IN:Input PricesTechnologyExpectations of the producerSupply of Inputs Number of SellersMarket EquilibriumWhat is a market?Where sellers and buyers meetWhat is equilibrium? a situatoin of no room for changesupply and demand are balanced Market Equilibriuma certain price and quantity wherein supply meets demandbuyers are willing to buy all that is produced by sellersRarely happens thoughGraphing the Market EquilibriumEquilibrium PriceEquilibrium QuantityMarket DynamicsShortageSee images Surplus Findingfor the market equilibrium PriceDemandSupply103507516325852222515030175175391502304575270Solving for the Market EquilibriumQd=500,000-50,000QS=-100,000+100,000P Qd=Qs Solve for Equilibrium PriceSolve for Equilibrium QuantityMarket Dynamics Part 2 What happens if demand and supply changesSee images Away from equilibrium value? INITIAL TO NEW EQUILIBRIUMSee images Give events that can shift both demand and supplyWhat happens to the new EQ price and quantity? Govt IntervPrice CeilingWhat are price ceilings? What can this create?Can create black markets ( kasi may shortage)black markets have steeper supply curvesExamples of this? Real world. More risky kasiPrice FloorsWhat are price floors?Creates surplus (what will happen to the market?) Examples of this?Price as a determinant of allocation of resources Why? (goes to those who can pay more. Need it more) Tax Effects on Market EquilibriumElasticities What is elasticity?sensitivity of change in demand because of a change in a factorPoint and Arc elasticity?Application of Elasticityin business (toll gate)Price elasticity of demandWhat determines this? necessities vs luxuryavailability of substitutes time horizon ( might be inelastic in short but elastic long run ) Types of elasticity computationown price elasticitycross price elasticityincome elasticity of demandComputing for the coefficient of elasticityInelasticabsolute value ElasticUnitary ElasticGraphing the Elasticity Price and Quantity and Axis see graphs

PART 2 IMAGES

For Shortage and SurplusMarket DynamicsElasticityInitial to new equilibrium

elasticity exercises1Yesterday, the price of envelopes was $3 a box, and Julie was willing to buy 10 boxes. Today, the price has gone up to $3.75 a box, and Julie is now willing to buy 8 boxes. Is Julie's demand for envelopes elastic or inelastic? What is Julie's elasticity of demand?elasticiy = .82If Neil's elasticity of demand for hot dogs is constantly 0.9, and he buys 4 hot dogs when the price is $1.50 per hot dog, how many will he buy when the price is $1.00 per hot dog?Answer: 5.23Katherine advertises to sell cookies for $4 a dozen. She sells 50 dozen, and decides that she can charge more. She raises the price to $6 a dozen and sells 40 dozen. What is the elasticity of demand? Assuming that the elasticity of demand is constant, how many would she sell if the price were $10 a box?To find the elasticity of demand, we need to divide the percent change in quantity by the percent change in price.Answer Elasticity =.4if 10 per box150%new demand20 dozen

First Long Exam

Part 3 Theory of DemandMarket B undleCombination of goods and services that a consumer buys

Utilityhappinessperceived value of goods and servicesRelation of Utility and DemandUtility drives demandA few assumptions we need to makeComplete InformationAll know the informationNon satiationRationalityCan establish Ranking of goodsknows which good is better > < = Transitivity propertyA>B B>C TF A>CContinuityif A > C; bundles closely related to A > Bundles closely related to C Cardinal vs Ordinal Cardinalproblem, however, with this concept, convenient though it may be: consumers don't as a rule calculate the numerical utility value of their purchasesOrdinalsimply denotes consumer preferences without assigning them numerical values. Total UtilityWhat is Total utilityMarginal Utility,(Why is it important to do marginal analysis?) What is Marginal Utility?Change in U / Change in ConsumptionLaw of Diminishing Marginal UtilityNagsasawaRepresenting Preferences Indifference Curvesa curve that shows bundles that give the consumer same level of satisfactionShape of the Indifference CurveConvexPreference MapIndiferrence MapProperties of the IC Higher IC = Higher TUIC are Downward Sloping Because of MRSIC do not Intersect TransitivityBowed InwardMRS willing to trade more kapag mas madamiMarginal Rate of SubstitutionSlope of the IC (Mux / Muy) Rate at which a consumer is willing to trade one good for the other ( Units of Y for 1 Unit of X ) Budget LineThe limit of what a consumer can have given his resourcesCombination of goods that he can buy givenhe spend all his income Optimal Choice of the ConsumerSlope of BL = Slope of ICWHY? Illustrate the graphConsumer Surpluscan view demand as willingness to payWhat is it? Willingness to pay - price he has to payWow effectAdditional Types of GoodsNormalInferiorGiffenComplementsSubstitutes

Part 4ProductionWhat is Production?Production Process (input process Output)Factor of ProductionLandLabour CapitalTechnologyProducts of The InputsAverage ProductQP/QFPMarginal ProductChQP/ChQFP

IsoquantsCombinations of Input that Yield sa total Quat. ProdSee ImageSlope MPl/MPk = MRTSReturns to ScaleDiminishing Marginal Product of L/KWhy is it happening? ExemptionsEconomies of ScaleWhat does a firm Want?ProfitTR-TCWhat is TR? (PxQ)What is TC? (all the costs involvedCostConcept of CostExplicitrequire outlay of moneyImplicitnot require outlay Example is opportunity costAccounting CostExplicit OnlyEconomic CostExplicit and ImplicitCost CurvesTotal CostTotal Variable CostTotal Fixed CostATCAVCAFCMarginal CostsGraphing the costsexplain the behaviour of each cost IsocostsCombination of Inputs that will yield same total costLong Run CostsCosts differ in time horizons (Why?)take time to adjust inputssee imagesSuch as capital (factories)Short Run vs Long runFirms get to choose in the long runKung ano ung gagamitin nilang short run cost currveDiseconomies of scalelrac falls as Q goes upEconomies of scaleConstant returns to scaleCost MinimizationWhere ISOCOST is tangent with ISOQUANTProducers SurplusDifference between Willingness to produce Selling Pirce

Part 4 imagesIso Cost IsoQuantDMPTFCTVCCostsGraphing the costsLong run and Short run costsCosts

Second Long Exam

Part 5Perfect Competition Characteristicsmany buyersmany sellers homogenous goodsfreely exit and enterRevenueAverage RevenueTR/QsMarginal RevenueCTR/CQsProfit Max for the FirmMR=MCWHY?MR goes downMC Goes upWhat if MR>MCMRATCP=ATCP=AFCP MR=MCBecause a competitive firm can sell all it wants at the market price, there is no priceWhy because demand Is not perfectly elastic ( a downward sloping demand curve)effect. When it increases production by 1 unit, it receives the market price for thatpossible na cant afford na yung iba sa marketunit, and it does not receive any less for the amount it was already selling. That is,Revenuebecause the competitive firm is a price taker, its marginal revenue equals the priceA mono marginal revenue is Always less than the price of its good. By contrast, when a monopoly increases production by 1 unit, it mustreduce the price it charges for every unit it sells, and this cut in price reduces revenue on the units it was already selling. As a result, a monopolys marginal revenue is less than its price.Graph See at ImagesFigure 15-3 graphs thBecause the firms price equals its average revenue, the demandProfit of a monopolycurve is also the average-revenue curve.) These two curves always start at theSquaresame point on the vertical axis because the marginal revenue of the first unit soldequals the price of the good. But, for the reason we just discussed, the monopolistsDeadweight lossmarginal revenue is less than the price of the good. Thus, a monopolys marginalrevenue curve lies below its demand curve.Not socially efficientMonopoly produces less because Price is higher no one will buy

Part 5 ImagesMonopolyProfit Max

Part 6OligopolyCharacteristicsfew sellers that offer identical productsWhat can happenCollusionagreement among firmsForm a cartelact as a monopolyIndependent actionGame TheoryPrice warsCompeting What are the benefits of this? leaders-followersMonopolistic Competitionmany sellers but sell products that are NOT similar A monopolistic competition possesses the characteristics of both competitive and monopolistic markets. This is because there are many sellersDifferentiationin the market and there are no barriers to entry while at the same time the products can easily be differentiated to create market powerThe implication of this is that even if there are plenty of firms in the market, each has their own niche wherein they can influence both the price and demand.

Part 7Market FailureWhat is a market failure?Types of Market FailurePart 7 imagesCommon Goodoceansfishatmosphereone shared by the whole communityTragedy of the commonsdepletion of the resources shared by allPublic Goodnon rivalnon exclusionaryfree rider problemcongestionNegative ExternalityPositive ExternalityInformation AsymmetryAgency ProblemAdverse SelectionMoral Hazard

Part 7 images

Final exam