FILE: 252N02.HTML
FALL 2005
DR. WILLIAM SHINGLETON
FORMAT: NEW TIMES ROMAN, 14 FONT,
PORTRAIT
ONLINE SAVED IN HTML
THESE NOTES ARE FOR THE WEEK OF AUGUST 30 TO
FINISH NOTES FROM PREVIOUS WEEK
NEW TOPICS
JOB CREATION AND CIRCULAR FLOW
SHORT
CIRCULAR FLOW MODEL
NEXT REPORT:
AUG 31
LATEST REPORT
3.4 PERCENT GROWTH/2ND QUARTER 2005
PROFIT AS A NECESSARY CONDITION
ROLE OF THE
ENTREPRENEUR
NECESSARY RESOURCE/
CREATES/DESTROYS
MARKETS/JOBS/TECHNOLOGY
LONG RUN
PROFITS VS SHORT TERM LOSSES
PROFIT IS
ONLY A SMALL PART OF INCOME (ABOUT 10 PCT)
DEMAND
IDENTIFIES QUANTITY DEMANDED AT EACH PRICE
DEMAND VS QUANTITY DEMANDED
QUANTITY DEMANDED
MUST BE A NUMBER
MUST FIRST KNOW THE PRICE
LAW OF DEMAND
CONSUMER SURPLUS
CHANGES IN DEMAND
SUBSTITUTES
COMPLEMENTS
OTHER FACTORS
SALES ARE UNCERTAIN BEFORE THE MARKET PERIOD
SALES
ESTIMATION
NOT AS EASY AS IT LOOKS:
CASE STUDY: BOMBING
SUPPLY
IDENTIFIES QUANTITY SUPPLIED AT EACH PRICE
SUPPLY VS QUANTITY SUPPLIED
QUANTITY SUPPLIED
MUST BE A NUMBER
MUST FIRST KNOW THE PRICE
LAW OF SUPPLY
PRODUCER SURPLUS
CHANGES IN SUPPLY
NUMBER OF FIRMS
COST
LAW OF MARKETS
DEMAND CURVE
SUPPLY CURVE
AT ANY MOMENT IN TIME
3 KINDS OF PRICES
DISEQUILIBRIUM PRICES
SHORTAGE QUANTITY
DEMANDED MORE THAN QUANTITY SUPPLIED
SURPLUS QUANTITY
SUPPLIED MORE THAN QUANTITY DEMANDED
INVENTORY CHANGES AS SIGNALS
NO INTENTIONAL MISTAKES
EQUILIBRIUM PRICE
EFFECTS OF CHANGES ON
MARKETS
TIME/PLACE IDENTIFY MARKET
LABEL EACH AXIS WITH MATCHING ITEMS
START AT EQUILIBRIUM
EXPLAIN THE LOGIC OF THE CHANGE
EXPLAIN THE ADJUSTMENT PROCESS
IDENTIFY THE ENDING EQUILIBRIUM
DISEQUILIBRIUM
PRICES
QUANTITY
DEMANDED MORE THAN QUANTITY SUPPLIED
QUANTITY
SUPPLIED MORE THAN QUANTITY DEMANDED
CHANGE
IN PRICE DOES NOT CHANGE DEMAND
CHANGE
IN PRICE DOES NOT CHANGE SUPPLY
INVENTORIES
AS SHOCK ABSORBERS
EQUILIBRIUM
PRICE
EXAMPLE: MARKET FOR HOME COMPUTERS
CHANGE IN
TECHNOLOGY
EXAMPLE: MARKET FOR
LOWER INCOMES
IN
LAW OF MARKETS: ALFRED MARSHALL 1890
MARSHALLIAN
SCISSORS
MORE THAN A
TOOL: THE FIVE YEAR OLD'S HAMMER
LAW OF MARKETS/SUPPLY
AND DEMAND/ HOW TO TELL THE STORY
LABEL
EVERYTHING
MAKE
SURE YOUR LABELS ARE COMPLETE AND CORRECT
START AND END
AT EQUILIBRIUM
IDENTIFY
STARTING QUANTITY AND PRICE
TELL
WHY THE EQUILIBRIUM PRICE IS DIFFERENT
IDENTIFY AND
LOGICALLY DEFEND EACH AND EVERY CHANGE
THE EVENT IN THE QUESTION
CAUSES AN UNANTICIPATED CHANGE
IN INVENTORIES
THERE
IS NO NEED TO EXPLAIN THE CAUSE
DEVELOP
A LOGICAL BASIS TO CHANGE BEHAVIOR
CHANGE
MUST HAPPEN
EVEN
IF THE PRICE STAYS THE SAME
FOCUS
ON MARGINAL CONSUMER/MARGINAL OUTPUT
USING THE EVENT IN THE QUESTION,
IDENTIFY
A
NEW POINT AS PART OF NEW DEMAND/SUPPLY CURVE
ONLY
ONE CURVE AT EACH MOMENT IN TIME
DEMAND
VS QUANTITY DEMANDED
QUANTITY
DEMANDED MUST BE A NUMBER
SUPPLY
VS QUANTITY SUPPLIED
QUANTITY
SUPPLIED MUST BE A NUMBER
NOTE
DISTINCTION BETWEEN PRICE AND COST
PRICING AND
OUTPUT DECISIONS
ARE MADE
BY INDIVIDUAL UNITS (FIRMS)
FIRMS
SET PRICES THEN WAIT FOR RESULTS
BILL
GATES DOESN'T GET UP EVERY MORNING
AND
CHANGE HIS PRICES WHILE HE'S WAITING
FOR
BREAKFAST
INVENTORY
CHANGES ARE (OFTEN)
SIGNALS
OF INCORRECT DECISIONS
SELF-INTEREST
(PROFIT) NOT SOCIAL WELFARE
IDENTIFY
SURPLUS OR SHORTAGE
SURPLUS OR
SHORTAGE IS SIGNAL TO FIRM
FIRM CHANGES
PRICE AND OUTPUT
IN
ORDER TO IMPROVE PROFIT
NOT
TO GET TO EQUILIBRIUM
AS PRICE
CHANGES
CHANGE
THE QUANTITY DEMANDED
/NOT
THE DEMAND CURVE
CHANGE
THE QUANTITY SUPPLIED
/NOT
THE SUPPLY CURVE
FINAL STATEMENT: RETURN TO EQUILIBRIUM
AT ANY MOMENT
IN TIME
ONLY
ONE DEMAND CURVE IS RELEVANT
ONLY
ONE SUPPLY CURVE IS RELEVANT
QUANTITY
DEMANDED IS A NUMBER
DETERMINED
BY PRICE
QUANTITY
SUPPLIED IS A NUMBER
DETERMINED
BY PRICE
CONSIDER WHAT WOULD HAPPEN
IF THE PRICE STAYED THE SAME
THE EMPHASIS
IS ALWAYS ON "WHY?"
THE
EXPLANATION IS THE IMPORTANT PART OF THE ANSWER
EQUILIBRIUM
QUANTITY IS BOTH
1. THE QUANTITY DEMANDED
2. THE QUANTITY SUPPLIED
SELF TESTS/CAN YOU IDENTIFY
SOMETHING THAT WOULD INCREASE DEMAND?
SOMETHING THAT WOULD DECREASE DEMAND?
SOMETHING
THAT WOULD
CHANGE
THE QUANTITY DEMANDED
BUT
WOULD NOT MOVE THE DEMAND CURVE?
SOMETHING THAT WOULD INCREASE SUPPLY?
SOMETHING THAT WOULD DECREASE SUPPLY?
SOMETHING
THAT WOULD
CHANGE
THE QUANTITY SUPPLIED
BUT
WOULD NOT MOVE THE SUPPLY CURVE?
LONG RUN/SHORT RUN:
PRICE VS PRICE EXPECTATION
CHANGE IN
PRICE NEVER MOVES DEMAND OR SUPPLY
CHANGE IN
PRICE EXPECTATION CAN MOVE EITHER ONE
SIMULTANEOUS CHANGES IN MARKET CONDITIONS
THE SUM OF
THE PARTS
ONE KNOWN,
ONE UNKNOWN
EXAMPLE
MARKET FOR
USED CARS/INCREASE IN WAGE/INCOME
ROLE OF GOVERNMENT AND TAXES CH
4/ PP 77-90 ONLY
AVERAGE TAX
RATE
MARGINAL TAX
RATE
PROGRESSIVE
PROPORTIONAL
REGRESSIVETAXES
AND SUPPLY AND DEMAND
EFFECT ON
MARKET
TAXES
AS A COST
TAXES
AS INCOME REDUCTION
EFFECT ON OUTPUT,
JOBS, PRICES
TAX RATE
TAX BASE
TAX REVENUE
INCOME TAX
TAX ON LABOR
MARKET
65,000
PAGES/DEC 2005
EFFECT ON
LABOR SUPPLY
EFFECT
ON NET WAGES
EFFECT
ON JOBS
EFFECT
ON OUTPUT
EFFECT
ON COSTS
EFFECT
ON PRICES
TAX
RATE
TAX
BASE
TAX
REVENUE
EFFECT OF TAX CUT
EFFECT ON TAX
REVENUE
EFFECT ON NET
WAGES, OUTPUT, JOBS, PRICES
INCOME TAX AND MARGINAL TAX RATE
EVERY RATE IS
A MARGINAL RATE FOR SOMEONE
NEXT WEEK
THOSE (IN)FAMOUS NUMBERS I MEASURES OF INCOME AND OUTPUT CH
5
GDP
NOMINAL GDP
REAL GDP
GDP PER
CAPITA