Discussion 1
News Item for Week 1 Forum: 1 post:
Each week, you will evaluate the economic factors at play in the posted news item. The goal is to be able to identify – and make sense of – real world events in terms of the models and concepts that we are learning each week. Don’t worry that you are not expert at this – it requires different ‘mental muscles’ than doing textbook problems, and everyone will be at a different ‘place’ in their skill and insight. And that is why we do it – to get some hands-on exercise in applying what we are learning.
Post 1: Briefly, give your own analysis of the economic content of the article, as relates to our current week’s assignments – do not summarize the article, as everyone has read it.
Make sure to list the article on which you are analyzing. Post can not be less than 100 words.
No PLAGIARISM !!!!!
News Analysis Forum Posts:
News items will be posted to the class Canvas forum throughout the course. Each student will post to the forum weekly on economic issues that they believe are reflected in the article, drawing from the weeks readings and homework answers. Each student will also be responsible for a second post, building upon, or responding to, the ideas posted by other students in a way that contributes new and relevant content and/or analysis.
For news analysis posts, your commentary should include:
1) the economic issue(s) reflected in the news item, and
2) your explanation of the event and economic implications in terms of the current weeks material.
Your posts should NOT summarize the content of the news item, as this is already known to forum participants.
Your comments need not be more than a brief paragraph, but should demonstrate a concerted effort to explore the relevance of assigned concepts to each article. For example, a current event will often provide a real world example of a concept assigned for the class session. Your reflection on the article can be given in bullet sentence format, but must contain sufficient specific content and explanation to fully convey key ideas (eg, single words are insufficient to convey a complete thought). Students are NOT expected to reflect a complete mastery of the concepts in each article posting. They should approach their postings as exercising their ability to discover and explore economic concepts as they appear in the real world.
Your post need to be on the subject listed below
“Historic” laptop demand leads to shortages ahead of remote school
Axios News August 15, 2020
Article link below:
https://www.axios.com/coronavirus-education-laptop-shortage-f5990485-6277-4f4e-a37c-ec7f77d68241.html(Links to an external site.)
For news analysis posts, your commentary should include:
1) the economic issue(s) reflected in the news item, and
2) your explanation of the event and economic implications in terms of the current weeks material.
Your posts should NOT summarize the content of the news item, as this is already known to forum participants.
Your comments need not be more than a brief paragraph, but should demonstrate a concerted effort to explore the relevance of assigned concepts to each article. For example, a current event will often provide a real world example of a concept assigned for the class session. Your reflection on the article can be given in bullet sentence format, but must contain sufficient specific content and explanation to fully convey key ideas (eg, single words are insufficient to convey a complete thought). Students are NOT expected to reflect a complete mastery of the concepts in each article posting. They should approach their postings as exercising their ability to discover and explore economic concepts as they appear in the real world.
NOTE: Posts that are statements of agreement, quotation, links, or personal opinion without offering any analysis will not be counted for credit.
Hint: Avoid one-sentence discussion posts, as they will almost certainly not meet the content expectations listed above. Posts should contribute insights to the discussion, contain several sentences and have a clear relationship to one or more concepts assigned for the week.
Write this in your own words
Chapter 1 & 2 in the book
Homework Part I: Understanding Economic Models: (submit answers)
1 What is a theory, according to the text?
2 Define normative and positive statements. (notes)
3 Explain the meaning of fallacy of causation and fallacy of composition. (notes)
4 Name and explain one major limitation of economic analysis using models. (notes)
5 In the economic model of supply and demand, what are the two key factors that determine market outcomes? (Refer to the axes on the supply and demand graph.)
6 Define ceteris paribus. What does an analysis of price and quantity ceteris paribus imply about other factors that could impact supply and demand?
7 What is the relationship of regulations to market economies, according to the text?
8 What is scarcity, and what does it imply for individual and societal choice, according to the text?
9 What is opportunity cost, according to the text?
10 What is marginal analysis? (notes)
11 What is utility, and the law of diminishing utility?
12 What is a sunk cost?
13 What is the invisible hand, and what market behavior does it imply?
Homework Part II: Reading Supply and Demand Graphs: (submit answers)
14. Explain the difference between:
a) supply and quantity supplied
b) demand and quantity demanded
15. Define market equilibrium. What is the relationship of quantity demanded to quantity supplied at equilibrium? What is the relationship of the supply and demand curves at equilibrium?
16. Using a supply and demand graph, explain:
a) a shortage of a good
b) a surplus of a good
(Compare each to the quantity supplied, quantity demanded and price at the market equilibrium.)
17. When a good is in short supply, a price increase may bring the market back to equilibrium. Explain why.
Homework Part III: Representing market change with graphs: (submit answers)
18. Illustrate how price, quantity, supply, and demand are represented graphically.
19. Use a supply and demand graph to demonstrate how an increase in price will impact the quantity demanded and quantity supplied of a good.
20. How will a drop in a goods price impact:
a) Quantity demanded of the good ___________________________________
b) Demand for the good ___________________________________________
c) Quantity supplied of the good ____________________________________
d) Supply of the good _____________________________________________
NEED BY TOMMOROW @ 8 P.M
4
BUSN 201 Supplemental Economics Notes: Week 1
Introduction to Economic Modeling and Objective Analysis
Economic Methods and Modeling: Economics is an important part of social and political debate. As a field of study, economic thinking strives to be objective and accurate in its methods, predictions and prescriptions. The following are common issues in assessing the soundness of economic reasoning and analysis:
Normative statement: Includes judgment as to what is good or bad.
Positive statement: Statement of fact.
Fallacy of composition: Assumption that fact about one element of the economy is true of the whole.
Fallacy of causation: Assumption when there is an association between two events, that one event caused the other.
Model: A model is a simplification of reality specifying factors and processes to be considered in analysis. The concept behind the use of models is to strip away all unnecessary information to focus on the essential elements of an issue. Yet, because models limit factors considered and the way in which they interact and because we must use proxies (substitutes) for the data we would really like to consider models and economic analytical tools have blind spots. The user and consumer of economic analysis must consider these blind spots when evaluating analytic data and conclusions.
Theory: A theory is a statement about how the world works. Theories represent thoughts that are organized toward answering selected questions.
Ceteris Paribus: Literally, in Latin, the term ceteris paribus means all things being equal. In economic analysis, ceteris paribus is a blanket assumption that all other factors that might influence the market outcome, other than those specifically stipulated (often meaning Price and Quantity, in supply and demand analysis), are assumed to be unchanging, for the sake of examining one relationship and set of conditions at a time. The purpose for setting such a stringent restriction on the scope of analysis is to provide a tractable scope to analyses, by focusing on a very limited set of factors. This limitation does not reflect likely real world conditions, but does allow us to more closely study the influence of the factors under investigation. It is important in consuming economic analysis to evaluate whether this restriction is acceptable for the circumstances under investigation, or whether it is too restrictive to adequately represent the issues being modeled.
Comparative Static Analysis: Comparative statics analyzes equilibrium positions of the market, but does not include the transition or the adjustment process by which the market moves from one equilibrium to another. Most economic analysis uses comparative static techniques.
Dynamic Analysis: Dynamic analysis attempts to include consideration of how markets adjust to changing conditions.
Partial Equilibrium Analysis: Partial equilibrium analysis focusses on the behavior of individual decisions and individual markets, without considering the broader economy. Most economic analysis is partial equilibrium analysis.
General Equilibrium Analysis: General equilibrium analysis looks at the behavior of individuals and individual markets taken together simultaneously.
It is important to carefully consider the foundations and assumptions of economic arguments and analysis. Every economic model, theory or argument has implicit assumptions that do not fully mesh with reality. The most valuable lesson you can get out of this class is to be a thoughtful and cautious consumer of economic reasoning.
Factors of Production: Resources are required for satisfying human wants. They are necessary inputs for the production of goods and services. Economics refers to resources as the factors of production and divides them into four groups:
Land:
Land encompasses all free gifts of nature and all resources in their natural state (mineral ores, water, and soil). The return to land is called rent.
Labor:
Labor is the human element of production or peoples capacity to work. Returns to labor include wages, salaries, tips, benefits and commission.
Capital:
Capital is the human-made factor of production. This is physical capital, and does not include financial capital such as financial instruments. Capital includes human capital, improvements in labors capacity to produce. The return to capital is referred to as interest.
Entrepreneurship (enterprise): Entrepreneurship combines the other factors of production into a functioning whole. Combining resources requires technology or techniques of production. As technology changes, the resource mix also changes. The return to entrepreneurship is profit.
The Sources of Economic Theory and Models
While many theorists have contributed to our body of economic knowledge and insight, a few stand out as chief architects of how we understand and approach economic issues today. While all of these are long since dead and most lived and wrote over 150 years ago, they continue to define the field of economic understanding and debate.
American economic theory, as we study it in the U.S. today, has its roots in Adam Smiths seminal work Wealth of Nations (published in 1776). Adam Smith (1723 – 1790) first described how the behaviors of individuals pursuing their own interests in a marketplace come together collectively to form a market, with predictable economic and social outcomes. Adam Smiths work still defines the approach we take to understanding how markets behave today.
Other important theorists that followed closely on Adam Smiths work were David Ricardo (1772 1823; who wrote on the economic ramifications of international trade and competition), Thomas Malthus (who wrote about the economic limitations imposed by exhaustible resources), and Karl Marx (1818 – 1883; Capital, 1867; who wrote not only on controversial political theory, but extensive analysis on the inherent tensions in capitalist markets).
Later were to come Alfred Marshall (who first applied mathematical analytic tools to economics, including the supply and demand graphs commonly used in economics coursework), and John Maynard Keynes (1883 – 1946; The Economic Consequences of the Peace; The General Theory of Employment, Interest and Money; who first diagnosed and developed prescriptive measures to address issues of market failure and government intervention in a depression).
The work of these theorists continues to define how economic issues are presented, analyzed and understood today. Some understanding of the historical context and intent of these theoretical contributions and analytical tools gives greater insight into the economic models we use today.
You will be introduced to each of these theorists in our first and second class sessions. They will resurface throughout our nine weeks, as their insights still form the core of current economic methods and thought.
MARKET PRICES: SUPPLY & DEMAND
1.
Supply and Demand Analysis
Economic analysis relies heavily on the offsetting concepts of supply, demand, price and cost to explain and predict much of economic activity. These market forces are examined using theories expressed as algebraic formulas and are visually illustrated using graphs. This section introduces the basic economic relationships and interactions that shape the market.
To answer questions about the what, how and why of economic events, the concepts of supply and demand are used. Supply and demand are both defined as relationships between price and quantity. Supply relates the quantity offered for sale to each possible price. Demand is the relationship between the price and the quantity demanded of a good.
Demand: The demand function for a product gives the specific quantity that consumers will purchase for each possible price, over some period of time, other things being equal (ceteris paribus). Demand is a continuum expressing the relationship between price and demand, rather than a single price or quantity. The quantity of a good that consumers will buy for a specific price is the quantity demanded. Demand can also be referred to as a demand schedule or demand curve.
The ceteris paribus condition means that all other factors are assumed to be unchanging, for the sake of examining one relationship and set of conditions at a time. This restriction makes the scope of analysis manageable. It is important in consuming economic analysis to evaluate whether this restriction is acceptable for the circumstances under investigation, or whether it is too restrictive to adequately represent the issues being modeled.
The law of demand states that quantity demanded will fall as price rises, and that the quantity demanded will rise as price falls. Price and quantity demanded have an inverse relationship. This means that the demand for a product is represented graphically by a downwardly sloping (negative) line. Determining the quantity demanded of a product as price changes requires moving along the demand curve.
Changes in factors other than price of the good will change the relationship between price and quantity demanded for the good. These changes will, therefore, shift the demand curve and are referred to as shift factors. Factors that influence demand are:
personal income
personal tastes
the price of other goods (especially substitute and complementary goods)
number of consumers (population)
consumer expectations about future prices
An increase in demand is a change that causes the demand curve to shift to the right. A decrease in demand is a shift in the demand curve to the left. A change in the price of the good can neither increase nor decrease demand instead, it causes a move along the existing demand curve and a change in the quantity demanded.
Changes in shift factors will result in the following changes in demand:
An increase in consumer income will:
Increase demand (shift to the right) for normal goods
Decrease demand (shift to the left) for inferior goods
Increases in the price of substitute goods will increase demand (shift right)
Increases in the price of complementary goods will decrease demand (shift left)
Population increase will increase demand, and vice versa
Consumer expectations of future price decreases or increases can change consumption & demand for the good in the near term
Supply: Supply defines the quantity of a good that will be offered for sale at each possible price, over a set period of time, ceteris paribus. The specific quantity that will be offered for sale at a given price is the quantity supplied. As price changes, the quantity supplied changes, but supply does not.
In contrast to demand, the supply curve slopes upward to the right, reflecting that the quantity supplied increases with price. This is known as the law of supply.
Factors that can shift the supply curve are:
prices of inputs
technological change
government or union restrictions on how production is conducted
prices of by-products
supplier expectations of future prices
A decline in input prices will increase supply, shifting the supply curve to the right.
Technological change can decrease the cost per unit and increase supply.
Government restrictions can increase costs, decreasing supply (shift supply to the left).
Price increases of by-products will increase supply (shift supply to the right).
Change in price reflects movement up or down the supply curve. Increased or decreased supply at every price reflects a shift in the supply curve.
Equilibrium The Balance Between Supply and Demand: The economic analysis of supply and demand can be applied to an individual, a firm, an industry or a market. Therefore, we can draw demand and supply curves and calculate equilibrium points for individuals or entire economies. Market demand and supply are the summation of all individual demand and supply schedules in that market.
The market price for a good is the price where quantity supplied and quantity demanded are equal. This price is said to clear the market because the amount produced and purchased are equal, leaving no unmet demand and no surplus goods.
The price and quantity where quantity demanded and supplied are equal is referred to as the market equilibrium, because there is a tendency for price and quantity to remain stable (unchanging) at this level. Graphically, the market equilibrium is the intersection of the demand and supply curves. An asterisk is used to distinguish the equilibrium price and quantity (P*, Q*).
To examine why this price and quantity level tends to remain stable, consider what would happen if price rose above P*. Suppliers would produce more of the product than consumers would want, creating a surplus on the market. Suppliers would tend to lower price to dispose of the surplus, moving price back toward the equilibrium price. Conversely, a price below P* would result in an insufficient supply to satiate demand (shortage). Scarcity would create bidding wars among consumers, moving back price up toward the equilibrium point. This seemingly automatic movement of market forces toward equilibrium and cleared markets is what Adam Smith termed the invisible hand of the free market, guiding market interactions toward efficient outcomes.
Note: Since demand and supply are influenced by different factors, a shift in demand does not mean that supply will shift. However, a shift in demand will move the intersection of the demand and supply curves. The new equilibrium price and quantity will be at a new point on the same supply curve. Principles of
Economics 2e
SENIOR CONTRIBUTING AUTHORS
STEVEN A. GREENLAW, UNIVERSITY OF MARY WASHINGTON
DAVID SHAPIRO, PENNSYLVANIA STATE UNIVERSITY
Based on the 2nd edition of Principles of
Economics, Economics and the Economy, 2e by
Timothy Taylor, published in 2011.
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Table of Contents
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Chapter 1: Welcome to Economics! . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.1 What Is Economics, and Why Is It Important? . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.2 Microeconomics and Macroeconomics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
1.3 How Economists Use Theories and Models to Understand Economic Issues . . . . . . . . . . 15
1.4 How To Organize Economies: An Overview of Economic Systems . . . . . . . . . . . . . . . 18
Chapter 2: Choice in a World of Scarcity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.1 How Individuals Make Choices Based on Their Budget Constraint . . . . . . . . . . . . . . . 28
2.2 The Production Possibilities Frontier and Social Choices . . . . . . . . . . . . . . . . . . . . 33
2.3 Confronting Objections to the Economic Approach . . . . . . . . . . . . . . . . . . . . . . . 38
Chapter 3: Demand and Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.1 Demand, Supply, and Equilibrium in Markets for Goods and Services . . . . . . . . . . . . . 46
3.2 Shifts in Demand and Supply for Goods and Services . . . . . . . . . . . . . . . . . . . . . 51
3.3 Changes in Equilibrium Price and Quantity: The Four-Step Process . . . . . . . . . . . . . . 61
3.4 Price Ceilings and Price Floors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
3.5 Demand, Supply, and Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Chapter 4: Labor and Financial Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
4.1 Demand and Supply at Work in Labor Markets . . . . . . . . . . . . . . . . . . . . . . . . . 84
4.2 Demand and Supply in Financial Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
4.3 The Market System as an Efficient Mechanism for Information . . . . . . . . . . . . . . . . . 98
Chapter 5: Elasticity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
5.1 Price Elasticity of Demand and Price Elasticity of Supply . . . . . . . . . . . . . . . . . . . 108
5.2 Polar Cases of Elasticity and Constant Elasticity . . . . . . . . . . . . . . . . . . . . . . . 113
5.3 Elasticity and Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
5.4 Elasticity in Areas Other Than Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Chapter 6: Consumer Choices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
6.1 Consumption Choices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
6.2 How Changes in Income and Prices Affect Consumption Choices . . . . . . . . . . . . . . 141
6.3 Behavioral Economics: An Alternative Framework for Consumer Choice . . . . . . . . . . . 147
Chapter 7: Production, Costs, and Industry Structure . . . . . . . . . . . . . . . . . . . . . . . . 155
7.1 Explicit and Implicit Costs, and Accounting and Economic Profit . . . . . . . . . . . . . . . 157
7.2 Production in the Short Run . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
7.3 Costs in the Short Run . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
7.4 Production in the Long Run . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
7.5 Costs in the Long Run . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
Chapter 8: Perfect Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
8.1 Perfect Competition and Why It Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188
8.2 How Perfectly Competitive Firms Make Output Decisions . . . . . . . . . . . . . . . . . . . 189
8.3 Entry and Exit Decisions in the Long Run . . . . . . . . . . . . . . . . . . . . . . . . . . . 204
8.4 Efficiency in Perfectly Competitive Markets . . . . . . . . . . . . . . . . . . . . . . . . . . 206
Chapter 9: Monopoly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215
9.1 How Monopolies Form: Barriers to Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . 216
9.2 How a Profit-Maximizing Monopoly Chooses Output and Price . . . . . . . . . . . . . . . . 220
Chapter 10: Monopolistic Competition and Oligopoly . . . . . . .
