1 / 30

Chapter 1. Appendix

Chapter 1. Appendix. Using models scarcity & opportunity costs decision-making in markets. With scarcity, must choose. Economic system decides what to produce? how to produce? for whom to produce?. who decides?. households, firms and government decisions coordinated by markets

Download Presentation

Chapter 1. Appendix

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Chapter 1. Appendix • Using models • scarcity & opportunity costs • decision-making in markets

  2. With scarcity, must choose Economic system decides • what to produce? • how to produce? • for whom to produce?

  3. who decides? • households, firms and government • decisions coordinated by markets • buyers and sellers meet • market set price that rations scarce resources

  4. Using models • simplification of reality • better understand how something works • to use: • make assumptions • apply them to a framework • look at implications

  5. if model is too simple • implications are not helpful • if model is too complicated • no implications • models are only as good as their assumptions

  6. A model of markets • market for haircuts • model behavior of buyers • Demand • model the behavior of sellers • Supply • buyers & sellers determine quantity & price

  7. Market • haircuts in CNY per week • what factors affect buyer decisions? • price of haircuts • income • population • fashion • price of substitutes

  8. what factors affect sellers decisions? • price of haircuts • costs of haircuts • profitability of alternative business

  9. Assume: • first look at relationship between quantity and price • hold other factors constant • men and women do not differ in buying decision • men and women not viewed differently by sellers

  10. Demand • relationship between • quantity of haircuts demanded • price of haircuts • as price rises, Qd falls • holding other factors constant • Law of Demand

  11. Demand schedule P Qd $30 15,000 $20 20,000 $10 25,000

  12. Supply • relationship between • quantity of haircuts supplied • price of haircuts • as price rises, Qs rises • holding other factors constant • Law of Supply

  13. Supply schedule P Qs $30 25,000 $20 20,000 $10 15,000

  14. the market • supply and demand together • graph each schedule

  15. P $30 $20 $10 D S Q haircuts 15K 20K 25K P = $20 Q = 20K

  16. equilibrium • P=$20, Q=20,000 • Qs = Qd • with other factors constant, P & Q will stay at this point

  17. Allow factors to change • CNY population increases • more people, • more haircuts demanded at every price • increase in demand

  18. P $20 D’ D S Q haircuts 20K D increases: P increases Q increases

  19. Allow factors to change • NY increases fee for cosmetology license • more costly to provide haircuts • fewer haircuts supplied • decrease in supply

  20. P $20 S’ D S Q haircuts 20K S decreases: P increases Q decreases

  21. Men vs. women & haircuts • assume sellers view women’s haircuts as more costly • at any price, sellers willing to provide fewer haircuts for women than for men • Women’s supply curve to the left of men’s supply curve

  22. P S women D S men Q haircuts Women’s haircuts have a higher price

  23. assume women are less price sensitive to haircuts than men • price increase causes small decrease in Qd • women’s demand for haircuts is less elastic than men’s • women’s demand curve is steeper than men’s

  24. P D men S D women Q haircuts Women’s haircuts have a higher price

  25. is this discrimination? • some laws forbid different prices for men vs. women • haircuts • drycleaning • is this fair? • is this efficient?

  26. A model of opportunity cost • NY receives $40 million from Feds • use on combo of 2 projects • prison cells $10,000 each • SUNY student unions $4 million each

  27. prisons 4000 student unions 10 graph all possible combos: any point on the line is efficient, using all $40 million any point inside the line is inefficient, using less than $40 million any point above the line is not possible, using more than $40 million

  28. opportunity cost • choice between prison cells and student unions • if want 10 student unions, must give up all prisons cells • every 1 student union costs us 400 prison cells

  29. opp. cost of 1 student union = lost benefits from not having 400 more prisons cells

  30. NY state budget • many choices for spending AND raising revenue • whatever the choice, • something is given up -- some program not funded or -- private spending lost to taxes

More Related