ECONOMICS - “science of scarcity”

1. ECONOMICS - “science of scarcity” -the study of thechoicespeople make in an effort to satisfy their unlimited needs and wantsfromlimited resources. The science of “scarcity”

2. Flat Tax on Income: same % of income, different amounts, soProportional Flat Tax on Products: same amount, different % of income, soRegressive 35% 33% 28% Marginal Tax Rates Progressive – takes a larger % from high income groups 25% 15% 10% Single - no tax on 1st $7,550 I only have to pay the FICA tax. 28% 25% 10% 15% 33% 35% $326,450+ $71,950 $7,550 $29,700 $150,150 $326,450 0 Standard Deduction [$5,150-dependent] [$15,100-married filing jointly] [7,550-single] [$10,750-HH]

3. Proportional&Regressive Taxes Proportional– takes same 20%[not amount] from all income groups 20% Example:Medicare– 1.45% on all income earned. $100,000 $50,000 $40,000 $30,000 Pay $20,000 Pay $10,000 [So,not same amountbut same %, 20%] Take that, you “low incomer.” 30% Regressive– takes a larger % from low income groups 20% Example:Sales Tax 10% I’m a “low incomer.” $40,000 $50,000 $30,000

4. Is There A Social Cost To Extended Unemployment?

5. Is There A Social Cost To Extended Unemployment? Here Is What Happens. With pressure from bill collectors (and his wife),he holds up a 7-11 & shoots a clerk. Then, after many rejections, he becomes a reluctant discouraged worker. At first the job seeker optimisticallylooks for his next job.

6. Then What? And – the Texas Justice System will tell him to, “Take that.” And his kids will cry because they no longercan go to college. Eventually he is caught and incarcerated.

7. And – how did President George W. Bush do in college economics? Let’s take a look at his college transcript.

8. President Bush’s College Transcript Gov 73 /71 Econ 71/ 72 “So - If your son or daughter is having ahard time in economics, don’t worry about it. They are on schedule to be President of the United States.” Kerry’s overall college ave. was 76. Overall average 77

9. Law of Demand [Change in QD] D Reasons For Downsloping “D” Curve 1. Income Effect –current buyers buy more. 2. Substitution Effect– new buyers now purchase. 3. Diminishing MarginalUtility - because buyers of successive units receive less marginal utility, they will buy more only when the price is lowered. iPod Touch [8 GB] $299.00 Change in QD 1. Price change 2. Movement [up/down the demand curve] 3. Point to point [along the curve] Price QD $199.00 Inverserelationship QD1 QD2 “D”refers to the“whole curve”.[“all prices”] “QD”refers to a“point on the curve” based on a“particular price.”

10. “Demand Shifters” [TIMER] 1. Taste [direct] 2. Income [normal-direct] [inferior-inverse] 3. Market Size [number of consumers-direct] 4. Expectations [of consumers about future *price-direct, about future availability-inverse, or about future income–direct. 5. Related Good *Prices [substitutes-direct] [complements-inverse] D D1 D1 D2 P1 D1 D3 D2 D2 P P P2 P QD2 Complement [inverse] QD1 Substitute [Direct] Bread Butter Bagels Change in “D” [curve] 1. Non price change[“TIMER”] 2. Whole “D” curve shifts [There is a change in “QD” but it is not caused by a change in “price.” [QD-”single price”; D-”all prices”] QD3 QD2 QD1

11. C Change in AD 1. “Non price Level” change-either C, Ig, G, or Xn 2. “Whole AD curve” shifts [There is a change in AQD but it is not caused by a change in price level.] Consumption Mariah Carey Concert Ig AD1 AD2 AD3 G PL Let there be more military weapons XN AQD1 RDO AQD3 AQD2 Chevy Ferarri [Exports-Imports]

12. Change in AS Anything that lowers the cost of production will shift AS right. 1. “Non price level change”. Either R, E, or P 2. “Whole AS curve” shifts. 3. AQS changes but is not caused by a change in PL AS Shifters(REP) 1. Resource cost 2. Environment [legal-institutional environment for businesses change, affecting production costs [subsidies, bus. taxes, regulations] 3. Productivity AS3 AS1 AS2 So – AS Shifters are REP Increase in the availability ofResources PL You save money. We don’t require dental or medical insurance. You don’t have to pay us a pension and we don’t take sick days. And – we can dance. 1. Lower business taxes 2. Decrease in regulations 3. Increase in subsidies Environment [Legal-institutional] AQS1 AQS3 AQS2 Increase inProductivity

13. Law of Supply . Priceincreases; QSincreases Pricedecreases; QSdecreases Direct “S” refers to the “whole supply curve” and refers to what producers will supply at “different prices” “QS” refers to a “point on the curve” and refers to what producers will supply at a “particular price” S Change in “QS” 1. Price change 2. Movement (up/down “S” curve) 3. Point to point (along “S” curve) P2 P1 Producers want the highest price possible. QS1 QS2 Reasons For Upsloping “S” Curve 1. There is increasing opportunity cost if you don’t produce. 2. Current producers produce more [overtime/more shifts] 3. New producers are attracted to the market.

14. Tax $ Ben Stein’s part in this movie as a boring econ prof was voted one of the 50 most famous scenes in American film. 100% 0% Tax Rate Ben Stein [from “Ferris Bueler’s Day Off”] graduated from Columbia University in 1966 with a degree in economics and from Yale Law School in 1970 as valedictorian. He was a speech writer for Nixon. He has written 16 books, including his latest humor book, “How To Ruin Your Life”.

15. Extending The Analysis Of AS To The Long Run LRAS SRAS1 PL AD2 AD1 10% AD3 3% 1% Inflat. Gap Recess. Gap Relating AD/AS To The Phillips Curve Y* 5% YI 3% YR 10% “Old Phillips Curve” PL SRPC “More inflation”or “more unemloyment” LRPC 10% 3% 1% Inflat. Gap Recess. Gap Menu of Choices Alban William Housego Phillips 1914-1975 3% 10% Unemployment 5% 5% is Y*(F) with 3% anticipated PL.

16. Adaptive expectations view - SRPC & LRPC There is aSRPC[output prices are changing] and aLRPC [output & input prices chg after unanticipatedinflationordisinflation] LRPC- when unemployment = the natural rate and there is no tendency for PL to be incr/decr. PL is stable & contracts reflect it. LRPC My salary just isn’t keeping up. Let’s say thatinflation has averaged3%forthree years. 3% is anticipated. 15% 12% 9% 6% 3% SRPC3 Wow, my raise exceeds inflation. b3 But my raise was only 6%. But when it comes time to sign a new contract, his boss says … SRPC2 a3 It can’t get any better. My raises exceed inflation. b2 SRPC1 c3 a2 Let’s say thatinflation has averaged 9% for the past few years. 9% is anticipated. But my salary went up by only 3%. b1 a1 c2 Inflat. Gap Recess. Gap C1 0 2%4%6%8%10%

17. The End