Your SlideShare is downloading. ×
Econ ppt 2
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Econ ppt 2

1,300

Published on

Published in: News & Politics, Business
1 Comment
1 Like
Statistics
Notes
  • fabulous slideshow
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
No Downloads
Views
Total Views
1,300
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
61
Comments
1
Likes
1
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. Microeconomics
    1
  • 2. Markets
    What is a market and how does it work to allocate resources in an economy?
    How do governments intervene in the market?
    2
  • 3. 3
  • 4. Market Structure: Number of Firms
    Perfect
    Competition
    Monopolistic
    Competition
    Oligopoly
    Monopoly
    One & large
    Small & many
    Large & few
    Relatively
    Small & many
    4
  • 5. Market Structure: Barriers to Entry
    Perfect
    Competition
    Monopolistic
    Competition
    Oligopoly
    Monopoly
    Relatively low
    Very High
    None
    High
    5
  • 6. Nature of goods: Homogeneous or Heterogeneous
    Perfect
    Competition
    Monopolistic
    Competition
    Oligopoly
    Monopoly
    Similar
    “Unique”
    “Identical”
    Both
    6
  • 7. Market Structure: Market Power/Consumer Sovereignty
    Perfect
    Competition
    Monopolistic
    Competition
    Oligopoly
    Monopoly
    High
    Very low
    Very high
    Low
    7
  • 8. Market Structure: Examples
    Perfect
    Competition
    Monopolistic
    Competition
    Oligopoly
    Monopoly
    Post Office,
    water &
    electricity
    Restaurants,
    books,
    clothing
    Agriculture
    Cars
    8
  • 9. Monopolistic Competition
    9
  • 10. Perfect Competition
    10
  • 11. Monopoly
    11
  • 12. Oligopoly
    12
  • 13. What is a market?
    Buying and selling is fundamental.
    A market is any situation or place that enables the buying and selling of goods and services and factors of production. A market may be a physical location (a street market), it may also be a virtual one (internet buying and selling) or a national one (the market for teachers or doctors). Triple A
    Markets exist when buyers and sellers interact. This interaction determines market prices and thereby allocates scarce good and services.
    13
  • 14. The Supply & Demand Model
    14
    The intersection of demand and supply is the goal that every seller want to achieve.
  • 15. Demand
    Higher the price less people
    would buy.
    A schedule (curve) that shows the quantity of a good that consumers are able and willing to buy at a certain price during a specified period of time.
    15
  • 16. Change in Quantity Demanded
    Movement along the demand curve
    16
  • 17. Law of Demand
    17
  • 18. Three important factors
    To effect demand
    Why Does Demand Rise when Prices Fall?
    I am richer!
    This is cheap!
    I will switch to this product!
    18
  • 19. Determinants of Demand: Price
    19
  • 20. Determinants of Demand: Non-price
    20
  • 21. Determinants of Demand
    21
  • 22. Change in Demand
    22
  • 23. Movements versus Shifts
    Change in Quantity Demanded
    Change in Demand
    23
  • 24. Veblen Goods (HL Extension)
    24
  • 25. Giffen Goods (HL Extension)
    25
  • 26. Expectations (HL Extension)
    26
  • 27. Exceptions to the Law of Demand (HL Extension)
    27
  • 28. Supply
    A schedule (curve) showing how much of a product producers will supply at each of a series of prices over a specific period of time.
    28
  • 29. Law of Supply
    29
  • 30. Why Does Supply Rise when Price Rises?
    I can make a profit!
    I can make more profit!
    30
  • 31. Determinants of Supply: Price
    31
  • 32. Change in Quantity Supplied
    32
  • 33. Determinants of Supply: Non-price
    33
  • 34. Determinants of Supply
    34
  • 35. Change in Supply
    35
  • 36. Movements Versus Shift
    Change in Quantity Supplied
    Change in Supply
    36
  • 37. Equilibrium Price and Quantity
    37
  • 38. Equilibrium
    38
  • 39. Functions of Supply and Demand Interactions
    39
  • 40. Consumer and Producer Surplus
    40
  • 41. Price
    Consumer Surplus
    A + B = Maximum Willingness to Pay for Qo
    What is paid
    D
    Quantity
    Consumer Surplus
    B
    Po
    A
    Qo
  • 42. Price
    Producer Surplus
    What is paid
    Minimum Amount Needed to Supply Qo
    Quantity
    Producer Surplus
    S
    Po
    Qo
  • 43. Price
    Quantity
    Consumer and Producer Surplus
    S
    Consumer Surplus
    Po
    Producer Surplus
    D
    Qo
  • 44. Price
    New Consumer Surplus
    Original Consumer Surplus
    Loss in Surplus: Consumers paying more
    P1
    Loss in Surplus: Consumers buying less
    Po
    D
    Qo
    Q1
    Change in Consumer Surplus: Price Increase
    Quantity
  • 45. Price Ceilings
    45
  • 46. Price Floor
    46
  • 47. Price Ceiling & Price Floor
    47
  • 48. 48
  • 49. 49
  • 50. Price Support/Buffer Stock Schemes
    Governments intervene when there are extreme price fluctuations brought about by seasons factors (agricultural products) and/or economic factors (commodities).
    50
  • 51. Price
    Lost Consumer Surplus
    New Consumer Surplus
    Lost Producer Surplus
    New Producer Surplus
    Quantity
    Loss in Efficiency Too High a Price (Price Floor)
    S
    PH
    Price Floor
    Po
    D
    Qo
    QL
  • 52. Price
    Lost Consumer Surplus
    New Consumer Surplus
    Lost Producer Surplus
    New Producer Surplus
    Quantity
    Loss in Efficiency Too Low a Price (Price Ceiling)
    S
    Po
    PL
    Price Ceiling
    D
    Qo
    QL
  • 53. Commodity Price Agreements
    A buffer stock scheme involving several countries
    E.g UNCTAD OPEC
    53
  • 54. MicroeconomicsElasticities
    54
  • 55. Elasticities
    How sensitive is a buyer to a change in price?
    How sensitive is a buyer when another product changes price?
    How sensitive is a buyer to changes in their own income?
    How sensitive is a supplier to a change in price?
    55
  • 56. 56
  • 57. Price Elasticity of Demand (PED)
    57
  • 58. Range of PED values
    58
  • 59. Range of PED values
    59
  • 60. Price Inelastic Demand
    60
  • 61. Price Elastic Demand
    61
  • 62. Range of PED
    62
  • 63. Extreme Cases
    63
  • 64. Perfectly Elastic Demand
    64
  • 65. Perfectly Inelastic Demand
    65
  • 66. Unit Elastic Demand
    66
  • 67. Determinants of PED
    67
  • 68. Determinants of PEDIncome
    68
  • 69. Determinants of PEDSubstitutes
    69
  • 70. Determinants of PEDSubstitutes
    70
  • 71. Determinants of PESTime
    71
  • 72. Determinants of PESSpare Capacity
    72
  • 73. Practical Implications of Elasticity
    Impact on Total Revenue of Firms
    Tax Incidence
    73
  • 74. Impact on Total Revenue of Firms
    Total revenue is the amount paid by buyers and received by sellers of a good. TR = P x Q
    With an inelastic demand curve, an increase in price leads to a decrease in quantity that is proportionately smaller. Thus, total revenue increases.
    With an elastic demand curve, an increase in price leads to a increase in quantity that is proportionately smaller. Thus, total revenue decreases.
  • 75. Taxation
    Governments levy taxes to raise revenue for public projects
    Critics of taxation argue that:
    Taxes discourage market activity.
    When a good or service is taxed, the quantity sold is smaller.
  • 76. Indirect Tax Specific Tax
    76
  • 77. Indirect Tax Ad Valorem Tax
    77
  • 78. Tax Incidence
    Tax incidence is the manner in which the burden of a tax is shared among participants in a market.
    How this burden is shared depends on elasticity.
  • 79. Tax and Relatively Inelastic Demand
    TR = .25 X 200 m
    = 50 m
  • 80. Tax and Relatively Inelastic Demand
  • 81. Tax and Relatively Inelastic Demand
    Price for Buyers = .35
    Price for Sellers
    = .2
    (150m X .35)
    (150m X .2)
    (150m X .15)
  • 82. Tax and Relatively Inelastic Demand
    Before Tax Buyers paid .25
    After Tax Buyers pay .35
    Buyers contribute 15 m to Revenue (150 X .1)
    Price for Buyers = .35
    Price for Sellers
    = .25
  • 83. The Money Trail
  • 84. Tax and Relatively Elastic Demand
  • 85. Tax and Relatively Elastic Demand
  • 86. Summary
    The incidence of a tax refers to who bears the burden of a tax.
    The incidence of a tax does not depend on whether the tax is levied on buyers or sellers.
    The incidence of the tax depends on the price elasticities of supply and demand.
    The burden tends to fall on the side of the market that is less elastic.
  • 87. Total Revenue and Price Elastic Demand
    87
  • 88. Total Revenue and Price Inelastic Demand
    88
  • 89. Some Practical Applications of PED
    With an elastic demand curve, an increase in the price leads to a decrease in quantity demanded that is proportionately larger. Thus, total revenue decreases.
    89
  • 90. Market Failure
    90
  • 91. Market Failure
    What is market failure and why does it occur?
    How effectively can governments intervene to correct market failure?
    91
  • 92. What is market failure?
    92
  • 93. 93
  • 94. 94
  • 95. Negative Production Externality
    95
  • 96. Negative Consumption Externality
    96
  • 97. Tax and Negative Production Externality
    97
  • 98. Tax on Producers and Negative Consumption Externality
    98
  • 99. Advertising to Shift Demand and Reduce Negative Consumption Externality
    99
  • 100. 100
  • 101. 101
  • 102. Positive Production Externality
    102
  • 103. Positive Consumption Externality
    103
  • 104. 104
  • 105. 105
  • 106. 106
  • 107. The Environment & Sustainable Development
    107
  • 108. What is Sustainable Development?
    The present use of resources in satisfying the needs of the economy should not lessen or limit future generations’ use of resources in satisfying needs.
    108
  • 109. International Cooperation on Environmental Issues
    109
  • 110. Tradable Permits
    110
  • 111. 111
  • 112. Public, Merit & Demerit Goods
    112
  • 113. 113
  • 114. 114
  • 115. 115
  • 116. 116
  • 117. Typical Examination Question
    Questions on the Theory of Demand and Supply
    Explain the function of prices.
    Explain the function of markets.
    The basic economic problems is scarcity. Explain how a market economy (or command economy) allocates resources.
    Evaluate the consequences of price controls.
    Evaluate the view that it is best to allow primary commodity prices to be determined purely through the free interaction of market forces.
    117
  • 118. Typical Examination Question
    Questions on Elasticity
    Define cross elasticity of demand (or the other elasticities ) and using diagrams, explain its impact.
    Explain why price elasticity of demand and the price elasticity of supply tends to be low on primary commodities and how this impacts price stability.
     
    118
  • 119. Typical Examination Question
    Questions on Market Failure
    Explain the differences between merit goods, demerit goods and public goods.
    Evaluate the view that governments should always intervene in markets for such goods as cigarettes and alcohol.
    With the aid of a diagram, explain how the application of a flat rate tax (a specific/fixed amount) could reduce pollution.
    Using an appropriate diagram, explain how negative externalities (or positive externality) are a type of market failure.
    Evaluate the measures that a government might adapt to correct market failure arising from negative (or positive) externalities.
    119
  • 120. Resources
    Phil Holden has an excellent set of youtube videos on all aspects of markets.
    Teaching Tools for Microeconomics from John Stosel is a little dated but still another excellent source of video clips on markets. This is produced by ABC News.
    Paul Solman has produced a series of video clips designed to accompany Economics by Paul Samuelson. They are excellent for the IB Course. The DVD can be obtained from McGraw-Hill.
    The National Council on Economic Education has produced a two volumes of student activities: Advanced Placement Economics: Microeconomics Student Activities Workbook, 3rd Edition, and Advanced Placement Economics: Macroeconomics Student Activities Workbook, 3rd Edition. Though they are designed for Advanced Placement students many of the data sets helps IB students understand key concepts. These activities are especially good for students who are more mathematically minded.
    120

×