101 lecture 3

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  • 101 lecture 3

    1. 1. Microeconomics Lecture 3 Trade-offs,Comparative Advantage,and the Market System
    2. 2. Yabut
    3. 3. IntentResult
    4. 4. Fell Pushed JumpedResult the same
    5. 5. SlopePercentage Change Relationships Cause and Effect Areas
    6. 6. Notation% Percent Change% Percentage Change
    7. 7. % Percentage Change New - Old Old
    8. 8. % Percentage Change New - Old Old7-5 5
    9. 9. % Percentage Change New - Old Old7-5 = 5
    10. 10. % Percentage Change New - Old Old7-5 = 2 5 5
    11. 11. % Percentage Change New - Old Old7-5 = 2 = 5 5
    12. 12. % Percentage Change New - Old Old7 - 5 = 2 = .4 5 5
    13. 13. % Percentage Change New - Old Old7 - 5 = 2 = .4 = 5 5
    14. 14. % Percentage Change New - Old Old7 - 5 = 2 = .4 = 40% 5 5
    15. 15. Last year the price was $6.This year the price is $9.What is the percentage change?New - Old Old
    16. 16. Last year the price was $6.This year the price is $9.What is the percentage change?New - Old Old9-6 6
    17. 17. Last year the price was $6.This year the price is $9.What is the percentage change?New - Old Old9-6 = 6
    18. 18. Last year the price was $6.This year the price is $9.What is the percentage change?New - Old Old9-6 = 3 6 6
    19. 19. Last year the price was $6.This year the price is $9.What is the percentage change?New - Old Old9-6 = 3 = 6 6
    20. 20. Last year the price was $6.This year the price is $9.What is the percentage change?New - Old Old9 - 6 = 3 = .5 6 6
    21. 21. Last year the price was $6.This year the price is $9.What is the percentage change?New - Old Old9 - 6 = 3 = .5 = 6 6
    22. 22. Last year the price was $6.This year the price is $9.What is the percentage change?New - Old Old9 - 6 = 3 = .5 = 50% 6 6
    23. 23. Y X
    24. 24. Price Y X Quantity
    25. 25. $Price Y X Quantity Q
    26. 26. $ Q
    27. 27. $ Q
    28. 28. $ Q
    29. 29. $ Q
    30. 30. $ Q
    31. 31. $ Q
    32. 32. Opportunity Cost
    33. 33. Opportunity CostThe highest valued alternative
    34. 34. Production Possibilities Frontier 1,000,000 900,000 800,000 700,000 600,000iPods 500,000 400,000 300,000 200,000 100,000 0 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000 iPads
    35. 35. 1,000,000 900,000 iPods to iPads 3 to 1 800,000 700,000 600,000 iPads to iPods 1 to 3iPods 500,000 400,000 300,000 200,000 100,000 0 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000 iPads
    36. 36. 1,000,000 900,000 800,000 700,000 600,000iPods 500,000 400,000 300,000 200,000 100,000 0 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000 iPads
    37. 37. 1,000,000 900,000 iPods: 900,000 iPads: 0 800,000 700,000 600,000 iPods: 600,000 iPads: 100,000iPods 500,000 400,000 300,000 iPods: 300,000 iPads: 200,000 200,000 100,000 iPods: 0 iPads: 300,000 0 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000 iPads
    38. 38. 1,000,000 900,000 800,000 700,000 600,000iPods 500,000 400,000 300,000 200,000 100,000 0 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000 iPads
    39. 39. 1,000,000 900,000 800,000 700,000 Bows Out Due to 600,000 Opportunity CostsiPods 500,000 400,000 300,000 200,000 100,000 0 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000 iPads
    40. 40. 1,000,000 900,000 800,000 700,000 600,000iPods 500,000 400,000 300,000 200,000 100,000 0 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000 iPads
    41. 41. 1,000,000 900,000 800,000 700,000 600,000iPods 500,000 400,000 300,000 Innovation that only helps iPad 200,000 production 100,000 0 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000 iPads
    42. 42. 1,000,000 900,000 800,000 Innovation that helps both. 700,000 600,000iPods 500,000 400,000 300,000 200,000 100,000 0 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000 iPads
    43. 43. Absolute Advantage Produce more with the same resourcesComparative Advantage Produce at a lower opportunity cost
    44. 44. David Ricardo (1772 - 1823) Principles of Political Economy and TaxationComparative Advantage
    45. 45. Utopia vs. Reality
    46. 46. Utopia vs. RealityReality always loses
    47. 47. Utopia vs. RealityReality always losesRealistic Alternatives
    48. 48. The basis for trade iscomparative advantage, not absolute advantage.
    49. 49. No Trade 2 Hooks and 2 Fish 10 Hours - 5 Hours per Fish Total Gale Ali HoursMake a 3 2 5HookCatch 4 1 5a Fish Total 7 3 10Hours
    50. 50. With Trade 2 Hooks and 2 Fish 8 Hours - 4 Hours Per Fish Total Gale Ali HoursMake a 2 hooks 6Hook 6 hoursCatch 2 fish 2a Fish 2 hours Total 6 2 8Hours
    51. 51. Saudi Idaho
    52. 52. Saudi Arabia Idaho Dates Potatoes Dates Potatoes 24 0 6 0 20 1 5 5 16 2 4 10 12 3 3 15 8 4 2 20 4 5 1 25 0 6 0 30 Ratios Ratios 24 to 6 6 to 304 Dates for 1 Potato 1/5 Dates for 1 Potato 6 to 24 30 to 61/4 Potato for 1 Date 5 Potatoes for 1 Date
    53. 53. Dates Should Idaho and Saudi Trade? 27 24 21 18 15 12 9 6 3 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
    54. 54. Dates Should Idaho and Saudi Trade? 27 Dates Potatoes 24 24 0 20 1 21 16 2 12 3 8 4 18 4 5 0 6 15 12 9 6 3 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
    55. 55. Dates Should Idaho and Saudi Trade? 27 Dates Potatoes 24 24 0 20 1 21 16 2 12 3 8 4 18 4 5 0 6 15 Saudi PPF 12 9 6 3 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
    56. 56. Dates Should Idaho and Saudi Trade? 27 Dates Potatoes 24 24 0 20 1 21 16 2 12 3 8 4 18 4 5 0 6 15 Saudi PPF 12 Dates Potatoes 6 0 5 5 9 4 10 3 15 6 2 20 1 25 3 0 30 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
    57. 57. Dates Should Idaho and Saudi Trade? 27 Dates Potatoes 24 24 0 20 1 21 16 2 12 3 8 4 18 4 5 0 6 15 Saudi PPF 12 Dates Potatoes 6 0 5 5 9 4 10 3 15 6 2 20 Idaho PPF 1 25 3 0 30 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
    58. 58. Dates Should Idaho and Saudi Trade? 27 Dates Potatoes 24 24 0 20 1 21 16 2 12 3 8 4 18 4 5 0 6 15 Saudi PPF 12 Dates Potatoes 6 0 5 5 9 4 10 3 15 6 2 20 Idaho PPF 1 25 3 0 30 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
    59. 59. Dates Should Idaho and Saudi Trade? 27 Dates Potatoes 24 24 0 20 1 21 16 2 12 3 8 4 18 4 5 0 6 15 Saudi PPF 12 Dates Potatoes 6 0 5 5 9 4 10 3 15 6 2 20 Idaho PPF 1 25 3 0 30 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
    60. 60. Dates Should Idaho and Saudi Trade? 27 Dates Potatoes 24 24 0 20 1 21 16 2 12 3 8 4 18 4 5 0 6 15 Saudi PPF 12 Dates Potatoes 6 0 5 5 9 4 10 3 15 6 2 20 Idaho PPF 1 25 3 0 30 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
    61. 61. Dates Should Idaho and Saudi Trade? 27 Dates Potatoes 24 24 0 20 1 21 16 2 12 3 8 4 18 4 5 0 6 15 Saudi PPF 12 Dates Potatoes 6 0 5 5 9 4 10 3 15 6 2 20 Idaho PPF 1 25 3 0 30 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
    62. 62. Internal Dates Potatoes Price Idaho 5 Potatoes 1/5 Date Saudi 1/4 Potato 4 Dates
    63. 63. Internal Dates Potatoes Price Idaho 5 Potatoes 1/5 Date Saudi 1/4 Potato 4 Dates
    64. 64. Internal Dates Potatoes Price Idaho 5 Potatoes 1/5 Date Saudi 1/4 Potato 4 Dates
    65. 65. No Trade Dates Potatoes Idaho 3 15 Saudi 12 3 Total 15 18
    66. 66. Specialize Dates Potatoes Idaho 0 30 Saudi 24 0 Total 24 30
    67. 67. Analysis Dates PotatoesNo Trade 15 18 TotalsSpecialize 24 30 Totals Gain +9 +12
    68. 68. Trade Dates Potatoes Idaho 3 to 12 = +9 15California 12 3 to 15 = +12 Total 24 30
    69. 69. Dates Should Idaho and Saudi Trade? 27 24 21 18 15 12 9 6 3 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
    70. 70. Dates Should Idaho and Saudi Trade? 27 24 21 18 15 Saudi PPF 12 9 6 3 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
    71. 71. Dates Should Idaho and Saudi Trade? 27 24 21 18 15 Saudi PPF 12 9 6 Idaho PPF 3 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
    72. 72. Dates Should Idaho and Saudi Trade? 27 24 21 18 15 Saudi PPF 12 9 6 Idaho PPF 3 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
    73. 73. Dates Should Idaho and Saudi Trade? 27 24 21 18 15 Saudi PPF 12 9 6 Idaho PPF 3 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
    74. 74. Dates Should Idaho and Saudi Trade? 27 24 21 18 15 Saudi Trade PPF PPF 12 9 6 Idaho PPF 3 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
    75. 75. Dates Should Idaho and Saudi Trade? 27 24 21 18 15 Saudi Trade PPF PPF 12 9 6 Idaho PPF 3 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
    76. 76. Dates Should Idaho and Saudi Trade? 27 Idaho 24 gains 9 Dates 21 18 15 Saudi Trade PPF PPF 12 9 6 Idaho PPF 3 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
    77. 77. Dates Should Idaho and Saudi Trade? 27 Idaho 24 gains 9 Dates 21 18 15 Saudi Trade California PPF PPF gains 12 12 potatoes 9 6 Idaho PPF 3 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
    78. 78. MarketsWhere Buyers and Sellers Trade
    79. 79. Households Individuals in a homeSell Factors of Production Buy Goods & Services
    80. 80. FirmsBuy Factors of Production Sell Goods & Services
    81. 81. Product MarketsMarkets for finishedgoods and services - Stores -
    82. 82. Factor MarketsMarkets for goods andservices used to make products
    83. 83. Households
    84. 84. Households Firms
    85. 85. Households Labor Capital Natural Resources Entrepreneurs Firms
    86. 86. Households Labor CapitalGoods & NaturalServices Resources Entrepreneurs Firms
    87. 87. Households Labor Capital Wages & Goods & NaturalSpending Payments Services Resources for Factors Entrepreneurs Firms
    88. 88. Households Labor Capital Wages &Spending Product Goods & Services Natural Resources Payments for Factors Markets Entrepreneurs Firms
    89. 89. Households Labor CapitalSpending Product Goods & Natural Factor Wages & Payments Markets Services Resources Entrepreneurs Markets for Factors Firms
    90. 90. The Market System TrustPrivate Property Rights Rule of Law
    91. 91. Why are some rich andothers poor?

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