EC4004 Economics for Business Lecture 2

Reviewing some key concepts from year 1 micro Dr Helena Lenihan Department of Economics Email: helena.lenihan@ul.ie Room: KB3-35

Text:????
Relevant chapters????

The Economic Problem
Core of the Economic Problem: use of scarce resources to satisfy unlimited wants
Scarcity and Choice
Economic Activity: Production, Consumption and Exchange
Factors of production

Economic way of thinking
A logical framework for organising your thoughts and understanding economics

Basic Economic Questions What? How? For Whom? Goods or Services are produced

Concept of opportunity cost: the best alternative sacrificed for a chosen alternative.
Marginal analysis: an examination of the effects of additions to and subtractions from a current situation.

Economic Science: Methodology
Positive and normative statements
Laws of Economics
general tendencies of behaviour

Production Possibility Frontier
Production transforms inputs into outputs
[factors of production into goods and services]
Goods - Tangible
Services - Intangible
Capital (Producer) Goods
Consumer Goods
Durable
Non-Durable

Limitations on Output
Output is limited by:
Quantity (and quality) of Resources
State of Technology
PPF marks the boundary between attainable and unattainable combinations of goods

PCs(000s) TV Sets (000s) Y . X . PPF B PPF O A D C

Summary
Efficient output combinations on PPF (=productive efficiency)
Efficiency implies it is not possible to produce more of one good without less of the other
Combinations outside not possible ( i.e. X)
Combinations inside are inefficient (i.e.Y)

Efficiency of Resource Use
Resource use is efficient when we produce goods and services we value most highly…choice is made at the margin by comparing the additional costs with the additional benefits
When resources are used efficiently we cannot produce more of one good without giving up units of a good we value more highly

Economic Growth
Increased productive capabilities
Outward shift of PPF
caused by either
[1] Capital accumulation, or
[2] Technological progress,or
[3] Both

Military Goods Civilian Goods PPF1 PPF 2 Figure 8: Economic Growth and the PPFs O

Law of Demand 1
Demand (in Economics) refers to:
willingness and ability of buyers to purchase:
(a) Different quantities of a good
(b) at different prices
(c ) during a specific time period
Quantity demanded of a good may differ from actual amount bought

Law of Demand 2
Consumers buy more at a Lower Price
Law of Demand: As the price of a good rises, the quantity demanded of the good falls and vice versa, ceteris paribus

Factors influencing change in Demand
1. Income
Normal goods
Inferior goods
2. Price of related goods
substitutes
complements
3. Preferences/tastes/fashions
4. Population structure/ number of buyers
5. Future price expectations

Change in Demand .V. Change in Quantity Demanded
Change in quantity demanded of a good arises when the price of a good changes while all other variables affecting demand are unchanged = movement along the demand curve
Change in Demand means a shift in the demand curve arising from a change in those factors which influence demand = shift of demand curve

Supply and Law of Supply
Supply refers to:
willingness and ability of firms to produce for sale
(a) quantities of a good
(b) at different prices
(c) during a specific time period
Law of Supply: Positive P-Q Relationship

Factors Influencing Supply
Prices of Factors of Production
Prices of Other Goods supplied
Substitutes in Production
Complements in production
Expected Future Prices
Number of Suppliers
Technology Change
Taxes, Subsidies, Regulations

Change in Quantity Supplied vs. Change in Supply
Movement Along the Supply Curve (Change in Qs at a different Price on the Curve)
Change in Supply (Change in Qs at all Prices = shift of entire Supply Curve)

Figure 6: Market Equilibrium S S D D 3 6 0 Q 1 2 4 5 P 5 3 4 6 Surplus Shortage Equilibrium E

Market Equilibrium
No surplus or shortage exists - the market ‘clears’
Opposing forces of buyers and sellers are balanced
At the equilibrium price, Qs = Qd
Positions above or below the equilibrium price lead to behavioural changes by producers and consumers which lead to a return to E (=stable equilibrium)

EC4004 Economics for Business Lecture 2

by Stephen Kinsella

Accessibility

Categories

Upload Details

Usage Rights

2 Embeds 326

Statistics

EC4004 Economics for Business Lecture 2 Presentation Transcript

http://www.stephenkinsella.net	324
http://www.slideshare.net	2