Macroeconomics wk2 3
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Macroeconomics wk2 3

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    Macroeconomics wk2 3 Macroeconomics wk2 3 Presentation Transcript

    • Macroeconomics
      Week 2-3
    • THE BARTER MARKET
      1 www.investopedia.com
    • MARKET
      is a group of buyers and sellers of a particular good or service. It brings together “demanders” and “suppliers.”
      BUYER
      “Demanders”
      SELLER
      “Suppliers”
      GOODS
      PRICE
    • DEMAND
      is a schedule or a curve that shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices during a specified period of time.
    • LAW OF DEMAND
      All else equal, as price of a good increases, the quantity of the good that the buyer would be able and willing to buy decreases.
      Logic behind the Law:
      • An individual purchases more of a product at a low price than at a high price.
      • Diminishing marginal utility
      • Income and substitution effects.
      DEMAND RELATIONSHIP
    • More product at a lower price
      Diminishing Marginal Utility
      It is a phenomenon wherein the satisfaction or utility derived by an individual or buyer diminishes as he/she consumes additional unit of a particular good.
    • Income effect
      A lower price increases the purchasing power of a buyer’s income, enabling the buyer to purchase more of a good than before.
      Substitution effect
      Suggests that a lower price, buyers have the incentive to substitute what is now a less expensive product for similar products that are now more relatively expensive.
    • Tastes
      Price
      Income
      No. of buyers
      Expectations
      Price of substitutes
    • Demand Curve
      is the inverse or negative relationship between the price and quantity demanded for a particular good represented in a graph.
      Market Demand
      is the summation of the quantity demanded by all consumers in the market at each various possible prices.
    • Change in Quantity Demanded
      It is a movement of the price-quantity demanded combination from one point to another on a fixed demand schedule or demand curve.
    • Change in Demand
      It is the shift in the demand curve brought about by a change in one or more of the determinants of demand.
      Observations
      • Any change that raises the quantity that buyers wish to purchase at a given price shifts the demand curve to the RIGHT.
      • Any change that lowers the quantity that buyers wish to purchase at a given price shifts the demand curve to the LEFT.
    • SUPPLY
      is a schedule or a curve that shows the various amounts of a product that producers are willing and able to make available at each of a series of possible prices during a specified period of time.
    • LAW OF SUPPLY
      All else equal, as price of a good increases, the quantity of the good that the seller would be able and willing to supply increases.
      Logic behind the Law:
      • Profit objective
      • Increasing marginal cost
    • Profit objective
      Increasing marginal cost
      Beyond some quantity of production, additional resources produce less additional output.
    • Input prices
      Technology
      Price
      Taxes and subsidiaries
    • Producer’s Expectations
      No. of sellers
      Price of other goods
    • Supply Curve
      is the direct or positive relationship between the price and quantity supplied for a particular good represented in a graph.
      Market Supply
      is the summation of the quantity supplied by all producers in the market at each various possible prices.
    • Change in Quantity Supplied
      It is a movement of the price-quantity supplied combination from one point to another on a fixed supply schedule or supply curve.
    • Change in Supply
      It is the shift in the supply curve brought about by a change in one or more of the determinants of supply.
      Observations
      • Any change that raises the quantity that producers wish to sell at a given price shifts the supply curve to the RIGHT.
      • Any change that lowers the quantity that producers wish to sell at a given price shifts the supply curve to the LEFT.
    • Market Equilibrium
      is one point at which the demand and supply curves intersect and bought into balance.
      Equilibrium Quantity
      is the quantity supplied and quantity demanded when the price has adjusted to balance supply and demand.
      Equilibrium Price
      is the value in monetary terms that balances the demand and supply of a particular good or service.
    • Market Surplus
      is a situation in which a quantity supplied is greater than quantity demanded.
    • Market Shortage
      is a situation in which quantity demanded is greater than quantity supplied.
    • Elasticity
      is the degree to which a demand or supply curve reacts to a change in price.
      To determine elasticity:
      Elasticity = (% change in quantity )
      (% change in price)
    • Price Elasticity of Demand (Ed)
      is the responsiveness (or sensitivity) of consumers to a price change.
      To determine the Price Elasticity of Demand (Ed):
      Ed = Qd / Qd = % change in quantity demanded
      P / P % change in price
    • Classification of Demand Elasticity (Ed)
      • ELASTIC DEMAND Ed is > 1
      • INELASTIC DEMAND Ed is < 1
      • UNIT ELASTIC Ed is = 1
    • Extreme Cases of Demand Elasticity
      • PERFECTLY ELASTIC Ed is =
      • PERFECTLY INELASTICEd is = 0
    • Income Elasticity of Demand (Ei)
      is the responsiveness (or sensitivity) of consumers to a change in their incomes by buying more or less of a good.
      To determine the Income Elasticity of Demand (Ei):
      Ei = Qd / Qd = % change in quantity demanded
      Y / Y % change in income
      • NORMAL or SUPERIOR GOODS Ei is > 1
      • INFERIOR GOODS Ei is < 1
    • Cross Elasticity of Demand (Exy)
      is the responsiveness (or sensitivity) of consumers’ purchase of one product (x) to a change in the price of some other product (y).
      To determine the Cross Elasticity of Demand (Exy):
      Exy = Qd / Qd = % change in quantity demanded for product X
      Y / Y % change in price of product Y
      • SUBSTITUTE GOODS Exy is > 1
      • COMPLEMENTARY GOODS Exy is < 1
      • INDEPENDENT GOODS Exyis = 0
    • Price Elasticity of Supply (Es)
      is the responsiveness (or sensitivity) of producers to a price change.
      To determine the Price Elasticity of Supply (Es):
      Es = Qs / Qs = % change in quantity supplied
      P / P % change in price
      Classification of Supply Elasticity (Es)
      • ELASTIC SUPPLY Es is > 1
      • UNIT ELASTIC Es is = 1
      • No negative elasticity for supply because price and quantity supplied move in the same direction or positive relationship.
    • Classification of Supply Elasticity (Es)
      • ELASTIC SUPPLY Es is > 1
      • INELASTIC Es is < 1
      • No negative elasticity for supply because price and quantity supplied move in the same direction or positive relationship.
    • Price Elasticity of Supply (Es)
      • The degree of price elasticity depends on how easily and quickly producers or suppliers shift resources between alternative uses. The effect of price change in quantity supplied tends to increase as the time period under which we analyze the adjustment to price change lengthens.
      • The price elasticity of supply is greater in the long-run than in the short-run. This happens because more resources can be shifted to the production of the good in the long-run.