101 lecture 2

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101 lecture 2

  1. 1. Microeconomics Lecture 2 Trade-offs, Comparative Advantage, and the Market System
  2. 2. Yabut
  3. 3. Intent Result
  4. 4. Fell Pushed Jumped Result the same
  5. 5. Utopia vs. Reality Reality always loses Realistic Alternatives
  6. 6. Utility a measure of happiness or satisfaction
  7. 7. Snickers Test of Utility
  8. 8. Change Incentives Change Behavior Speed Camera Lottery
  9. 9. Positive What is Normative What ought to be Fact Values
  10. 10. Facts True or False Values Good or Bad
  11. 11. Markets Where Buyers and Sellers Trade
  12. 12. Households Individuals in a home Sell Factors of Production Buy Goods & Services
  13. 13. Firms Buy Factors of Production Sell Goods & Services
  14. 14. Product Markets Markets for finished goods and services - Stores -
  15. 15. Factor Markets Markets for goods and services used to make products
  16. 16. Labor Capital Natural Resources Entrepreneurs Spending Wages & Payments for Factors Goods & Services Households Firms Factor Markets Product Markets
  17. 17. Absolute Advantage Produce more with the same resources Comparative Advantage Produce at a lower opportunity cost
  18. 18. David Ricardo (1772 - 1823) Principles of Political Economy andTaxation Comparative Advantage
  19. 19. The basis for trade is comparative advantage, not absolute advantage.
  20. 20. Gale Ali Total Hours Make a Hook Catch a Fish Total Hours 3 2 5 4 1 5 7 3 10 No Trade 2 Hooks and 2 Fish 10 Hours - 5 Hours per Fish
  21. 21. Gale Ali Total Hours Make a Hook Catch a Fish Total Hours 2 hooks 6 hours 6 2 fish 2 hours 2 6 2 8 With Trade 2 Hooks and 2 Fish 8 Hours - 4 Hours Per Fish
  22. 22. Opportunity Cost The highest valued alternative
  23. 23. Saudi Idaho
  24. 24. Dates Potatoes 24 0 20 1 16 2 12 3 8 4 4 5 0 6 Ratios 24 to 6 4 Dates for 1 Potato 6 to 24 1/4 Potato for 1 Date Dates Potatoes 6 0 5 5 4 10 3 15 2 20 1 25 0 30 Ratios 6 to 30 1/5 Dates for 1 Potato 30 to 6 5 Potatoes for 1 Date Saudi Arabia Idaho
  25. 25. 24 30 6 6 Potatoes15 12 3 3 9 15 18 21 9 12 18 21 24 270 0 27 Should Idaho and Saudi Trade?Dates Saudi PPF Idaho PPF Dates Potatoes 6 0 5 5 4 10 3 15 2 20 1 25 0 30 Dates Potatoes 24 0 20 1 16 2 12 3 8 4 4 5 0 6
  26. 26. Internal Price Dates Potatoes Idaho 5 Potatoes 1/5 Date Saudi 1/4 Potato 4 Dates
  27. 27. No Trade Dates Potatoes Idaho 3 15 Saudi 12 3 Total 15 18
  28. 28. Specialize Dates Potatoes Idaho 0 30 Saudi 24 0 Total 24 30
  29. 29. Analysis Dates Potatoes No Trade Totals 15 18 Specialize Totals 24 30 Gain +9 +12
  30. 30. Trade Dates Potatoes Idaho 3 to 12 = +9 15 California 12 3 to 15 = +12 Total 24 30
  31. 31. 24 30 6 6 Potatoes15 12 3 3 9 15 18 21 9 12 18 21 24 270 0 27 Should Idaho and Saudi Trade?Dates Saudi PPF Idaho PPF Trade PPF Idaho gains 9 Dates California gains 12 potatoes
  32. 32. Slope Percentage Change Relationships Cause and Effect Areas
  33. 33. Notation % Percent Change % Percentage Change
  34. 34. % Percentage Change New - Old Old = = .4 = 40%7 - 5 5 2 5
  35. 35. Last year the price was $6. This year the price is $9. What is the percentage change? New - Old Old = = .5 = 50%9 - 6 6 3 6
  36. 36. California Culture or Syria Culture

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