Ec102-April14

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  • 04/17/11
  • Ec102-April14

    1. 1. PPF DEMAND AND SUPPLY April 14, 2011
    2. 2. QUIZ #2 <ul><li>The next best alternative foregone. </li></ul><ul><li>A group of buyers and sellers. </li></ul><ul><li>What causes demand pull inflation in the long run? </li></ul><ul><li>BONUS: Who is the father of modern economics? (Clue: AS) </li></ul>
    3. 3. QUIZ #2 <ul><li>PRODUCT </li></ul><ul><li>MARKET </li></ul>FACTOR MARKET HOUSE HOLDS FIRMS
    4. 4. ANSWER <ul><li>PRODUCT </li></ul><ul><li>MARKET </li></ul>FACTOR MARKET HOUSE HOLDS FIRMS
    5. 5. RECAP <ul><li>Opportunity Cost </li></ul><ul><li>Rationality Principle </li></ul><ul><li>Marginal Changes </li></ul><ul><li>Incentive </li></ul><ul><li>Positive Eco </li></ul><ul><ul><li>Descriptive Eco </li></ul></ul><ul><ul><li>Economic Theory </li></ul></ul><ul><li>Normative Eco </li></ul><ul><li>Role of Assumptions </li></ul><ul><li>Ceteris Paribus </li></ul><ul><li>Circular Flow Diagram </li></ul>
    6. 6. PRODUCTION POSSIBILITIES FRONTIER <ul><li>MARGARITA RECIPE </li></ul><ul><ul><li>1.5 oz tequila </li></ul></ul><ul><ul><li>0.5 oz triple sec </li></ul></ul><ul><ul><li>Dash of lemon or lime zest </li></ul></ul><ul><ul><li>3 oz sour mix </li></ul></ul><ul><ul><li>Lime wedge for garnish </li></ul></ul><ul><ul><li>Salt or sugar to rim glass (optional) </li></ul></ul><ul><li>http://cocktails.about.com/od/atozcocktailrecipes/r/marg_cktl.htm </li></ul>
    7. 7. PRODUCTION POSSIBILITIES FRONTIER <ul><li>TEQUILA SUNRISE </li></ul><ul><ul><li>1.5 oz tequila </li></ul></ul><ul><ul><li>6 oz. orange juice </li></ul></ul><ul><ul><li>0.5 oz grenadine </li></ul></ul><ul><ul><li>Orange for garnish </li></ul></ul><ul><li>http://www.drinkoftheweek.com/drink-recipes/tequila-sunrise/#axzz1JPpRR5sf </li></ul>
    8. 8. PRODUCTION POSSIBILITIES FRONTIER <ul><li>REQUIREMENTS </li></ul><ul><li>3 oz tequila </li></ul><ul><li>0.5 oz triple sec </li></ul><ul><li>3 oz sour mix </li></ul><ul><li>6 oz orange juice </li></ul><ul><li>0.5 grenadine </li></ul><ul><li>AVAILABLE </li></ul><ul><li>10 oz tequila </li></ul><ul><li>2 oz triple sec </li></ul><ul><li>7 oz sour mix </li></ul><ul><li>14 oz orange juice </li></ul><ul><li>4 oz grenadine </li></ul>
    9. 9. PRODUCTION POSSIBILITIES FRONTIER <ul><li>Option 1: 2 margaritas </li></ul><ul><li>Option 2: 2 tequila sunrises </li></ul><ul><li>Option 3: 1 margarita, 2 tequila sunrise </li></ul><ul><li>Unavailable options: </li></ul><ul><li>2 margaritas, 1 tequila sunrise </li></ul><ul><li>2 margaritas, 1 tequila sunrises </li></ul>
    10. 10. PRODUCTION POSSIBILITIES FRONTIER <ul><li>Shows the combination of output that the economy can possibly produce given the available factors of production and the available production technology. </li></ul>
    11. 11. PRODUCTION POSSIBILITIES FRONTIER
    12. 12. PRODUCTION POSSIBILITIES FRONTIER <ul><li>Resources are limited – choose the best combination of output that is possible </li></ul><ul><li>Along the curve </li></ul><ul><ul><li>Shows the different combinations of A and B that you produce given your resource </li></ul></ul><ul><ul><li>Extremes – how much of A you can make if you’re not producing B and vv </li></ul></ul>
    13. 13. PRODUCTION POSSIBILITIES FRONTIER <ul><li>Inside the curve </li></ul><ul><ul><li>Combinations of output that are possible BUT does not maximize inputs </li></ul></ul><ul><ul><li>INEFFICIENT </li></ul></ul><ul><li>Outside the curve </li></ul><ul><ul><li>Combinations of output that are impossible to produce given the available inputs </li></ul></ul>
    14. 14. PRODUCTION POSSIBILITIES FRONTIER <ul><li>Trade off between 2 goods </li></ul><ul><ul><li>No way to produce one good without reducing the production of the other good </li></ul></ul><ul><ul><li>Opportunity Cost of one good as measured in terms of another good </li></ul></ul>
    15. 15. PRODUCTION POSSIBILITIES FRONTIER <ul><li>A – possible but inefficient </li></ul><ul><li>X – impossible </li></ul><ul><li>B, D, C – possible and efficient </li></ul>
    16. 16. PRODUCTION POSSIBILITIES FRONTIER <ul><li>Point A  B </li></ul><ul><ul><li>Give up 200 guns to make 100 bread </li></ul></ul><ul><ul><li>At point A, opportunity cost of 100 bread is 200 guns (1 bread = 2 guns) </li></ul></ul><ul><ul><li>SLOPE  opportunity cost </li></ul></ul><ul><li>Slope is not constant </li></ul><ul><ul><li>Opportunity cost of bread highest at E, when economy is producing more bread, less guns </li></ul></ul><ul><ul><li>Slope is steep but lowers as it flattens </li></ul></ul>
    17. 17. PRODUCTION POSSIBILITIES FRONTIER <ul><li>The PPF shows the trade-off between two goods at a given time but may change over time </li></ul><ul><ul><li>Example: Technological advance in gun industry  produce more </li></ul></ul><ul><ul><li>For any given amount of bread, more guns can be produced </li></ul></ul><ul><ul><li>If the economy does not produce guns, it can still produce 1000 bread (stays put in graph) </li></ul></ul>
    18. 18. PRODUCTION POSSIBILITIES FRONTIER <ul><li>Scarcity </li></ul><ul><li>Efficiency </li></ul><ul><li>Trade-offs </li></ul><ul><li>Opportunity Cost </li></ul><ul><li>Economic Growth </li></ul>
    19. 19. TAYO NA SA TALIPAPA <ul><li>Find a partner. Sit beside him/her. </li></ul><ul><li>Each pair will be assigned a role: buyer or seller. </li></ul><ul><li>SELLERS </li></ul><ul><li>Fixed amount of goods to sell </li></ul><ul><li>Some more than others </li></ul>
    20. 20. TAYO NA SA TALIPAPA <ul><li>BUYERS </li></ul><ul><li>Fixed amount of money to spend </li></ul><ul><li>Each good has a corresponding price and an equivalent number of points </li></ul><ul><li>GOAL: Get the highest number of points </li></ul><ul><li>PRIZE: +2 for the quiz today </li></ul>
    21. 21. TAYO NA SA TALIPAPA <ul><li>MECHANICS: </li></ul><ul><li>There will be 4 rounds, 3-4 minutes each. </li></ul><ul><li>During each round, go around the classroom and trade with each other. </li></ul><ul><li>Prices are not fixed; you may haggle with the sellers </li></ul><ul><li>At the end of each round, we’ll calculate the scores </li></ul>
    22. 22. TAYO NA SA TALIPAPA <ul><li>MONEY: </li></ul><ul><li>Green – P5 </li></ul><ul><li>Yellow – P10 </li></ul><ul><li>Blue – P50 </li></ul><ul><li>1 winner for buyers </li></ul><ul><li>1 winner for sellers </li></ul>
    23. 23. TAYO NA SA TALIPAPA *Prices are negotiable. You may haggle with the sellers. GOODS PRICE* POINTS Rice P5 5 Water P10 20 Pork P15 10 Beef P30 10 Clothes P100 15 Ipad P200 30 Car P500 50 Rent (Condo) P1000 100
    24. 24. ROUND 2 <ul><li>NEWS: </li></ul><ul><li>Foot-and-mouth disease in pigs </li></ul><ul><ul><li>Point equivalent of pork falls to 5 points </li></ul></ul><ul><ul><li>Price of beef increases to P50 </li></ul></ul><ul><li>Lotto winner: pair #16 </li></ul><ul><ul><li>Gets an additional P500 </li></ul></ul>
    25. 25. TAYO NA SA TALIPAPA – Round 2 *Prices are negotiable. You may haggle with the sellers. GOODS PRICE* POINTS Rice P5 5 Water P10 20 Pork P15 5 Beef P50 10 Clothes P100 15 Ipad P200 30 Car P500 50 Rent (Condo) P1000 100
    26. 26. ROUND 3 <ul><li>Each seller gets additional goods. </li></ul><ul><li>Foot-and-mouth disease over </li></ul><ul><ul><li>Point equivalent of pork back to 10 </li></ul></ul><ul><ul><li>Price of beef back to P30 </li></ul></ul>
    27. 27. TAYO NA SA TALIPAPA – Round 3 *Prices are negotiable. You may haggle with the sellers. GOODS PRICE* POINTS Rice P5 5 Water P10 20 Pork P15 10 Beef P30 10 Clothes P100 15 Ipad P200 30 Car P500 50 Rent (Condo) P1000 100
    28. 28. ROUND 4 <ul><li>Each buyer gets additional money </li></ul><ul><li>Last chance to increase your score! </li></ul>

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