Outline for Lecture 1
Economic Perspective
How do we define economics as a social science?
Economics studies how individuals and institutions (business firms, governments, etc.) make the best choices inallocating limited resources overunlimited needs.
Scarcity and Choice
How do we define the concept of opportunity cost? Provide a simple example.
Marginal Analysis
How do we use marginal analysis (i.e. comparison of marginal benefit and marginal cost) in making decisions? Provide a simple example.
Microeconomics and Macroeconomics
We study economics at two different levels: microeconomics and macroeconomics.
Microeconomics
Define microeconomics, stating how it is different from macroeconomics. Provide an example for a microeconomic issue.
Macroeconomics
Define macroeconomics, stating how it is different from microeconomics. Provide an example for a macroeconomic issue.
Positive and Normative Economics
There is a distinction between positive economics and normative economics.
Positive Economics
Define positive economics, stating how it is different from normative economics. Make a positive economic statement.
Normative Economics
Define normative economics, stating how it is different from positive economics. Make a normative economic statement.
Outline for Lecture 2
Demand
How do we define the demand for a commodity?
Law of Demand
Figure 3.1 presents data on the demand for corn. Based on this figure, describe the law of demand. Then, provide an explanation for the law of demand.
The Demand Curve
Define the demand curve for a commodity. What variable is measured on vertical axis? What variable is measured on horizontal axis?
Referring back to Figure 3.1, how do we obtainthe demand curve for corn? Which way does the curve slope?
Changes in Demand
There are a number of demand shifters, factors that shift the demand curve when they change: consumer tastes, number of buyers, consumer income, prices of related goods, etc.
1. Tastes
How do changes in consumer tastes affect the demand for a commodity? Provide an example and report which way the demand curve shifts as a result.
2. Number of Buyers
How do changes in the number of buyers affect the demand for a commodity? Provide an example and report which way the demand curve shifts as a result.
3. Income
We discuss the effect of changes in income on demand along two lines: normal goods and inferior goods.
How do changes in consumer income affect the demand for a normal good? Provide an example and report which way the demand curve shifts as a result.
How do changes in consumer income affect the demand for an inferior good? Providean example and report which way the demand curve shifts as a result.
4. Prices of Related Goods
We discuss the effect of changes in the price of related goods on demand along two lines: substitutes and complements.
How do we define a substitute? How do changes in the price of a commodity affect the demand for its substitute? Provide an example and report which way the demand curve shifts as a result.
How do we define a complement? How do changesin the price of a commodity affect the demand for itscomplement? Provide an example and report which way the demand curve shifts as a result.
Outline for Lecture 3
Supply
How do we define the supply of a commodity?
Law of Supply
Figure 3.4 presents data on the supply of corn. Based on this figure, describe the law of supply. Then, provide an explanation for the law of supply.
The Supply Curve
Define the supply curve for a commodity. What variable is measured on vertical axis? What variable is measured on horizontal axis?
Referring to Figure 3.4, how do we obtain the supply curve for corn? Which way does the curve slope?
Changes in Supply
There are a number of supply shifters, factors that shift the supply curve when they change: resource prices, technology, taxes, number of sellers, etc.
1. Resource Prices
How do changes in resource prices affect the supply of a commodity? Provide an example and report which way the supply curve shifts as a result.
2. Technology
How does technological progress affect the supply of a commodity? Provide an example and report which way the supply curve shifts as a result.
3. Taxes
How do changes in taxes imposed by government on business firms affect supply? Provide an example and report which way the supply curve shifts as a result.
4. Number of Sellers
How do changes in the number of sellers affect the supply of a commodity? Provide an example and report which way the supply curve shifts as a result.
Outline for Lecture 4
Market Equilibrium
In Figure 3.6, how do we obtain equilibrium in the market for corn? What is equilibrium price? What is quantity transacted (demandedand supplied) at that price?
Changes in Supply, Demand, and Equilibrium
There area host offactors that shift demand (i.e. tastes, number of buyers, income, and prices of related goods) and supply (i.e. resource prices, technology, taxes,and number of sellers).
Changes in Demand
Panel (a) in Figure 3.7 illustrates the impact of an increase in demand on market equilibrium. Provide an example of rising demand, report the resulting shift of demand curve, and state how equilibrium levels of price and quantity are affected.
Repeat the exercise for falling demand, which is illustrated by panel (b).
Changes in Supply
Panel (c) in Figure 3.7 illustrates the impact of an increase in supply on market equilibrium. Provide an example of rising supply, report the resulting shift of supply curve, and state how equilibrium levels of price and quantity are affected.
Repeat the exercise for fallingsupply, which is illustrated by panel (d).
Complex Cases
Complex cases arise from simultaneous changes in demand and supply. For a few examples, consider the following cases.
Supply Increase; Demand Decrease
Suppose that an increase in supply is combined with a decrease in demand. Report which way supply and demand curves shift and state how equilibrium levels of price and quantity are affected.
Supply Increase; Demand Increase
Suppose that an increase in supply is combined with an increase in demand. Report which way supply and demand curves shift and state how equilibrium levels of price and quantity are affected.
Application: Government-Set Prices
Although prices are often determined in freemarkets throughinteraction of demand and supply, governments place restrictions on prices in certain markets at certain times.
Price Ceilings
How do we define a price ceiling? Provide an example and discuss why government would impose a ceiling on the price of a commodity.
Based on Figure 3.8, explain the impact of a price ceiling. Does it cause a shortage or a surplus? Discuss problems associated with price ceilings.
Price Floors
How do we define a price floor? Provide an example and discuss why government would impose a floor on the price of a commodity.
Based on Figure 3.9, explain the impact of a price floor. Does it cause a shortage or a surplus? Discuss problems associated with price floors.
Outline for Lecture 5
Price Elasticity of Demand
How do we define price elasticity of demand?
The Price Elasticity Coefficient and Formula
How do we measure price elasticity of demand? What is in the numerator of elasticity equation? What is in the denominator?
In elasticity calculations, we use the midpoint formula to determine percentage changes.
According to midpoint formula, how do we measurepercentage change in quantity demanded? How do we measurepercentage change in price?
Interpretations of Ed
If price elasticity of demand for a commodity is _____ 1, demand is elastic. What does elastic demand indicate in terms of how responsive consumers are to price changes?
If price elasticity of demand for a commodity is _____ 1, demand is unit-elastic.
If price elasticity of demand for a commodity is _____ 1, demand is inelastic. What does inelastic demand indicate in terms of how responsive consumers are to price changes?
Price Elasticity along a Linear Demand Curve
Demand curve in Figure 6.3 is drawn based on data from Table 6.1 regarding movie tickets.
According to first two rows, when price of a movie ticket falls from $8 to $7, quantity demanded rises from 1000 to 2000 (a movement from point a topoint b). What is price elasticity of demand in this region? Is demand elastic, unit-elastic, or inelastic?
According to rows four and five, when price of a movie ticket falls from $5 to $4, quantity demanded rises from 4000 to 5000 (a movement from point d to point e). What is price elasticity of demand in this region? Is demand elastic, unit-elastic, or inelastic?
According to rows seven and eight, when price of a movie ticket falls from $2 to $1, quantity demanded rises from 7000 to 8000 (a movement from point g to point h). What is price elasticity of demand in this region? Is demand elastic, unit-elastic, or inelastic?
Report whether there is a pattern in price elasticity of demand (rising, falling, or constant) as we go from point a to point h on the demand curve.
Determinants of Price Elasticity of Demand
There are three factors that affect price elasticity of demand: number of available substitutes for the commodity, proportion of income spent on the commodity, and luxury vs. necessity nature of the commodity.
1. Substitutability
All else constant, the larger the number of available substitutes for a commodity, the _____ is the price elasticity of demand for that commodity.
Explain why with an example. You may refer to Table 6.3 that reports price elasticitydata for a wide range of products.
2. Proportion of Income
All else constant, the larger the share of income spent on a commodity inconsumer's budget, the _____ is the price elasticity of demand for that commodity.
Explain why with an example. You may refer to Table 6.3.
3. Luxuries versus Necessities
All else constant, the more a commodity is perceived as a luxury rather than anecessity, the _____ is the price elasticity of demand for that commodity.
Explain why with an example. You may refer to Table 6.3.
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