Economics for Leaders Open Markets Economics for Leaders

Economics for Leaders Open Markets Economics for Leaders

How much should we do? Work Play Study Sleep Economics for Leaders

As long as the marginal benefit is greater than the marginal cost you should continue the activity Economics for Leaders MB=MC

ERP #3: People respond to incentives in predictable ways. Price IS an extremely powerful incentive Analyze: When the money price changes, the opportunity cost of using a good or resource changes. The changed opportunity cost provides an incentive for people – consumers and producers – to change their behavior. Economics for Leaders

Consumers in Markets Demand = desire for a product Economics for Leaders + willingness and ability to pay for it

How are prices set? By the Market! Interaction of buyers (consumers) and sellers (producers). Economics for Leaders

Necessary conditions for markets Property Rights Clear “Rules of the Game” Freedom to Exchange Information Economics for Leaders

Demand Willingness and ability to purchase goods at various prices. Economics for Leaders

The Law of Demand If P then QD and then QD Note: What causes the change in the consumers’ behavior ? (think: price effect) Economics for Leaders

Pictures of Demand Price $8 0 Economics for Leaders 90 QD

What influences demand? (Demand Shifters) Taste and preference Substitutes Income Population Economics for Leaders

Assumption: EVERYTHING ELSE REMAINS THE SAME Economics for Leaders

Demand shifters: examples What will happen to the demand for hamburger if the price of hotdogs increases? What will happen to the demand for Snickers if it is discovered that chocolate makes you beautiful? Economics for Leaders

Consumers Are Only ½ the Market Supply Economics for Leaders

Supply Willingness and ability of producers to sell various quantities of goods and services a various prices. Economics for Leaders

The Law of Supply If P then QS and then QS Note: What causes the change in the producers’ behavior ? (think: price effect) Economics for Leaders

What influences supply ? Costs of production labor materials facilities tools and machines Economics for Leaders

Pictures of Supply Price $8 0 Economics for Leaders 75 Qs

Assumption: EVERYTHING ELSE REMAINS THE SAME Economics for Leaders

Supply shifters costs of production – resource availability changes – technology changes – policies change (taxes, for example) numbers of suppliers Economics for Leaders

Supply shifters: Examples What will happen to the supply of DVDs if recording technology becomes more efficient? Why? What will happen to the supply of new houses after a summer of terrible fires destroys many forest areas? Why? Economics for Leaders

Student demand for computers Demand Schedule Price Quantity demanded $ 1, 500 1 $ 800 4 $ 600 6 $ 500 14 $ 300 18 $ 200 21 $ 100 24 $ 80 26 $ 50 30 Economics for Leaders

Demand for computers Price $1, 500 Student Demand $ 800 $ 600 $ 500 $ 300 $ 200 $ 100 $ 80 $ 50 Economics for 1 Leaders 4 6 14 18 21 24 26 29 Quantity

Teacher demand for computers Demand schedule Price Quantity demanded $ 5, 000 1 $ 800 5 $ 700 6 $ 600 8 $ 500 11 $ 400 14 $ 300 21 $ 200 24 $ 100 30 $ 50 Economics for Leaders

Demand for computers Price $5, 000 $1, 500 Student Demand $ 800 $ 600 $ 500 $ 300 $ 200 $ 100 $ 80 $ 50 Economics for 1 Leaders 4 6 Teacher Demand 14 18 21 24 26 29 Quantity

Student supply of labor Supply schedule Price Quantity supplied $ 10 $ 35 Economics for Leaders (average/per person) 129. 3 184. 9

Supply of Labor Price $3 Student supply 5 $10 Economics for Leaders 50 100 175 200 Quantity

Supply of Labor Price $3 5 Teacher supply Student supply $10 Economics for Leaders 50 100 175 200 Quantity

Demand for computers Price Supply $2, 500 $1, 800 $1, 500 $1, 100 $ 900 $ 700 $ 500 $ 150 $ 20 Economics for 1 Leaders 3 6 11 15 20 23 29 31 Quantity

Equilibrium Price The price at which the amount (quantity) people are willing and able to buy = the amount (quantity) producers are willing and able to sell. QD = QS Economics for Leaders

Price Market Clearing or Equilibrium Price Demand Supply P 1 P 2 Economics for Leaders Quantity

1. Markets are dynamic. 2. Market prices aren’t set; they happen! http: //www. youtube. com/watch? v=Ng 3 XHPdex. NM Economics for Leaders

ERP-4: Institutions are the “rules of the game” that influence choices. Laws, customs, moral principles, superstitions, and cultural values influence people’s choices. These basic institutions controlling behavior set out and establish the incentive structure and the basic design of the economic system. Economics for Leaders

Institutions necessary for wellfunctioning markets: Property rights Economics for Leaders Rule of law

Price Market Clearing or Equilibrium Price Demand P 2 Supply Surplus P 1 Economics for Leaders Q D Q 1 Q S Quantity

Price Market Clearing or Equilibrium Price Demand Supply P 1 Shortage P 2 Q S Economics for Leaders Q 1 Q D Quantity

Consumer surplus PX CS = the extra value individuals receive from consuming a good over what they pay for it. CS X Economics for Leaders

Producer surplus P S Producer surplus is the extra value producers get for a good in excess of the opportunity costs they incur by producing it. PS Q Economics for Leaders

Economics for Leaders

Economics for Leaders

Economics for Leaders

Economics for Leaders