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Economics

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Title: Economics Author: psuozzo Last modified by: cirt Created Date: 10/14/2010 6:55:49 PM Document presentation format: On-screen Show (4:3) Company – PowerPoint PPT presentation

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Title: Economics


1
World Class Educationwww.kean.edu
2
Economics
  • By Paul Suozzo
  • Assistant Professor of Bus. Studies
  • Ocean County College

3
Overview
  1. Introduction
  2. Markets
  3. Consumer Theory
  4. Costs of Production
  5. Competition
  6. Monopoly
  7. Game Theory
  8. Inflation
  9. Economic Accounting
  10. Business Cycle Unemployment
  11. Income Expenditure
  12. Fiscal Monetary Policy
  13. Taxation
  14. Trade
  15. The Future Growth

4
Marginal versus Average
Fertilizer 0 1 2 3 4
Tomatoes 20 35 44 48 40
Avg. per Bag / 35 22 16 10
Marg. Prod. / 15 9 4 -8
5
Shovels vs. Beach Chairs
A B C D E
Shovels 80 75 65 45 0
Beach Chairs 0 10 20 30 40
6
Introduction
  • Opportunity Cost the forfeited benefit of the
    next best activity
  • Marginal Analysis making decisions considering
    only what can be changed
  • Ceteris Paribus while all other factors proceed
    as usual
  • Factors of Production Land, Labor, Capital
    Entrepreneurship
  • Law of Increasing Opp. Costs extra units are
    only available at an increasing cost
  • Cost/Benefit Analysis to be worthwhile, an
    efforts benefits must outweigh its costs
  • Command Econ. a system where government makes
    most production decisions and owns most means of
    production (communism, socialism)
  • Market Econ. a system guided by markets where
    most means of production are owned privately
    (capitalism)
  • Scarcity when wants outnumber resources
    (opposite of abundance)

7
The Market for Alligator Meat
8
Consumer Producer Surplus
9
Markets
  • Supply a group of organizations providing a good
    or service for a fee
  • Quantity Supplied a particular quantity of a
    good or service made available by a specific
    price
  • Supply Determinants factors causing Supply to
    grow or shrink
  • (counterparts for above three exist for Demand)
  • Shortage when a lower than equilibrium price
    causes Quantity demanded to surpass Quantity
    supplied (caused by P ceiling)
  • Surplus when a higher than equilibrium price
    causes Quantity supplied to surpass Quantity
    demanded (caused by P floor)
  • Equilibrium when there is no pressure for
    change, the P/Q combination that equate Qs to Qd
  • Consumer Surplus extra money consumers are
    willing to pay for a good
  • Producer Surplus extra discounts suppliers are
    willing to concede to sell a good
  • Deadweight Loss loss of surplus caused by market
    interference

10
Elasticity
  • Coefficient of Elasticity change in Qd relative
    to a corresponding P change
  • Normal Good a good whose demand increases with
    income
  • Inferior Good a good whose demand decreases with
    income

11
Sated Yet?
Item Price 1 2 3 4 5 6
Hot dog 2 20 12 6 2 0 -4
soda 1 9 7 4 3 1 1
12
Consumer Theory
  • Welfare a persons level of physical comfort
  • Utils unit in which personal satisfaction is
    measured
  • Indifferent when a consumer has no preference
    between two options
  • totals represent ones preferences while
    trade-offs must always reflect prices
  • Utility Maximization Rule the last unit from
    each category brings the same utils per dollar or
    else a more satisfying combination exists

13
Costs of Production
FC240 TC MC VC ATC AVC AFC
1 307 67 67 307 67 240
2 360 53 120 180 60 120
3 414 54 174 138 58 80
4 500 86 260 125 65 60
5 600 100 360 120 72 48
6 726 126 486 121 81 40
14
Scale Economies
Stage 1 2 3 4 5 6 7 8
Output 100 225 400 600 800 1200 1550 1800
Input 50 75 100 150 200 300 400 500
Prdtvty 2 3 4 4 4 4 3.875 3.6
15
Production Costs
  • Profit proceeds remaining once all costs (both
    direct indirect) are deducted
  • Fixed Costs costs that remain constant despite
    level of production
  • Variable Costs costs varying directly with
    production
  • Efficiencybeing able to complete the same task
    with less resources
  • Marginal Cost cost brought about by another unit
    of production
  • Long Run frame of time in which all resources
    can be modified
  • Scale Economies change in efficiency brought
    about by changing scale of production
  • Productivity output/input

16
The Competitive Firm
17
Competition
  • Short-run frame of time where at least one
    factor of production cannot be varied
  • Shut-down when a firm opts to make no output and
    incur a loss equal to fixed costs
  • Q output quantity that maximizes profit or
    minimizes loss
  • Price taker when a firm has no influence over
    price
  • Pure Competition a market where many firms
    produce a standard product at the same price
  • Invisible Hand Adam Smiths metaphor for market
    allocation

18
Monopoly
19
Monopoly
  • Market Power ability to influence price
  • Monopoly when a market is supplied by a single
    firm
  • Allocative Efficiency pursuing a goal until
    marginal benefit (P) falls to equal marginal cost
  • Productive Efficiency minimizing per unit cost
    via mass production
  • Fair Return producing until costs revenues
  • P Discrimination offering customers same or
    similar product for different prices based on
    willingness to pay
  • Natural Monopoly where cost per unit can only be
    minimized if all production is handled by a
    single firm (usually utility cos)

20
Game Theory
21
Game Theory
  • Symmetrical when two parties pose one another
    with the same circumstances
  • Dominant Strategy when a best course of action
    offers better outcomes
  • Probable Outcome outcome resulting from all
    parties pursuing their best course of action
  • Nash Outcome when no party would opt to deviate
    from the probable outcome
  • Collusion Opportunity when an alternative to the
    probable outcome exists to the benefit both
    parties

22
Nominal vs. Real Growth
Year Quant. Q ch. Price Rev. Rev. ch. P. Index Real Real ch
1 10 / 1 10 / 67 15 /
2 12 .20 1.5 18 .80 100 18 .20
3 15 .25 1.33 20 .11 89 22.50 .25
4 10 -.33 2.25 22.50 .125 150 15 -.33
23
Inflation
  • Inflation sustained increase in prices
  • Real Growth increase in units of goods
    services
  • Price Index composite number representing the
    state of prices

24
Economic Accounting
  • Gross Domestic Product Market value of all new
    final goods and services produced within a
    country during a year
  • Consumption spending by households
  • Durable Consumption household investments,
    household spending on items not quickly exhausted
    (cars, appliances)
  • Non-Durable Consumption household spending on
    quickly expendable items (food, fuel, clothing)
  • Investment purchases by business not intended
    for resale
  • Government Purchases items purchased by
    government- not transfers
  • Net Exports Export Imports

25
Business Cycle Unemployment
  • Long-run GDP level of GDP needed to fully employ
    all resources
  • Current GDP current level of output regardless
    of sustainability
  • Recession 2 or more successive quarters without
    growth
  • GDP Gap current long-run GDP
  • Unemployment Rate unemployed/(unemployed
    employed)
  • Labor Force unemployed employed
  • Discouraged jobless persons wanting but not
    looking for work
  • Frictional unemployed persons between employers
  • Structural the unemployed between occupations
    and/or locales
  • Cyclical employment caused by dips in industries
  • Natural Unemployment all unemployment excluding
    cyclical

26
The Keynesian Cross
27
Income Expenditure
  • Autonomous Consumption basic consumption
    regardless of income
  • MPC new consumption / new income
  • MPS new savings / new income
  • APC consumption / income
  • APS savings / income
  • Injection new expenditures introduced in an
    economy
  • Leakage lost expenditures and new taxes and
    savings
  • Expenditure Multiplier 1/MPS

28
Fiscal Monetary Policy
  • Tax Multiplier MPC/MPS
  • Federal Reserve System US central bank system
    that divorces gov. from money supply control
  • Discount Rate rate of interest banks borrow from
    Fed
  • Reserve Ratio portion of deposits kept as vault
    cash (reserves)
  • Federal Funds Rate interest rate banks borrow
    from each other
  • Term Auction Facility Feds policy of making
    anonymous loans to banks at a rate based on
    demand
  • Easy Money Policy lower Disc. Rate and Reserve
    Ratio, selling of Treasuries and more lending via
    the Term Auction Facility

29
Taxation
  • Flat Tax rate of tax that remains constant
    despite taxable amount
  • Progressive Tax tax rate that intensifies as
    taxed amount increases
  • Effective Tax Rate tax/taxable amount
  • Lump Sum Tax tax that remains the same
    regardless of income
  • Subsidy when gov. helps pay for certain activity
    (negative tax)

30
Trade Gains
C A L I F O R I N I A ID A H O
Computer 50 25 0 10 5 0
Potato 0 50 100 0 62 125
31
Trade
  • Comparative Advantage when a country can make a
    product with a lesser opportunity cost
  • Tariff port toll charged on imports
  • Reciprocal Trade Agreement Act a simplified and
    more favorable set of trade rules, most favored
    nation status, the US extends to nations who
    engage in bi-lateral trade talks with US
  • Gen. Agree. On Tariffs Trade international
    convention to simplify trade and reduce barriers
  • World Trade Organization international
    organization to remedy trade disputes and foster
    world trade

32
The Future Growth
  • Growth Compounding when growth portions are
    added to the initial principal to further
    perpetuate future growth
  • Rule of 70 number of periods to double
    70/growth rate or- growth rate 70/number of
    periods to double
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