Principles of Economics

The principles covered, one thing is clear, it is the choices we make and the freedom of these decisions to make our larger economy. The issues were: trade-offs, opportunity costs, marginal thinking, incentives, fairs, markets, governments, productivity, inflation and the Phillips curve.

Tradoffs -
Each face shortages. Gregory Mankiw of Harvard University, said: "I think the nature of the economy," People make compromises every day all decisions involve trade-offs...

Opportunity costs -
Each decision involves an opportunity cost. Even simple decisions, like not going to a baseball game or at home involves opportunity costs. The opportunity cost of going to a baseball game is the best grade in the class you have received.

Think marginal -
Reflection on the board is to create a balance where it is necessary to maximize efficiency.

Incentives -
People respond to incentives. On incentives to make decisions like humans. The example of the duty-free shops is an excellent interpretation of how people respond to incentives. With the high tax detail in some areas, a weekend of tax-free shopping sponsored by the government is an incentive, something you do not normally buy buy. It is an incentive, because it happens once a year.

Trade -
Trade can make everyone better. Countries are not self-sufficient. Countries and specialize. On the other for goods and services that would otherwise be more expensive to produce resources, or as the economy grows, the need for trade.

Markets -
Markets are a good way to organize economic activity. A market is a place where people take the exchange of regulated prices. A market economy consists of many markets, were determined on the decisions of households and firms.

Government -
Governments can sometimes markets. Markets fail or markets can not allocate resources fairly. Governments intervene to regulate or impose rules. One reason markets fail to work effectively is externality. Air pollution is an example of an externality. He charged air and the impact on people's lives. Therefore, the attacks of government to regulate markets.

Productivity -
A country's standard of living depends on its ability to produce goods and services. Differences in living standards are dramatic in some countries. Income differences reflect the quality of life. Productivity is what determines the standard of living. Training improves productivity. Economically free countries to promote the production. Research and development to improve the production rate.

Inflation -
Inflation is when the value of money decreases. Prices of goods and services increased to reflect only the increase in the money supply. Since money is no longer available, shrinks the value of it. To control inflation, made the call money rate and the rate of goods and services produced should be approximately level.

Inflation and unemployment -
The money supply to stimulate the economy and reduce unemployment, but in the long run, the inflation rate increases. However, if the money supply is reduced, unemployment falls and inflation rises. Phillips curve examines the relationship between inflation and unemployment. He explained that when inflation is high, unemployment is low and inflation is low, unemployment is high. However, the Phillips curve is a controversial topic. Over the last twenty years, the curve did not work due to low unemployment and inflation at the same time.

10 Principles of Economics

Understanding 10 principles is the key to understanding the whole concept of the economy.

Tradeoffs:
How we make decisions that we make compromises that we have chosen something more something else, or we must give up something else I have. Decisions include how to buy a child a compromise between the money for themselves, money and the child's needs, but also includes trade from the moment you give up your personal information or leisure time for the baby. Shown in giving the film is a very good example of compromise. It shows a college student, to move to Washington if he wants the college has ended, and are part of the time it uses to search for tests or examinations of study for an hour for jobs Washington. The decision on its priorities over others, he faces a compromise. Society as a whole is also disadvantages: The government must decide how to spend a lot of money in some aspects of the country. Something that I personally was happy and made me think when the movie shows how we still have to compromise in the environment: "We all want clean air, but the tradeoff is the loss of income or even the loss of jobs for some Americans "means, says the presenter. I did not understand the relationship between these two until they speak for a coal company in Ohio that had to be closed because he also harmful to the environment, the consequences? Over a thousand people lost their jobs, the Council decided to have a cleaner environment, but the compromise was the loss of jobs of all employees .

Opportunity cost
What do you sacrifice to get something in its economy. The presenter and Gregory Mankiw explains this principle with a college student. To change the election four years of college gives students the costs are many. It is the cost of money in their books and tuition, and also the "opportunity cost", as Mr Mankiw, because they decided to go to college, that 'they provide is the ability to obtain employment and wages are the work would have taken. "Nothing is free, our time is worth something," said Todd Buchholz, an economist, you see that it is a charge of something no longer involved with the money, makes the cost of something, what you can do as much time with your loved ones. This segment of the film contrasts in situations where varying opportunity costs, is shown an example of how the opportunity cost of a student is quite low because that the student abandons low-paid jobs, but the opportunity cost of a very talented high school athletes offered to go directly to Professional is very high, because if they go to college, he gave millions of dollars that he won a professional athlete who decides.

Marginal Thinking
A reasonable person as a student in the film shows, think on, because if too much work to finish college instead of the job that earns money for personal expenses, they simply cut back a bit to work. It is not radical, she is finishing the adjustment, rather, they thought at the edge. Another good example is that of a Broadway that is often met with empty seats. So think on the edge, they decide to negotiate with the public and sell tickets at half price a few hours before the show, the empty spaces in the show. Adjustment of the ticket price the theater actually receives more sales, because even if they deserve 50% of original cost, which is greater than zero, if the seats would have remained empty. By rational thinking and better decisions on the board and make decisions.

Incentives
If the costs and benefits of something different or to change to change our decisions. "When my son, I want to wash my car if my car says you can use it in the evening today is an incentive," said Robert Sobel of Hofstra University and is for me the best explanation of the steps incentives. The incentive is what they say to use the car that night, in other words, it benefits from, yes, but if they do not have all the incentives, it would probably to doubt it. A very good example they set, how we respond to incentives, and refers to the situation today is that how we as a reaction to gas prices. In Europe, the price of gasoline is very high, this incentive makes people buy smaller, more fuel-efficient cars, unlike America, where the price is still relatively low, and people buy big cars and vans. Did you not notice that the shops and streets were the "Tax Free Week" here in Florida packed? This is because people incentives, incentives that will benefit react, apparently you buy more, if you will not be taxed. When President Clinton was in office, he asked the price of cigarettes in the amount of one dollar and a half because it was shown that young people not to smoke and buy cigarettes. This is a perfect example of an obstacle, because it discourages young people from smoking. Another point that explains the behavior of some people taking incentives. Seat belts are now required, as it is effective in saving lives, but instead: "There is evidence that behavior change in response to that seat belts do," says Gregory, because some people exceed the speed limit because they feel safer.

Trade
Since we are not self-sufficient we operate. "People are specialized, people do certain tasks and relying on other people, doing other tasks for them," said Gregory. For example, a hairdresser cut their business services (eg haircuts) for money, and the other person relies on her hairdresser let their hair. "The idea I have something and you have something, and if we change we're both going to be better off is basically what makes the economy," says Caroline Hoxby. We as human beings and be able to survive, we act, we change, we rely on. This is explained in more detail in another example in the film. We leave in a group of dedicated farmers who grow food for us, we both benefit, because we get food, and they are paid for the production of food. Countries to trade between them, if they are good products, cheaper to sell. We work every day to survive.

Markets
Agreements are made on the markets, and prices are installed, which then communicates with the world. In the food market, farmers sell their products and supermarket owners buy and sell. Another type of market is the stamp market. Mark Easter is a stamp dealer explained that as the stock market, where dealers go for the highest price offered. The first person who works as a market, Adam Smith was the grandfather of the economy, says the first book published on the economy called "The Wealth of Nations" in 1776. How can buyers and sellers interact with each other and not create chaos? Adam Smith said, "the markets, as guided by an invisible hand at least a desirable allocation of resources." We all have interests, and if we try everything to achieve this goal, we would all be happy. The invisible hand in the film is a simple example of Mr. Sobel said he said, "If I have a $ 25 dollar and you have a good and you I want to sell it, we need to win both, they wanted the $ 25 dollars more than good, and I am the good of more than $ 25 dollars you want. "The key to the invisible hand are the prices sellers and consumers depend on them. When communism fell in Russia and Eastern Europe, he showed that the free market is the best way to operate, because people know what they want, how you want, how they want the purchase, and etc.

Government
Sometimes the government is committed to developing better results. This occurs when one of two situations occurs. Only when the market outcome is inefficient, and second, if it fails to efficiently distribute income. In many cases, the externality is the cause of the error. "Externalize is when a business or something individual that creates an impact beyond the immediate buyer and seller of the product. Power plants are obviously for the benefit of users and buyers of electricity, but it also has an externality since the smoke they produce damage to the health of a person can. market power can also lead to market failure because a particular company or in-person to control oversize and affect prices. If the market is not fair to the government as well. Some people have their services paid more than the others, is something that can not be controlled by the invisible hand. If the government gets involved, because the situation is very complicated, more complicated, it is, the harder it is for the government to address them.

 

Productivity
Statistics show that in 1998 the average American with an annual income of $ 31 500, which had an average of $ 8,300 Mexican and $ 1700 for the average Indian. You may find that their quality of life is not the same as the Americans are better off than the Indians. Productivity explains everything, a rich country produces more poor. And productivity depends on the skills, capital and etc. If a country has an educated workforce, productivity increases. Economic freedom and independence means more productivity. A perfect example is the United States and Hong Kong, where people are free to use their brains to goods, services or ideas that can be taken to the market where consumers benefit from them.

Inflation
This essentially means that inflation, which means that prices are rising all the money that is pressure levels. Printing money is something that must be controlled, because even if it can be "temporarily make people feel richer," as stated by Todd Buchholz increase, possibly based on prices and inflation will come into play, and it is very hard to regain control. Stability between goods and money is the best way to keep inflation at bay.

The Phillips curve
The chairman of the Federal Reserve is to maintain low unemployment and inflation under control. Mr. Mankiw notes that you can not achieve both goals simultaneously and that the policy instrument is the money supply. When one rises the other falls and vice versa, it is called the Phillips curve. As the film explains that it is a compromise in the short term, you must decide on the other. But the compromise does not really exist today, because last year, both inflation and unemployment fell. This does not mean that the Phillips curve would not return in the game, say some economists.

MBA Economics Topics-Supply and Demand

The market price of a good is determined by both the supply and demand for it. In 1890, English economist Alfred Marshall published his work, Principles of Economics, which was one of the earlier writings on how both supply and demand interacted to determine price. Today, the supply-demand model is one of the fundamental concepts of economics. The price level of a good essentially is determined by the point at which quantity supplied equals quantity demanded. To illustrate, consider the following case in which the supply and demand curves are plotted on the same graph.

Supply and Demand

On this graph, there is only one price level at which quantity demanded is in balance with the quantity supplied, and that price is the point at which the supply and demand curves cross.

The law of supply and demand predicts that the price level will move toward the point that equalizes quantities supplied and demanded. To understand why this must be the equilibrium point, consider the situation in which the price is higher than the price at which the curves cross. In such a case, the quantity supplied would be greater than the quantity demanded and there would be a surplus of the good on the market. Specifically, from the graph we see that if the unit price is $3 (assuming relative pricing in dollars), the quantities supplied and demanded would be:

Quantity Supplied = 42 units

Quantity Demanded = 26 units

Therefore there would be a surplus of 42 - 26 = 16 units. The sellers then would lower their price in order to sell the surplus.

Suppose the sellers lowered their prices below the equilibrium point. In this case, the quantity demanded would increase beyond what was supplied, and there would be a shortage. If the price is held at $2, the quantity supplied then would be:

Quantity Supplied = 28 units

Quantity Demanded = 38 units

Therefore, there would be a shortage of 38 - 28 = 10 units. The sellers then would increase their prices to earn more money.

The equilibrium point must be the point at which quantity supplied and quantity demanded are in balance, which is where the supply and demand curves cross. From the graph above, one sees that this is at a price of approximately $2.40 and a quantity of 34 units.

To understand how the law of supply and demand functions when there is a shift in demand, consider the case in which there is a shift in demand:

Shift in Demand

In this example, the positive shift in demand results in a new supply-demand equilibrium point that in higher in both quantity and price. For each possible shift in the supply or demand curve, a similar graph can be constructed showing the effect on equilibrium price and quantity. The following table summarizes the results that would occur from shifts in supply, demand, and combinations of the two.

Result of Shifts in Supply and Demand

Demand	Supply	Equilibrium Price	Equilibrium Quantity
+		+	+
-		-	-
	+	-	+
	-	+	-
+	+	?	+
-	-	?	-
+	-	+	?
-	+	-	?

In the above table, "+" represents an increase, "-" represents a decrease, a blank represents no change, and a question mark indicates that the net change cannot be determined without knowing the magnitude of the shift in supply and demand. If these results are not immediately obvious, drawing a graph for each will facilitate the analysis.

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MBA Economics Topics-The Supply Curve

Price usually is a major determinant in the quantity supplied. For a particular good with all other factors held constant, a table can be constructed of price and quantity supplied based on observed data. Such a table is called a supply schedule, as shown in the following example:

Supply Schedule

Price	Quantity Supplied
1	12
2	28
3	42
4	52
5	60

By graphing this data, one obtains the supply curve as shown below:

As with the demand curve, the convention of the supply curve is to display quantity supplied on the x-axis as the independent variable and price on the y-axis as the dependent variable.

The law of supply states that the higher the price, the larger the quantity supplied, all other things constant. The law of supply is demonstrated by the upward slope of the supply curve.

As with the demand curve, the supply curve often is approximated as a straight line to simplify analysis. A straight-line supply function would have the following structure:

Quantity = a + (b x Price)

where a and b are constant for each supply curve.

A change in price results in a change in quantity supplied and represents movement along the supply curve.

Shifts in the Supply Curve

While changes in price result in movement along the supply curve, changes in other relevant factors cause a shift in supply, that is, a shift of the supply curve to the left or right. Such a shift results in a change in quantity supplied for a given price level. If the change causes an increase in the quantity supplied at each price, the supply curve would shift to the right:

Supply Curve Shift

There are several factors that may cause a shift in a good's supply curve. Some supply-shifting factors include:

* Prices of other goods - the supply of one good may decrease if the price of another good increases, causing producers to reallocate resources to produce larger quantities of the more profitable good.
* Number of sellers - more sellers result in more supply, shifting the supply curve to the right.
* Prices of relevant inputs - if the cost of resources used to produce a good increases, sellers will be less inclined to supply the same quantity at a given price, and the supply curve will shift to the left.
* Technology - technological advances that increase production efficiency shift the supply curve to the right.
* Expectations - if sellers expect prices to increase, they may decrease the quantity currently supplied at a given price in order to be able to supply more when the price increases, resulting in a supply curve shift to the left.

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MBA Economics Topics-Price Elasticity of Demand

An important aspect of a product's demand curve is how much the quantity demanded changes when the price changes. The economic measure of this response is the price elasticity of demand.

Price elasticity of demand is calculated by dividing the proportionate change in quantity demanded by the proportionate change in price. Proportionate (or percentage) changes are used so that the elasticity is a unit-less value and does not depend on the types of measures used (e.g. kilograms, pounds, etc).

As an example, if a 2% increase in price resulted in a 1% decrease in quantity demanded, the price elasticity of demand would be equal to approximately 0.5. It is not exactly 0.5 because of the specific definition for elasticity uses the average of the initial and final values when calculating percentage change. When the elasticity is calculated over a certain arc or section of the demand curve, it is referred to as the arc elasticity and is defined as the magnitude (absolute value) of the following:

Q2 - Q1
--------------------

( Q1 + Q2 ) / 2
--------------------
P2 - P1
--------------------
( P1 + P2 ) / 2

where

Q1 = Initial quantity
Q2 = Final quantity
P1 = Initial price
P2 = Final price

The average values for quantity and price are used so that the elasticity will be the same whether calculated going from lower price to higher price or from higher price to lower price. For example, going from $8 to $10 is a 25% increase in price, but going from $10 to $8 is only a 20% decrease in price. This asymmetry is eliminated by using the average price as the basis for the percentage change in both cases.

For slightly easier calculations, the formula for arc elasticity can be rewritten as:

( Q2 - Q1 ) ( P2 + P1 )
----------------------
( Q2 + Q1 ) ( P2 - P1 )

To better understand the price elasticity of demand, it is worthwhile to consider different ranges of values.

Elasticity > 1

In this case, the change in quantity demanded is proportionately larger than the change in price. This means that an increase in price would result in a decrease in revenue, and a decrease in price would result in an increase in revenue. In the extreme case of near infinite elasticity, the demand curve would be nearly horizontal, meaning than the quantity demanded is extremely sensitive to changes in price. The case of infinite elasticity is described as being perfectly elastic and is illustrated below:

Perfectly Elastic Demand Curve

Elasticity <>
Perfectly Inelastic Demand Curve

From this demand curve, it is easy to visualize how even a very large change in price would have no impact on quantity demanded.

Elasticity = 1

This case is referred to as unitary elasticity. The change in quantity demanded is in the same proportion as the change in price. A change in price in either direction therefore would result in no change in revenue.

Applications of Price Elasticity of Demand
The price elasticity of demand can be applied to a variety of problems in which one wants to know the expected change in quantity demanded or revenue given a contemplated change in price.

For example, a state automobile registration authority considers a price hike in personalized "vanity" license plates. The current annual price is $35 per year, and the registration office is considering increasing the price to $40 per year in an effort to increase revenue. Suppose that the registration office knows that the price elasticity of demand from $35 to $40 is 1.3.

Because the elasticity is greater than one over the price range of interest, we know that an increase in price actually would decrease the revenue collected by the automobile registration authority, so the price hike would be unwise.

Factors Influencing the Price Elasticity of Demand
The price elasticity of demand for a particular demand curve is influenced by the following factors:

* Availability of substitutes: the greater the number of substitute products, the greater the elasticity.
* Degree of necessity or luxury: luxury products tend to have greater elasticity than necessities. Some products that initially have a low degree of necessity are habit forming and can become "necessities" to some consumers.
* Proportion of income required by the item: products requiring a larger portion of the consumer's income tend to have greater elasticity.
* Time period considered: elasticity tends to be greater over the long run because consumers have more time to adjust their behavoir to price changes.
* Permanent or temporary price change: a one-day sale will result in a different response than a permanent price decrease of the same magnitude.
* Price points: decreasing the price from $2.00 to $1.99 may result in greater increase in quantity demanded than decreasing it from $1.99 to $1.98.

Point Elasticity
It sometimes is useful to calculate the price elasticity of demand at a specific point on the demand curve instead of over a range of it. This measure of elasticity is called the point elasticity. Because point elasticity is for an infinitesimally small change in price and quantity, it is defined using differentials, as follows:

dQ

Q

dP

P

and can be written as:

dQ		P
dP		Q

The point elasticity can be approximated by calculating the arc elasticity for a very short arc, for example, a 0.01% change in price.

MBA Economics Topics-The Demand Curve

The quantity demanded of a good usually is a strong function of its price. Suppose an experiment is run to determine the quantity demanded of a particular product at different price levels, holding everything else constant. Presenting the data in tabular form would result in a demand schedule, an example of which is shown below.

Demand Schedule

Price	Quantity Demanded
5	10
4	17
3	26
2	38
1	53

he demand curve for this example is obtained by plotting the data:

Demand Curve
By convention, the demand curve displays quantity demanded as the independent variable (the x axis) and price as the dependent variable (the y axis).

The law of demand states that quantity demanded moves in the opposite direction of price (all other things held constant), and this effect is observed in the downward slope of the demand curve.

For basic analysis, the demand curve often is approximated as a straight line. A demand function can be written to describe the demand curve. Demand functions for a straight-line demand curve take the following form:

Quantity = a - (b x Price)

where a and b are constants that must be determined for each particular demand curve.

When price changes, the result is a change in quantity demanded as one moves along the demand curve.

Shifts in the Demand Curve
When there is a change in an influencing factor other than price, there may be a shift in the demand curve to the left or to the right, as the quantity demanded increases or decreases at a given price. For example, if there is a positive news report about the product, the quantity demanded at each price may increase, as demonstrated by the demand curve shifting to the right:

Demand Curve Shift
A number of factors may influence the demand for a product, and changes in one or more of those factors may cause a shift in the demand curve. Some of these demand-shifting factors are:

* Customer preference
*Prices of related goods
o Complements - an increase in the price of a complement reduces demand, shifting the demand curve to the left.
o Substitutes - an increase in the price of a substitute product increases demand, shifting the demand curve to the right.
*Income - an increase in income shifts the demand curve of normal goods to the right.
*Number of potential buyers - an increase in population or market size shifts the demand curve to the right.
*Expectations of a price change - a news report predicting higher prices in the future can increase the current demand as customers increase the quantity they purchase in anticipation of the price change.

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