gs_-09_--_C_-_Supply_and_demand_Applications

gs_-09_--_C_-_Supply_and_demand_Applications -...

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1 ANNOUNCEMENTS (#1): ± Tests will be held at 7:30 am to 9:00 am , during normal lecture days on Wednesdays. Rooms will be announced. ± SCHEDULE OF EXAMS ( Fixed Date ): o TEST #1 – Dec. 16 (Wednesday)** o **if class approves. Dec. 9, 2009 Econ 11 --Lecture #9 2 Lecture #9 : APPLICATIONS OF SUPPLY & DEMAND ± EXAMPLE #3: THE PESO (EXCHANGE RATE WITH THE US DOLLAR) ± EXAMPLE #4: STOCK MARKET VALUES ± EXAMPLE #5: NATURAL CALAMITIES: SUPPLY & DEMAND: FISH MARKET ± PRELIMINARY: INTERACTION OF POPULATION SIZE, INCOME, GROWTH, AND WAGE LEVEL Dec. 9, 2009 Econ 11 --Lecture #9 3 EXAMPLE #3: VALUE OF THE PESO IN TERMS OF FOREIGN MONEY ± The fundamental value of the exchange rate is explained by the supply and demand for dollars. ± The supply of dollars come from earnings from exports and services rendered by Philippine nationals ± The demand for dollars come from payments that we make for imports and services rendered by foreign nationals
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2 DEFINITION OF TERMS ± EXCHANGE RATE -- The peso price of the dollar ± When the price of the dollar in terms of pesos increases , the peso becomes weaker , for it cannot buy as much dollars as before. Therefore, the peso depreciates in value. ± When the price of the dollar in terms of pesos decreases , the peso becomes stronger, for it can buy more dollars than before. Therefore the peso appreciates in value. Definition of terms ± Import payments: dollars used to pay for goods and services from other countries. ± Exports: revenues from sale of Philippine goods abroad, in dollars. ± Remittances: Payments in dollars from RP to foreigners ( outward ) and from abroad to the RP ( inward remittances) ± OFWs: Overseas Filipino Workers. DEFINITION OF TERMS ± “DOLLARS” in our example refers to any foreign currency, for simplicity. ± The US dollar is often the measure with which all currencies are compared, so the above example works well. ± “Convertibility” of all other currencies to the US dollar simplifies the example.
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3 Definition of terms: Other FOREIGN CURRENCIES ± Major foreign currencies : Japanese yen, European “euro”, British “pound”, Saudi “rial”. ± With the growth of the European Union, a single currency, Euro , has replaced many different national currencies like the franc, the lira, the mark, peseta, guilder, kroner, etc. ± Some Asian currencies : Chinese yuan, Singapore dollar, Indian rupee, Hong Kong dollar, Indonesian rupiah, Malaysian ringgit, Korean Won, Taiwanese dollar, etc. TO ANALYZE THE DEMAND AND SUPPY OF DOLLARS ± We graph the price of dollars in terms of pesos on the vertical axis and the volume of dollars on the horizontal. ± The volume of transactions in the Foreign Exchange Market is huge. Per day, it could be in Millions of Dollars. Dec. 9, 2009 Econ 11 --Lecture #9 9 Foreign Exchange Market (#2): The Philippine Demand for Dollars D D Pesos per dollar Quantity – Million Dollars 0 [PAYMENTS FOR IMPORTS] The higher is the peso price of the dollar, the less is the Demand for Dollars [to buy IMPORTS].
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gs_-09_--_C_-_Supply_and_demand_Applications -...

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