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Lec01handout - Microeconomics Reviews Slide #01 June 28...

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Microeconomics Reviews Slide #01 June 28 2010 Intro Macro 1
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What Economics Is All About Scarcity: Economics: Intro Macro 2
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Microeconomics and Macroeconomics Microeconomics is the study of how households and firms make decisions and how they interact in markets. Macroeconomics is the study of economy-wide phenomena, including inflation, unemployment, and economic growth. These two branches of economics are closely intertwined, yet distinct – they address different questions. Intro Macro 3
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10 Principles of Economics People face trade-offs The cost of something is what you give up to get it Opportunity cost: whatever must be given up to obtain some item Rational people think at the margin People respond to incentives Trade can make everyone better off Market are usually a good way to organize economic activity Governments can sometimes improve market outcomes A country's standard of living depends on its ability to produce goods and services Prices rise when the government prints too much money Society faces a short-run trade-off between inflation and unemployment Intro Macro 4
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Demand and Supply Intro Macro 5
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Markets and Competition A market is a group of buyers and sellers of a particular product. A competitive market is one with many buyers and sellers, each has a negligible effect on price. In a perfectly competitive market: All goods exactly the same Buyers & sellers so numerous that no one can affect market price – each is a “price taker” We assume markets are perfectly competitive. Intro Macro 6
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Demand The quantity demanded of any good is the amount of the good that buyers are willing and able to purchase. Law of demand: the claim that the quantity demanded of a good falls when the price of the good rises, other things equal Intro Macro 7
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The Demand Schedule Demand schedule : a table that shows the relationship between the price of a good and the quantity demanded Example: Helen’s demand for lattes. Price of lattes Quantity of lattes demanded $0.00 16 1.00 14 2.00 12 3.00 10 4.00 8 5.00 6 6.00 4 8 Intro Macro
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Helen’s Demand Schedule & Curve Price of lattes Quantity of lattes demanded $0.00 16 1.00 14 2.00 12 3.00 10 4.00 8 5.00 6 6.00 4
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Market Demand versus Individual Demand The quantity demanded in the market is the sum of the quantities demanded by all buyers at each price. Suppose Helen and Ken are the only two buyers in the Latte market. ( Q d = quantity demanded) Intro Macro 10 4 6 8 10 12 14 16 Helen’s Q d 2 3 4 5 6 7 8 Ken’s Q d + + + + = = = = 6 9 12 15 + = 18 + = 21 + = 24 Market Q d $0.00 6.00 5.00 4.00 3.00 2.00 1.00 Price
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Demand Curve Shifters The demand curve shows how price affects quantity demanded, other things being equal . These “other things” are non-price determinants of demand ( i.e., things that determine buyers’ demand for a good, other than the good’s price).
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This document was uploaded on 10/28/2011 for the course 220 103 at Rutgers.

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Lec01handout - Microeconomics Reviews Slide #01 June 28...

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