Chap_01Ten Principles of Economics经济学十大原理共65页PPT资料
10 Principles of Economics
1.人们面临权衡取舍（people face trade-offs）2.某种东西的成本是为了得到它而放弃的东西（ the cost of something is what you give up to get it）3.理性人考虑边际量（rational people think at margin）4.人们会对激励作出反应（people respond to incentives）5.贸易能使每个人状况更好（trade can make everyone better off）6.市场通常是组织经济活动的一种好方法（markets are usually a good way to organize economic activities）7.政府有时可以改善市场结果（governments can sometimes improve market outcomes）8.一国的生活水平取决于它生产物品与劳务的能力（a country's standard of living depends on its ability to produce goods and services）9.当政府发行了过多货币时,物价上升（prices rise when the government prints too much money）10.社会面临通货膨胀与失业之间的短期交替关系（ society faces short-run trade-off between inflation and unemployment）原理一：人们面临交替关系原句可理解为“人们面临权衡取舍”当人们组成社会时，他们面临各种不同的权衡取舍。
典型的是在“大炮与黄油”之间的选择。
在现代社会里，同样重要的是清洁的环境和高收入水平之间的权衡取舍。
认识到人们面临权衡取舍本身并没有告诉我们，人们将会或应该做出什么决策。
然而，认识到生活中的权衡取舍是重要的，因为人们只有了解了他们面临的选择，才能做出良好的决策。
Chap01经济学十大原理
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4. 人们会对激励作出反应。
成本或利益变动时，人们的行为也会改变。 只有当这项行动的边际利益大于边际成本时，
一个理性决策者才会实施该项行动。
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4. 人们会对激励作出反应。
姚明去上大学读书，就不能
同时到NBA打球，也就不能
4. 人们会对激励作出反应。
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经济学十大原理
人们如何相互交易
5. 贸易能使每个人状况更好. 6. 市场通常是组织经济活动的一种好方法.
7. 政府有时可以改善市场结果.
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经济学十大原理
经济如何运行
8. 一国的生活水平取决于它生产物品与劳务的能力 9. 政府发行过多货币时，物价上升
的物品，从经济学角度来看，负的价格意味着卖方向 买方付费。例如清洁工为居民清除垃圾，由于垃圾是 有害物品，可以认为居民是卖方而清洁工则是买方， 为了运走垃圾，居民需要向清洁工付费。
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免费物品、经济物品和有害物品在经济学中是
相对的，即随着时间、地点和条件的变化，三
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7.政府有时可以改善市场结果
当市场失灵（market fails)时，政府可以 干预经济，从而促进效率和平等。
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7.政府有时可以改善市场结果
市场失灵（Market failure）：指市
场本身不能有效配置资源的情况。
兰州理工大学经济管理学院 霍宗杰
10. 社会面临通货膨胀与失业之间的短期权衡取舍
Chap_01Ten Principles of Economics经济学十大原理
❖Basic knowledge for our major of business and economics
➢What Is Economics Like Interesting economics: idea Boring economics: technique Useful economics: Alan Greenspan, the chairman of the Fed
➢How to study economics: Attend class Read textbook: guided by teaching Do exercises Rewrite your class notes Consult instructors
➢How to use this textbook Guided by class notes Reorganize the contents in a way friendly to your thinking Read summary in the end of each chapter Checking the glossary in the end of this book Refer to other textbooks
经济一词来源于希腊语，意思 是“管理家庭的人”。
A household and an economy face many decisions:
一个家庭和经济体面临很多决策：
Who will work? 谁去工作？ What goods and how many of them should be produced? 应该生产什么物品？应该生产多少？
微观经济学十大原理总结教学教材
Ten Principles of EconomicsWhat Economics Is All AboutScarcity: the limited nature of society’s resources（稀缺性：社会资源的有限性）Economics: the study of how society manages its scarce resources（经济学：研究社会如何管理自己的稀缺资源）how people decide what to buy,how much to work, save, and spendhow firms decide how much to produce,how many workers to hirehow society decides how to divide its resources between national defense, consumer goods, protecting the environment, and other needs*The principles of ：HOW PEOPLE MAKE DECISIONSPRINCIPLE #1: People Face Tradeoffs（原理一：人们要面临权衡取舍）All decisions involve tradeoffs.（所有的选择都包含权衡取舍）Going to a party the night before your midterm leaves less time for studying.Having more money to buy stuff requires working longer hours,which leaves less time for leisure.Protecting the environment requires resources that could otherwise be used to produce consumer goods.Society faces an important tradeoff: efficiency vs. equality （社会面临着一个重要的取舍：效率与平等）Efficiency: when society gets the most from its scarce Resources（效率：社会能从其稀缺资源中得到的最大利益）Equality: when prosperity is distributed uniformly among society’s members（平等：社会成果在社会成员中的平均分配）Tradeoff: To achieve greater equality, could redistribute income from wealthy to poor. But this reduces incentive to work and produce, shrinks the size of the economic “pie.”（权衡取舍：为了实现更好地平等，将收入从富人到穷人重新分配。
1 - Ten Principles of Economics
曼昆微观经济学英文版01ten_principles
TEN PRINCIPLES OF ECONOMICS
• How people make decisions.
• People face tradeoffs. • The cost of something is what you give up to get it. • Rational people think at the margin. • People respond to incentives.
Making decisions requires trading off one goal against another.
Copyright © 2004 South-Western/Thomson Learning
Principle #1: People Face Tradeoffs • Efficiency v. Equity
• The standard of living depends on a country’s production.
• Prices rise when the government prints too much money.
• Society faces a short-run tradeoff between inflation and unemployment.
Copyright © 2004 South-Western/Thomson Learning
Principle #3: Rational People Think at the Margin. • Marginal changes are small, incremental
adjustments to an existing plan of action.
钱颖一经济学原理
经济学在各门学科中的位置
自然科学 数理化生 社会科学 经政社心 人文 文史哲
它的主题是社会的——人们的选择如何引导他们的生 活，以及他们如何相互影响。 Its subject matter is society – how people choose to lead their lives and how they interact with one another. 但它以科学的冷静来研究这个主题。 It approaches its subject with the dispassion of a science.
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工
建筑
医
商
公共 管理
法
新闻 传播 美术
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Fields in Economics 经济学的学科领域
金融学是经济学科的一部分
什么是金融学(Finance)
“微观金融”(finance)
公司金融(corporate 资产定价(asset
微观经济学Micro 宏观经济学Macro 计量经济学 Econometrics 金融学Finance 产业组织Industrial Organization 劳动经济学Labor 公共财政Public Finance
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经济学的十个原理
人们如何相互作用 How People Interact
5. 贸易能使人人收益。 Trade can make everyone better off. 6. 市场通常是组织经济活动的好方式。 Markets are usually a good way to organize economic activity. 7. 政府有时可以改进市场结果。 Governments can sometimes improve market outcomes.
曼昆版微观经济学 西方经济学
Answers
1:
Cost of fixing transmission = $600
A. Blue book value is $6500 if transmission works, $5700 if it doesn’t
Benefit of fixing the transmission = $800 ($6500 – 5700).
society’s members
Tradeoff: To increase equity, can redistribute
income from the well-off to the poor. But this reduces the incentive to work and produce, and shrinks the size of the economic “pie.”
Society faces an important tradeoff:
efficiency vs. equity
efficiency: getting the most out of scarce
resources
equity: distributing prosperity fairly among
CHAPTER 1
TEN PRINCIPLES OF ECONOMICS
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HOW PEOPLE MAKE DECISIONS
Principle #2: The Cost of Something Is What You Give Up to Get It
Examples: The opportunity cost of…
A. Blue book value is $6500 if transmission works, $5700 if it doesn’t
经济学基本原理(Ⅰ)
▪ A. How people make decisions ▪ Principle #1: People face tradeoffs. 1. “There is no such thing as a free lunch !”To get
one thing, we usually have to give up another thing. 1. How to allocate his/her time for a freshman 2. How to spend the family income for parents 3. Guns vs. butter 4. A clean environment vs.high level of income 5. Leisure time vs. work Making decisions requires trading off one goal
经济学家谱
重农学派（18世纪后半叶， 重商主义（产生流行于15
魁奈1758年«经济表»）
－17世纪的西欧）
Adam Smith(1723-1790) the Wealth of Nations in 1776)
David Ricardo,1772-1823, T.R.Malthus, 1766-1834, the population
2. Society and Scarce Resources Like a household, a society faces many decisions.
The management of society’s resources is important because resources are scarce. Scarcity means that society has limited resources and therefore cannot produce all the goods and services people wish to have.
Chap01 经济学的十大原理
经济学家研究. . .
人们如何做决定
人们如何相互交易 分析影响整个经济的力量和趋势
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
Байду номын сангаас
萨伊的“三位一体”
资本——利润 土地——地租 劳动——工资
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
6.市场通常是组织经济活动的一种好方法
家庭和企业在市场上相互交易，他们仿佛 被一只看不见的手（ invisible hand）所 指引，并导致合意的市场结果。 —— Adam Smith
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
2. 某种东西的成本是为了得到它所放弃的东西
做出决策就要比较可供选择的行动方 案的成本与收益
是上大学还是工作? 是学习还是外出约会? 是上课还是在寝室睡觉?
效率（资源的合理配置问题）
1、资源分配效率：指的是如何在不同生产单 位，不同区域与不同行业之间分配有限的经济 资源，即如何使每一种资源都能够有效地配置 于最适宜的使用方面和方向上。 2、资源运用效率 ：其含义是指一个生产单位 、一个区域或一个部门如何组织并运用供给有 限的资源，使之发挥出最大的作用，从而避免 浪费现象，用既定的生产要素生产出最大价值 的产品。
Chapter 1 Ten Principles of Economics
1Ten Principles of Economics1Ten Principles of Economics •Economy, “oikonomos” (Greek)–“One who manages a household”–Households and economies have much in common •Households face many decisions–Allocate scarce resources•Ability, effort, and desire•An economy consists of–the economic systems of a country or other area, the labor,capital and land resources, and the economic agents thatsocially participate in the production, exchange, distribution,and consumption of goods and services of that area.2Ten Principles of Economics•Resources are scarce•Scarcity–The limited nature of society’s resources–Society has limited resources and therefore cannotproduce all the goods and services people wish to have •Economics–is the social science concerned with how individuals,institutions, and society make optimal choices underconditions of scarcity.•Microeconomics and Macroeconomics3Scoring Components1.The course provides instruction in basic economic concepts and promotes understandingof economic decision-making factors,such as marginal analysis and opportunity costs.2.The course provides instruction in the nature and functions of product markets:Supply andDemand Model.3.The course provides instruction in the nature and functions of product markets:ConsumerChoice.4.The course provides instruction in the nature and functions of product markets:Productionand Costs.5.The course provides instruction in the nature and functions of product markets:MarketStructures.6.The course provides instruction in factor markets.7.The course provides instruction in market failure and the role of government in correctingmarket failure.8.The course teaches students how to generate graphs and charts to describe economicconcepts.9.The course teaches students how to interpret and analyze graphs, charts, and data todescribe economic concepts.4tigers seals Asian elephantsmonkeys What animals did you choose and why?This would have taken care of 7 of the 25 acres. 18 more to go.camelsCuddly tigers anyone?some core concepts of economics6Why didn’t you choose all the animals?Not enough land = lack of resources = scarcityWhy didn’t you choose cows or pigs?Benefit versus Costs (in terms of acres)Why didn’t you choose to fill your zoo with just monkeys or just tigers?Diminishing marginal utilityWhy did you choose an Asian Elephant rather than an African one?Benefit versus costsmore core concepts of economics7Which was the final animal you chose?Marginal AnalysisWhat animal just missed out on being chosen for your zoo?Opportunity Cost –the cost of the best alternative foregoneIf this was a group exercise would the choices have been the same?Individual benefits versus Social benefitsTen Principles of Economics•Economists study:–How people make decisions•Work, buy, save, invest–How people interact with one another–Analyze forces and trends that affect the economy as awhole•Growth in average income•Fraction of the population that cannot find work•Rate at which prices are rising8Ten Principles of Economics•How people make decisions1.People face trade-offs2.The cost of something is what you give up to get it3.Rational people think at the margin4.People respond to incentives9Ten Principles of Economics•How people interact5.Trade can make everyone better off6.Markets are usually a good way to organize economicactivityernments can sometimes improve market outcomes10Ten Principles of Economics•How the economy as a whole works8.A country’s standard of living depends on its ability toproduce goods and services9.Prices rise when the government prints too much money10.Society faces a short-run trade-off between inflation andunemployment11How People Make Decisions, #1Principle 1: People face trade-offs•“There ain’t no such thing as a free lunch”–To get something that we like, we usually have to give up something else that we also like•Making decisions–Trade off one goal against another•People face choices all the time.12How People Make Decisions, #1•Trade offs–Students: time–Parents: income–Society•National defense vs. consumer goods (guns vs. butter)•Clean environment vs. high level of income•Efficiency vs. equality13How People Make Decisions, #1•Efficiency–Society getting the maximum benefits from its scarceresources–Size of the economic pie•Equality–Distributing economic prosperity uniformly among themembers of society–How the pie is divided into individual slices14How People Make Decisions, #2Principle 2: The cost of something is what you give up to get it •People face trade-offs–Make decisions•Compare cost with benefits of alternatives•Opportunity cost–Whatever must be given up to obtain some item–Opportunity cost always exists as long as people make achoice.–Absolute advantage–Comparative advantage15How People Make Decisions, #3Principle 3: Rational people think at the margin•Rational people–Systematically and purposefully do the best they can toachieve their objectives•Marginal changes–Small incremental adjustments to a plan of action16How People Make Decisions, #3•Optimal decision–rational people think at the margin (not the average).•Rational decision maker–Make decisions by comparingmarginal benefits and marginalcosts–Take action only if: •Marginal benefits > Marginal costs 17“Is the marginal benefit of this call greater thanthe marginal cost?”How People Make Decisions, #4Principle 4: People respond to incentives•Incentive–Something that induces a person to act–Higher price•Buyers -consume less•Sellers -produce more–Public policy•Change costs or benefits•Change people’s behavior18The Incentive Effects of Gasoline Prices•2005 to 2008, price of oil in world oilmarkets skyrocketed–Limited supplies–Surging demand from robust worldgrowth–Price of gasoline in the United Statesrose from about $2 to about $4 a gallon19The Incentive Effects of Gasoline Prices•Increased incentive to conserve gas–Smaller cars, scooters, bicycles, masstransit–Camels (India)–New, more fuel-efficient aircraft•Airbus A320 and Boeing 737–Moving near an Amtrak station–Online courses20How People Interact, #5Principle 5: Trade can makeeveryone better off•Trade–Allows each person tospecialize in the activities he or she does best–Enjoy a greater variety ofgoods and services at lowercost–People need self-sufficiencywithout trade 21“For $5 a week you can watch baseball without being nagged to cut the grass!”How People Interact, #6Principle 6: Markets are usually a good way to organize economic activity•Communist countries, central planning–Government officials (central planners)•Allocate economy’s scarce resources–What goods and services were produced–How much was produced–Who produced and consumed these goods and services22How People Interact, #6•Market economy, allocation of resources–Through decentralized decisions of many firms andhouseholds–As they interact in markets for goods and services–Guided by prices and self-interest23How People Interact, #6•Adam Smith’s “invisible hand”–Households and firms interacting in markets•Act as if they are guided by an “invisible hand”•Leads them to desirable market outcomes–Corollary: Government intervention•Prevents the invisible hand’s ability to coordinate the decisionsof the households and firms that make up the economy24How People Interact, #7Principle 7: Governments can sometimes improve market outcomes•We need government–Enforce rules and maintain institutions that are key to amarket economy–Enforce property rights–Promote efficiency, avoid market failure–Promote equality, avoid disparities in economic wellbeing25How People Interact, #7•Property rights–Ability of an individual to own and exercise control overscarce resources•Market failure–Situation in which the market left on its own fails toallocate resources efficiently–Externalities–Market power26How People Interact, #7•Externality–Impact of one person’s actions on the well-being of abystander–Pollution•Market power–Ability of a single economic actor (or small group ofactors) to have a substantial influence on market prices27How People Interact, #7•Disparities in economic wellbeing–Market economy rewards people•According to their ability to produce things that other people arewilling to pay for–Government intervention, public policies•Aim to achieve a more equal distribution of economic well-being•May diminish inequality•Process far from perfect28How the Economy as a Whole Works, #8 Principle 8: A country’s standard of living depends on its ability to produce goods and services•Large differences in living standards–Among countries–Over time•Average annual income, 2011–$48,000 (U.S.); $9,000 (Mexico)–$5,000 (China); $1,200 (Nigeria)29How the Economy as a Whole Works, #8•Explanation: differences in productivity•Productivity–Quantity of goods and services produced from each unit of labor input–Higher productivity•Higher standard of living–Growth rate of nation’s productivity•Determines growth rate of its average income30How the Economy as a Whole Works, #9Principle 9: Prices rise when the government prints too muchmoney•Inflation–An increase in the overall level of prices in the economy •Causes for large or persistent inflation –Growth in quantity of money –Value of money falls31“Well it mayhave been 68cents when yougot in line, butit’s 74 centsnow!”How the Economy as a Whole Works, #10 Principle 10: Society faces a short-run trade-off between inflation and unemployment•Short-run effects of monetary injections:–Stimulates the overall level of spending•Higher demand for goods and services–Firms –raise prices; hire more workers; produce moregoods and services–Lower unemployment32How the Economy as a Whole Works, #10•Short-run trade-off between unemployment and inflation –Key role –analysis of business cycle•Business cycle–Fluctuations in economic activity•Employment•Production33Table 134Ten Principles of Economics。
经济学原理重要概念
Principles of economicsChapter1 Ten Principals of EconomicsHow people make decisionsPrinciple 1: people face tradeoffsPrinciple 2: the cost of something is what you give up to get itPrinciple 3: rational people think at the marginPrinciple 4: people respond to incentivesHow people interactPrinciple 5: trade can make everyone better offPrinciple 6: markets are usually a good way to organize economic activityPrinciple 7: governments can sometime improve market outcomesHow the economy as a whole worksPrinciple 8: a country’s standard of living depends on its ability to produce goods and servicesPrinciple 9: prices rise when the government prints too much moneyPrinciple 10: society faces a short-term tradeoff between inflation and unemployment1.Scarcity: society has limited resources and therefore cannot produce all the goods and services people wish tohave2.Economics: the study of how society manages its scarce resources3.Classic tradeoffs: guns and butter, efficiency and equity4.Efficiency: the property of the society getting the most it can from its scarce resources5.Equity: the property of distributing economic prosperity fairly among the members of society6.Opportunity cost: whatever must be given to obtain some item7.Marginal changes: small incremental adjustments to an existing plan of action8.When analyzing any policy, we must consider not only the direct effects but also the indirect effects that workthrough incentives9.Central planning: the central planners in the government were in the best position to guide economic activity10.Market economy: an economy that allocates resources through the decentralized decisions of many firms andhouseholds as the interact in markets for goods and services11.When the government prevents prices from adjusting normally to supply and demand, it impedes the invisiblehand’s ability to coordinate the millions of firms and households that make up the economy; but the invisible hand needs government to protect it. The government can also promote efficiency and equity.12.Market failure: a situation in which the market on its own fails to produce an efficient allocation of resources13.Externality: the impact of one person’s actions on the well-being of a bystander, which may cause market failure14.Market power: the ability of a single economic actor or small group of actors to have a substantial influence onmarket prices15.Productivity: the quantity of goods and services produced from each hour of a worker’s time16.Similarly, the growth rate of a nation’s productivity determines the growth rate of its average income17.Inflation: an increase in the overall level of prices in the economy18.Philips curve: a curve that shows the short-run tradeoff between inflation and unemployment19.Business cycle: fluctuation in economic activity, such as employment and production1.The fundamental lessons about individual decision making are that people face tradeoffs among alternative goals,that the cost of any action is measured in terms of forgone opportunities, that rational people make decisions by comparing marginal cost and marginal benefits, and that people change their behavior in response to the incentives they face.2.The fundamental lessons about interactions among people are that trade can be mutually beneficial, that marketsare usually a good way of coordinating trade among people, and that the government can potentially improve outcomes if there is some market failure or if the market outcome is inequitable.3.The fundamental lessons about the economy as a whole are that productivity is the ultimate source of livingstandards, that the money growth is the ultimate source of inflation, and the society faces a short-run tradeoff between inflation and unemployment.Chapter 2 Thinking Like an Economist1.Circular-flow diagram: a visual model of the economy that shows how dollars flow through markets amonghouseholds and firms2.The production possibilities frontier: a graph that shows the combination of output that the economy can possiblyproduce given the available factors of production and the available production technology. It shows the opportunity cost of one good as measured in terms of the other good. It shows the tradeoff between the production of different goods at a given time, but the tradeoff can change over time3.Microeconomics: the study of how households and firms make decision and how the interact in markets4.Macroeconomics: the study of economy-wide phenomena, including inflation, unemployment, and economicgrowth5.Positive statements: claims that attempt to describe the world as it is6.Normative statements: claims that attempt to prescribe how the world should be7.Normative statements cannot come from positive analysis alone, they involve value judgments as wellSummary:1.Economists try to address their subject with a scientific objectivity. Like all scientists, they make appropriateassumptions and build simplified models in order to understand the world around them. Two simple economic models are the circular-flow diagram and the production possibilities frontier2.The field of economics is divided into two subfields: microeconomics and macroeconomics. Macroeconomistsstudy decision-making by households and firms and the interaction among households and firms in the marketplace. Macroeconomists study the forces and trends that affect the economy as a whole.3. A positive statement is an assertion about how the world is. A normative statement is an assertion about how theworld ought to be. When economists make normative statements, they are acting more as policy advisers than scientists.4.Economists who advise policymakers offer conflicting advice either because of differences in scientific judgmentsor because of differences in values. At other times, economists are united in the advice the offer, but policymakers may choose to ignore it.Chapter 3 Interdependence and the Gains from Trade1.Absolute advantage: the comparison among producers of a good according to their productivityparative advantage: the comparison among producers of a good according to their opportunity cost3.Imports: goods produced abroad and sold domestically4.Exports: goods produced domestically and sold abroad1.Each person consumes goods and services produced by many other people both in our country and around theworld. Interdependence and trade are desirable because they allow everyone to enjoy a greater quantity and variety of goods and services.2.There are two ways to compare the abilities of two people in producing a good. The person who can produce thegood with the smaller quantity of inputs is said to have an absolute advantage in producing the good. The person who has the smaller opportunity cost of producing the good is said to have a comparative advantage, the gains from trade are based on comparative advantage, not absolute advantage.3.Trade makes everyone better off because it allows people to specialize in those activities in which they have acomparative advantage.4.The principle of comparative advantage applies to countries as well as to people. Economists use the principle ofcomparative advantage to advocate free trade among countries.Chapter 4 The Market Forces of Supply and Demandpetitive market: a market in which there are many buyer san sellers so that each has a negligible impact onthe market price2.Perfect competitive markets are defined by two primary characteristics: 1 the goods offered for sale are all thesame and 2 the buyers and sellers are so numerous that no single buyer or seller can influence the market price.The market determines the price; buyers and sellers are price takers.3.Monopolistically competitive market: it contains many sellers but each offers a slightly different product4.Oligopoly: it has a few sellers that do not always compete aggressively5.Monopoly: the market has only one seller and the seller sets the price6.Quantity demanded: the amount of a good that buyers are willing and able to purchasew of demand: the claim that, other things equal, the quantity demanded of a good falls when the price of thegood risesw of supply: the claim that, other things equal, the quantity supplied of a good rises when the price of the goodrisesw of supply and demand: the claim that the price of any good adjusts to bring the quantity supplied and thequantity demanded of the good into balance10.Demand schedule: a table that shows the relationship between the price of a good and the quantity demanded11.Supply schedule: a table that shows the relationship between the price of a good and the quantity supplied12.Demand curve: a graph of the relationship between the price of a good and the quantity demanded13.Supply curve: a graph of the relationship between the price of a good and the quantity supplied14.Market demand: the sum of all the individual demands for a particular good or service15.Variables that influence demand: income, price of related goods, tastes, expectations, number of buyers16.Variables that influence supply: input prices, technology, expectation, number of sellersExpectation: if the seller expects the price of a good to rise in the future, he will put some of his current production into storage and supply less to the market today17.Normal good: a good for which, other things equal, an increase in income leads to an increase in demand18.Inferior good: a good for which, other things equal, an increase in income leads to an decrease in demand19.Substitutes: two goods for which an increase in the price of one leads to an increase in the demand for the otherplements: two goods for which an increase in the price of one leads to a decrease in the demand for the other21.Quantity supplied: the amount of a good that sellers are willing and able to sell22.Equilibrium: a situation in which the price has reached the level where quantity supplied equals quantitydemanded (there is no upward or downward pressure on the price)23.Equilibrium price(market-cleaning price): the price that balances quantity supplied and quantity demanded25.Surplus: a situation in which quantity supplied is greater than quantity demanded26.Shortage: a situation in which quantity demanded is greater than quantity demanded27.When some event shifts the supply or demand curve, the equilibrium in the market changes. The analysis of such achange is called comparative statics because it involves comparing two unchanging situations – an initial and a new equilibrium.28.“Supply” refers to the position of the supply curve (shift in the curve)29.“Quantity supplied” refers to the amount suppliers wish to sell (movement along the curve)30.In market economies, prices are the mechanism for rationing scarce resourcesSummary1.Economists use the model of supply and demand to analyze competitive markets. In a competitive market, thereare many buyers and sellers, each of which has little or no influence on the market price2.The demand curve shows how the quantity of a good demanded depends on the price. According to the law ofdemand, as the price of a good falls, the quantity demanded rises. Therefore, the demand curve slopes downward.3.In addition to price, other determinants of how much consumers want to buy include income, the prices ofsubstitutes and complements, tastes, expectations and the number of buyers. If one of these factors changes, the demand curve shifts4.The supply curve shows how the quantity of a good supplied depends on the price. According to the law of supplyas the price of a good rises, the quantity supplied rises. Therefore, the supply curve slopes upward5.In addition to price, other determinants of how much producers want to sell include input prices, technology,expectations and the number of sellers. If one of these factors changes, the supply curve shifts6.The intersection of the supply and demand curves determines the market equilibrium. At the equilibrium price,the quantity demanded equals the quantity supplied7.The behavior of buyers and sellers naturally drives markets toward their equilibrium. When the market price isabove the equilibrium price, there is a surplus of the good, which causes the market price to fall. When the market price is below the equilibrium price there is a shortage, which causes the market price to rise8.To analyze how any event influences a market, we use the supply –and –demand diagram to examine how theevent affects the equilibrium price and quantity. To do this we follow three steps. First, we decide whether the event shifts the supply curve or the demand curve (or both). Second, we decide which direction the curve shifts.Third, we compare the new equilibrium with the initial equilibrium9.In market economies, prices are the signals that guide economic decisions and thereby allocate scarce recourses.For every good in the economy, the price ensures that supply and demand are in balance. The equilibrium price then determines how much of the good buyers choose to purchase and how much sellers choose to produceChapter 5 Elasticity and its Application1.Elasticity: a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants2.Price elasticity of demand: a measure of how much the quantity demanded of a good responds to a change in theprice of that food, computed as the percentage change in quantity demanded divided by the percentage change in price3.The price elasticity of demand for any good measures how willing consumers are to move away from the good asits price rises.4.Availability of close substitutes: goods with close substitutes tend to have more elastic demand because it is easierfor consumers to switch from that good to others5.Necessities tend to have inelastic demand, whereas luxuries have elastic demands6.Definition of the market: narrowly defined markets tend to have more elastic demand than broadly definedmarkets8.Economists compute the price elasticity of demand as the percentage change in the quantity demanded divided bythe percentage change in the price9.The midpoint method: {(Q2-Q1/)/[(Q1+Q2)2]}/{(P2-P1)/[(P2+P1)/2]}10.Perfect elastic demand, elastic demand, unit elastic demand, inelastic demand, perfect inelastic demand11.Total revenue: the amount paid by buyers and received by sellers of a good, computed as the price of the goodtimes the quantity sold12.When demand is inelastic, price and total revenue move in the same direction13.When demand is elastic, price and total revenue move in opposite direction14.When demand is unit elastic, total revenue remains constant when the price changes15.The slope of a linear demand curve is the ratio of changes in the two variables, whereas the elasticity is the ratio ofpercentage change in the two variables16.Income elasticity of demand: a measure of how much the quantity demanded of a good responds to a change inconsumers’ income, computed as the percentage in quantity demanded divided by the percentage change in income17.Income elasticity E﹥0 normal good, E﹤0 inferior good, E﹥1 luxury, E﹤1 necessity18.Cross-price elasticity: a measure of how much the quantity demanded of one good responds to a change in theprice of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good. Whether the cross-price elasticity is a positive or negative number depends on whether the two good are substitutes(+) or complements(-)19.The price elasticity of supply depends on the flexibility of sellers to change the amount of the good they produceSummary1.The price elasticity of demand measures how much the quantity demanded responds to changes in the price.Demand tends to be more elastic if close substitutes are available, if the good is a luxury rather than a necessity, if the market is narrowly defined, or if buyers have substantial time to react to a price change2.The price elasticity of demand is calculated as the percentage change in quantity demanded divided by thepercentage change in price. If the elasticity is less than one, so that quantity demanded moves proportionately less than the price, demand is said to be inelastic. If the elasticity is greater than one, so that quantity demanded moves proportionately more than the price, demand is said to be elastic3.Total revenue, the total amount paid for a good, equals the price of the good times the quantity sold. For inelasticdemand curves, total revenue rises as price rises. For elastic demand curves, total revenue falls as price rises4.The income elasticity of demand measures how much the quantity demanded responds to changes in consumer’sincome. The cross-price elasticity of demand measures how much the quantity demanded of one good responds to changes in the price of another good5.The price elasticity of supply measures how much the quantity supplied responds to changes in the price. Thiselasticity often depends on the time horizon under consideration. In most markets, supply is more elastic in the long run than in the short run6.The price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentagechange in price. If the elasticity is less than one, so that quantity supplied moves proportionately less than the price, supply is said to be inelastic. If the elasticity is greater than one, so that quantity supplied moves proportionately more than the price, supply is said to be elastic7.The tools of supply and demand can be applied in many different kinds of markets. This chapter uses them toanalyze the market for wheat, the market for oil and the market for illegal drugs.Chapter 13 The Cost of Production1.Total revenue: the amount a firm receives for the sales of its output3.Profit: total revenue minus total cost4.Explicit costs: input costs that require an outlay of money by the firm5.Implicit costs: inputs costs that do not require an outlay of money by the firm6.Economic profit: total revenue minus total cost, including both implicit and explicit costs7.Accounting profit: total revenue minus explicit cost8.Production function: the relationship between the quantity of inputs used to make a good and the quantity ofoutput of that good9.Marginal product: the change in output that arises from an additional unit of input10.Diminishing marginal product: the property whereby the marginal product of an input declines as the quantity ofthe input increases11.Fixed costs: costs that do not vary with the quantity of output produced12.Variable costs: costs that do vary with the quantity of output produced13.Marginal cost: the increase in total cost that arises from an extra unit of production14.Whenever marginal cost is less than average total cost, average total cost is falling. Whenever marginal cost isgreater than average total cost, average total cost is rising.15.In many firms, diminishing marginal product does not start to occur immediately after the first worker is hired.Therefore AVC and MC is not necessarily always sloping upward16.Economies of scale: the property whereby long-run average total cost falls as the quantity of output increases,(because higher production levels allow specialization among workers)17.Diseconomies of scale: the property whereby long-run average total cost rises as the quantity of output increase,(which may be a result of coordination problems in large organizations)18.Constant returns to scale: the property whereby long-run average total cost stays the same as the quantity ofoutput changesSummary1.The goal of firms is to maximize profit, which equals total revenue minus total cost2.When analyzing a firm’s behavior, it is important to include all the opportunity costs, such as the wages a firm paysits workers, are explicit. Other opportunity costs, such as the wages the firm owner gives up by working in the firm rather than taking another job are implicit3. A firm’s costs reflect its production process. A typical firm’s production function gets flatter as the quantity of inputincreases, displaying the property of diminishing marginal product, as a result , a firm’s total-cost curve gets steeper as the quantity produced rises4. A firm’s total costs can be divided into fixed costs and variable costs. Fixed costs are costs that do not change whenthe firm alters the quantity of output produced. Variable costs are costs that do change when the firm alters the quantity of the output produced5.From a firm’s total cost, two related measures of cost are derived. Average total cost is total cost divided by thequantity of output. Marginal cost is the amount by which total cost rises if output increases by one unit6.When analyzing firm behavior, it is often useful to graph average total cost and marginal cost. For a typical firm,marginal cost rises with the quantity of output. Average total cost first falls as output increases and then rises as output increases further. The marginal-cost curve always crosses the average total cost curve at the minimum of average total cost.7. A firm’s costs often depend on the time horizon being considered. In particular, many costs are fixed in the shortrun but variable in the long run. As a result, when the firm changes its level of production, average total cost may rise more in the short run than in the long runChapter 14 Firms in competitive marketsseller is a price taker2.Average revenue: total revenue divided by the quantity sold (for all firms, average revenue =marginal revenue=price)3.Marginal revenue: the change in total revenue from an additional unit sold4.The firm maximizes profit by producing the quantity at which marginal cost equals marginal revenue (the price)5.In essence, because the firm’s marginal-cost curve determines the quantity of the good the firm is willing to supplyat any price , it is the competitive firm’s supply curve6. A shutdown refers to a short-run decision not to produce anything during a period of time because of the currentmarket condition (a firm that shuts down temporarily still has to pay its fixed cost)7.Exit refers to a long-run decision to leave the market8.The firm shuts down if the revenue that it would get from producing is less than its variable cost of productionShut down if TR < VC TR/Q < VC/Q so shut down if P < AVCA firm shuts down if the price of the good is less than the average variable cost of productionThe competitive firm’s short-run supply is the portion of its marginal-cost curves that lies above the AVC9.Sunk cost: a cost that has already been committed and cannot be recovered10.Because nothing can be done about sunk costs, you can ignore them when making decisions about various aspectsof life11.The firm exist the market if the revenue it would get from producing is less than its total costs ( P < ATC)12.If firms already in the market are profitable, then new firms will have an incentive to enter the market.Conversely……At the end of this process of entry and exit, when the price and average total cost are driven to equal, firms that remain in the market must be making zero economic profit( but the accounting profit is positive) 13.The long-run equilibrium of a competitive market with free entry and exit must have firms operating at theirefficient scale (in the long run price equals the minimum of average total cost and the market supply curve is horizontal at this price, because the efficient scale is determined by nothing but the cost of production, the ATC which determines the “value” of the good =the price=AVC)14.★The essence of the analysis is that there are a large number of potential entrants, each of which faces thesame costs.15.As a result, the long-run market supply curve is horizontal at the minimum of average total cost. When the demandof the good increases, the long-run result is an increase in the number of firms and in the total quantity supplied, without any change in the price.16.There are two reasons that the long-run market supply curve might slope upward (because of change in ATC)1 some resource used in production may be available in limited quantities2 the firms may have different cost (new entrants with high cost) (some firms earn profit even in the long run)(In this case, the price in the market reflects the ATC of the marginal firm)17.Marginal firm: the firm that would exit the market if the price were lower than the lowest ATC18.Because firms can enter and exit the market more easily in the long run than in the short run, the long-run supplycurve is typically more elastic than the short-run supply curveSummary1.Because a competitive firm is a price taker, its revenue is proportional to the amount of output it produces. Theprice of the good equals both the firm’s average revenue and the marginal revenue2.To maximize profit, a firm chooses a quantity of output such that marginal revenue equals marginal cost. Becausemarginal revenue for a competitive firm equals the market price, the firm chooses quantity so that price equals marginal cost. Thus, the firm’s marginal cost curve is tits supply curve3.In the short run when a firm cannot recover its fixed costs, the firm will choose to shut down temporarily if theprice is less than average total cost. In the long run if the firm can recover both fixed and variable costs, it will choose to exit if the price is less than average total cost. (If the price is less than ATC but higher than AVC, the firm4.In a market with free entry and exit, profits are driven to zero in the long run. In the long-run equilibrium, all firmsproduce at the efficient scale, price equals the minimum of the average total cost, and the number of firms adjusts to satisfy the quantity demanded at this price5.Changes in demand have different effects over different time horizons. In the short run, an increase in demandraise the prices and leads to profits, and a decrease in demand lowers prices and leads to losses. But if firms can freely enter and exit the market, then in the long run the number of firms adjusts to drive the market back to the zero-profit equilibriumChapter 15 Monopoly1.While a competitive firm is a price taker, a monopoly firm is a price maker2.Monopoly: a firm that is that is the sole seller of a product without close substitute3.Barrier to entry have three main sources:● A key resource is owned by a single firm (few)●The government gives a single firm the exclusive right to produce some good and service●The costs of production make a single producer more efficient than a large number of producers4. A monopoly firm may advertise a lot to show the difference between its product and other potential substitute5.Natural monopoly: a monopoly that arises because a single firm can supply a good or service to an entire market ata lower cost than could two or more firms. (when there are economies of scale over the relevant range of output)(When a firm’s average-total-cost curve continually declines, the firm has what is called a natural monopoly. In this case, when production is divided among more firms, each firm produce less and average total cost rises) (which may be a result of extremely high fixed cost)6.In some cases, the size of the market is one determinant of whether an industry is a natural monopoly. As a marketexpands, a natural monopoly can evolve into a competitive market7.By adjusting the quantity produced (or equivalently, the price charged), the monopoly can choose any point on thedemand curve, but not off the curve8.Because competitive firms are price taker, they in effect face horizontal demand curves. Because a monopoly is thesole producer in its market, it faces the downward-sloping market demand curve9.Marginal revenue: the amount of revenue that the firm receives for each additional unit of output10.For a monopoly, marginal revenue is lower than price because a monopoly faces a downward-sloping demandcurve. To increase the amount sold, a monopoly must lower the price of its good11.For a monopoly, the demand curve and the marginal revenue curve always start at the same point on the verticalaxis because the marginal revenue of the first unit sold equals the price of the good. And the marginal-revenue curve lies below its demand curve12.The monopolist’s profit-maximizing quantity of output is determined by intersection of marginal-revenue curveand marginal-cost curve. Then it uses the demand curve to find the price that will induce consumer to buy that quantity P > MC = MR price exceed marginal cost13.When the patent runs out, new firms enter the market, making it more competitive. As a result, the price falls fromthe monopoly price to marginal cost. However, the company doesn’t lose all its market power and may be able to charge at least above the price charged by news competitors (trust and loyalty )14.The social planner cares not only about the profit earned by the firm’s owner but also the benefits received by thefirm’s consumers. Thus, the socially efficient quantity is found where the demand curve and the marginal –cost curve intersect.15.To maximize profit and by charging a higher price than the marginal cost, the monopolist produces less than thesocially efficient quantity of output, which causes a deadweight loss16.The monopoly itself does not represent a shrinkage in the size of the economic pie; it merely represent a biggerslice for producers and a smaller slice for consumers. The deadweight loss measures how the economic pie shrinks。
微观经济学知识全总结Tenprinciplesofeconomics
微观经济学知识全总结Tenprinciplesofeconomics第一章T en principles of economicsa.四个经济问题：for whom to produceWhat to produceHow much to produceHow to produceb.分配资源的方式：market ways 价格price供求supply&demand竞争competitionPlanning waysc. Economics: is the study of how society manages its scarce resource.d. scarcity: the limited nature of society’s resources1.tradeoff—to get one thing, we usually have to give up another thinga. efficiency效率make the biggest pie: the property of society getting the most it can from its scarce resources equity 公平把pie分得公平: the property of distributing economic prosperity fairly among the members of society.b. Pareto efficiency帕累托效率：是一些人得到福利就是另一些人福利受损2.opportunity cost: whatever must be given up to obtain some item monetarytime3.think at the margina. marginal changes边际变化: small incremental adjustments to a plan of action考虑最后一个单位的成本4.people respond to incentives stimulaterewardpunishment安全带produce both fewer deaths per accident and more accidentsWhen analyzing any policy, we must consider not only the direct effects but also the indirect effects that work through incentives.5.trade make everyone better off6.markets are usually a good way to organize economic activitymarket economy: an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services.a.大多数国家采用市场经济b. An inquiry into the nature and causes of the wealth of nations 国富论people are self interest , free market/doc/e79238280.html,ernments can sometimes improve market outcomesa.market failure:a situation in which a market left on its own fails to allocate resourcesefficiently.b.Externality: the imp act of one person’s actions on the well-being of a bystander旁观者spillovers, externality外在影响，外溢：positivenegative( 污染)monopoly 垄断分配不公income distribution(effiency and equity)Market power: the ability of a single economic actor or small group of actors to have a substantial influence on market prices对市场价格有不利影响8. a country’s standard of living depends on its ability to produce goods and servicesa.标准measured in : personal incomeGDPb.各国间收入差距，一国不同时代收入差距，由人民生产力决定c.Productivity: 生产力the amount of goods and services produced from each hour of aworker’s time 每人时9.prices rise when the government prints too much moneya.inflation: an increase in the overall level of prices in the economy纸币的发行量流通中金属货币的量，引起纸币贬值，物价全面上涨。
Chap_01 Principles of Economics
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
Economics
Economics is the study of how society manages its scarce resources.
3. Rational people think at the margin.
Marginal changes are small, incremental adjustments to an existing plan of action.
People make decisions by comparing costs and benefits at the margin.
Whether to go to college or to work? Whether to study or go out on a date? Whether to go to class or sleep in?
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
A household and an economy face many decisions:
Who
will work? What goods and how many of them should be produced? What resources should be used in production? At what price should the goods be sold?
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
曼昆经济学原理(微观部分)-经济学十大原理课件
原理1: 人们面临着交替关系
People Face Tradeoffs. 天下没有免费的午餐！
“There is no such thing as a free lunch!”
曼昆经济学原理(微观部分)-经济学十大原理
原理1: 人们面临着交替关系
People Face Tradeoffs.
曼昆经济学原理(微观部分)-经济学十大原理
原理8: 生活水平取决于一国的生 产
• Almost all variations in living standards are explained by differences in countries’ productivities.
• 生活水平的几乎所有差异都可以用各个国家生产率 的差异加以解释。
• an externality, which is the impact of one person or firm’s
actions on the well-being of a bystander. • 外部性---一个人或企业的行为对局外人福利的影响。
• market power, which is the ability of a single person or
是你为
曼昆经济学原理(微观部分)-经济学十大原理
原理2：某一事物的成本是你为了 获得它而放弃的东西
LA Laker 的篮球明星 Kobe Bryant 选择放弃上大学，从高 中直接进入职业球队，因此他 可以赚到成百上千万美元。
曼昆经济学原理(微观部分)-经济学十大原理
原理3: 理性人进行边际思考
resources through the decentralized decisions of many firms and households as they interact in markets for goods and services.市场经济是一种通 过许多企业和家庭的分散决策配置资源的经济，与 此同时企业和家庭在商品和服务市场上发生相互作 用。
PrinciplesofEconomics经济学十大原理
Principles of Economics——by N Gregory MankiwPrinciple #1 People Face TradeoffsWe face tradeoffs everyday.Tradeoffs occur when constraints such as budget or time force us to give up one thing in order to get something else.John is a high school senior facing a trade-off whose outcome will help to guide the course of his life. John is trying to choose the right college. His grade point average and SAT scores have placed him in the upper percentile of his class and have made him a very attractive prospect for any college. For John, a number of factors determine his ultimate choice. He has to compare the advantages and disadvantages of each institution. In this way, he can make appropriate tradeoffs to reach an informed decision.One possibility for John is a commuter college close to his home. If John chooses this school, he will live at home and have a lower tuition cost. Each of these factors will keep the overall cost of his education affordable. But John has his heart set on a career as an architect and the commuter college has limited course work in this area. John’s next option is a private university in another part of the country. This university will provide him with a degree in architecture and also has an international reputation, one that will give John greater credibility when he applies to graduate school. But the school may also be prohibitively expensive. Also, leaving home may provide freedom but will also be a less structured environment than he is used to. John has a third choice: a state school. The state school offers a possible compromise between the commuter college and the private university. It also offers John a degree in architecture where he will be reasonably close to home and friends and his tuition costs will b e lower than the private school. But the private school’s architecture program has an international reputation and its average class size is much smaller and therefore more personal.John must now evaluate each of these factors based on his own needs and desires. For example, John’s first priority is getting the best possible education. He knows that competition for a graduate degree in architecture will be very stiff and he wants his best foot forward when the times comes. His second priority is where he lives. John wants to stay near home where he can be near his friends and family. In the final analysis, though, John’s decision will have to first take into account his budget constraints.John must now compare his priorities with an eye toward these constraints. As John makes his tradeoffs, he is practicing one of the basic principles of economics: There’s no such thing as a free lunch. To get one thing that we want we usually have to give up something else that we want.Since his parents have told him that they do not want to pay for the private school, John must strike it from his list. He must now make appropriate tradeoffs between the commuter college and the state school in order to arrive at the right choice.John’s next tradeoff is between th e quality of life that each will offer and the quality of its education.John has already made two important decisions. He defines “quality of life” as living at home near friends while his definition for “quality of education” is a degree in architecture. By comparing the two schools on these bases, John is able to arrive at the best possible tradeoff.Like all of us, John was able to establish his own priorities, then determine which tradeoffs were necessary to arrive at the best possible outcome.By understanding our options and making appropriate tradeofs, we were able to make the best decisions for our own lives.Principle #2 The Cost of Something is What You Give Up to Get ItWomen's roles in our society have changed tremendously in the last hundred years. This change has impacted the opportunity costs for women as they consider whether to work inside or outside the home.The opportunity cost of an item is what you give up in order to get it. Similarly, the opportunity cost of an activity is what you give up in order to do it.Your choices depend on opportunity costs which in turn depend on many factors including money, time, and quality of experience.In earlier, pre-industrial generations, women received most of their social prestige for their roles as wife and mother, while their labor was needed literally to keep the home fires burning. The kinds of jobs open to them, on the other hand, were limited and paid poorly. The opportunity cost of working outside the home was often too high to be worthwhile given the importance of their responsibilities at home.As barriers to women entering certain professions have fallen, more women have sought preparation for those professions. In 1968, women received 8% of the medical degrees, 3% of the MBAs and 4% of the law degrees granted that year.By 1986, women were awarded 31% of the MD’s and MBAs, and accounted for 39% of the law degrees. Today, the figures continue to climb, with women composing 43% of law school enrollment.The broader, more lucrative career fields open to women today require the careful evaluation of changed opportunity costs when choosing whether or not to work outside the home.For example, let us consider a couple who currently work full time, eachmaking $50,000 a year. what is the opportunity cost of choosing to work? What is the opportunity cost of choosing to stay at home?Suppose the couple has a child, and no options for free child care. They willhave to purchase equivalent child care from a baby sitter, day care center, or give up one of their salaries and stay home. Child care will require an annual cash outlay of $15,000.They have limited free time each week, and find that house cleaning rarely gets done. They can employ a professional house cleaning service or stay home to do the cleaning themselves.The opportunity cost of working is the value they place on their time if they did not work. One of them could provide child care worth $15,000 and house cleaning worth $1,200.Assuming these are the only benefits foregone by working, the opportunity cost of working is the $16,200.They both have highly lucrative job skills so the financial benefits of working We get the same answer y aski ng the question: “What is the opportunity cost of staying at home?” By staying at home, one forgoes the opportunity to work, thus giving up an income of $50,000 a year. The opportunity cost of staying home is $50,000. The monetary benefit of staying at home to take care of the household tasks and care for the child is $16,200. Although there are financial benefits to staying at home, these benefits have a lower monetary value than the opportunity cost of forgoing their salary.These considerations reflect important aspects of opportunity cost. Understandably, as possibilities for women to work outside the home have multiplied, the opportunity costs for women to remain at home have increased.Of course, there may be non-monetary costs to working that we have not yet considered. Often a worker will turn down overtime even though it pays one and a half times the normal hourly wage. Why? The worker places more value on free time than the extra 50% the employer is offering.This non-monetary opportunity cost is harder to measure. If it were strictly dollars and cents, our couple’s decision would be easy.But they both place a great deal of value on the quality of life for their child and they both love the time they spend with their child. So the opportunity cost of working may be much higher than the financial cost of $16,2000.In 1979, the hourly earnings of women were only 62% of the wages earned by their male counterparts. By 1992, that percentage had risen to 74%As women’s salaries become comparable to men’s, the opportunity cost for women staying at home has become closer to the opportunity cost for men.The decision to stay home with the children is no longer the sole responsibility of the woman.As men and women reassess the changing nature of work both inside and outside the home, their shifting priorities will give them a new understanding of opportunity cost and help them find a new balance between family and career.Principle #3 Rational People Think at the MarginRay is considering a very tempting offer. A few weeks back, Ray heard that his favorite band was coming to town. He was so excited he was willing to spend twenty-five dollars for the best seat in the house.He kept calling the box office but the overwhelming number of callers made it nearly impossible to get through. When he finally did, he had to settle for a ten dollar ticket in the restricted view section.Now, on the night of the concert, Ray is approached by Scott, a ticket scalper. Scott wishes to sell Ray a twenty-five dollar ticker with and unrestricted view for twenty dollars.How will Ray make this decision? Not by saying, “No, because I already have a ticket,” or “Yes, because it’s a good ticket.” He will apply the principles of marginal thinking. Ray will weigh the incremental benefits of each choice in light of incremental costs.Ray must determine if the marginal improvement in his seat will justify the added expense. In order to do this, he will analyze the marginal benefit of the better seat. In other words, Ray must ask himself if a better seat is worth twenty dollars to him. Ray’s analysis tells him that the marginal benefit of a better seat is that he will enjoy the concert much more. Therefore, the marginal improvement over his original seat justifies the additional expense. Ray quickly accepts the offer.This is clearly a good deal for Ray but what about Scott the scalper? Surely he can’t make profit selling twenty-five dollar tickets for twenty dollars, can he?As soon as they went on sale, Scott purchased fifty tickets at twenty-five dollars each. This gave him a total out-of-pocket expense of one thousand, two hundred and fifty dollars. He was gambling that he could sell these tickets at a profit.Sure enough, when Scott arrives at the stadium three hours before show time, he finds dozens of disappointed fans willing to pay more than face value for his tickets. He quickly sells thirty tickets at forty dollars apiece. This makes back one thousand and two hundred dollars of his original investment.After the first hour, though, Scott experiences a sharp decline in sales and he finds that he can no longer sell tickets above face value. During the next hour and forty minutes he is only able to sell ten tickets, all at their face value of twenty-five dollars. Did Scott’s gamble pay off?This two hundred and fifty dollars, when added to his first hour sales gives him a total of one thousand, four hundred and fifty dollars. Scott now has a two hundred dollar profit on his original one thousand, two hundred and fifty dollar investment.However, Scott now wishes he had only bought forty tickets. He still has ten tickets left at twenty minutes to show time. What should he do with these ten tickets? Since he’s recouped his sunk cost, Scott realizes its better to sell them for something rather than nothing. He how offers the remaining tickets for twenty dollars apiece and finds several willing buyers, including Ray. Even though he’s taking a loss on these last tickets, marginally he’s better off selling them at t hat price rather than throwing them away.Ray and Scott are not the only winners in this transaction. Kim is another fan, one who is willing to gamble that Scott’s price will come down even more. By five minutes to show time Scott has sold all but two of his remaining tickers for twenty dollars. Scott now has total sales of one thousand, five hundred and thirty dollars which gives him a profit of two hundred and eighty dollars over his original one thousand, two hundred and fifty dollar investment.As soon as Scott is down to two tickets and there’s no time left before the start of the show, Kim makes her move. Knowing that Scott doesn’t want to be with tickets so close to show time, Kim offers the scalper five dollars for the final two. Since Scott has nothing to lose and ten dollars to gain by unloading the last two tickets, they make a deal.As the concert begins, Ray is able to get a better seat and Scott is able to maximize his profits, all by applying the principles of marginal thinkingPrinciple #4 People Respond to IncentivesFor many people, graduation from high school is an exciting time, filled with renewed possibilities and challenges. Some will choose to directly enter thework-force. Others will decide to continue their education by attending college. Inevitably, the decision will be an economic one.When financial resources are limited, people must consider the prices of goods and services they wish to purchase, including the price of a college education. And because of budget constraints, they often face tradeoffs. At a time like this, people are very prone to respond to incentives.Alan and Sarah, two recent high school graduates, are perfect examples of how incentives can affect choices. Both have decided to attend college immediately after graduation.Sarah’s family has saved fifteen thousand dollars for tuition at one of the finest private schools in the country. Alan’s family has saved seven thousand dollars for college, and he plans on attending his state university. The next step is for them to figure out the most effective ways to finance their education.Alan discovers that the cost of tuition at the state school, plus other expenses, is higher than he had anticipated -- ten thousand dollars a year.He could postpone his college plans and get a job to help pay for his tuition. But he might only be qualified for low-paying jobs, which would greatly reduce his saving power for college.In Sarah’s situation, the cost of private schooling is much higher than she had thought. With the cost being twenty thousand dollars a year, she has to choose her state university.In times like these, people like Alan and Sarah are looking for better options. The government can possibly help them by offering incentives, such as a tuition tax credit.A tuition tax credit is a deduction off the tax owed on a person’s tax return.For example, if the tax credit is thirty percent, the family can deduct thirty percent of the total cost of tuition from the taxes owed on their tax return. In the case of a college tuition tax credit, the income is designated to pay for tuition only.Given the introduction of a college tuition tax credit, Alan is now able to afford state university directly after graduation. The annual cost of attending the university is ten thousand dollars. He can use his parents’ seven thousand dollars and add the money from the three thousand dollar tax credit to pay the remainder.A tuition tax credit will also enable Sarah to attend the private school she originally chose.Tuition for that school is twenty thousand dollars a year. With her parents’ contrubution of fifteen thousand dollars and a tax credit of six thousand dollars she can now afford tuition there.Many people think that our society would only benefit from the education that government incentives make possible. But although we know that people respond to incentives, such policies can also create unexpected negative ramifications.For example, a government tax credit increases the disposable income of middle and upper income families. Meanwhile, lower income families, the ones most in need of extra money for education, are less affected.College tuition tax credit can also have a negative ramification in the education market as a whole. With extra money available, more people can afford to attend college. In other words, the “demand” for college education increases.But it takes time for schools to increase their capacity to accommodate the extra students. Most universities have an established system with a set number of campus buildings, faculty, and administration. In other words, even though “demand” for college education increases, the “supply” remains constant.In this situation, schools respond to the increased demand by raising tuition to cover the costs of adding classrooms, dormitories, teachers, and administrations. These market-wide tuition increases may partially reduce the effectiveness of the original tax credit.Ultimately, incentives such as tuition tax credits can have a positive effect on society. But, as with any government policy, consideration must be given to the direct effects as well as the indirect effects that the incentives create.Policymakers must fully understand these differing principles in order for the incentives to cause the positive effects on society that they intend.Principle #5 Trade Can Make Everyone Better OffTrade. We do it every day of our lives. People trade money for goods. So do businesses... And nations... Trade is the lifeblood of international economy. Every nation grows stronger and its economy improves as it exercises the principles of international trade.There are two elements to a well-balanced trade relationship: comparative advantage and specialization.Economists use the term “Comparative Advantage” when describing the opportunity cost of two producers. The producer who has the smaller opportunity cost is said to have a comparative advantage in producing that good.To see the benefit of comparative advantage, let us examine two countries, America and Japan, and two goods, food and cars.For our example we will assume that both countries produce cars and grow food. In both the U.S. and Japan, a worker can each produce one car per month. Because America has more land it is more efficient at producing food than Japan. A U.S. worker can produce two tons of food per month, whereas a Japanese worker can produce only one ton per month.If America is as efficient as Japan at car manufacturing and better at food production, why do we need to trade with her?Because the opportunity cost of producing a car is two tons of food in the U.S., but only one ton of food in Japan. So, Japan has a comparative advantage over the U.S. in producing cars.Because it is less expensive for America to import cars than to produce them domestically and more profitable to export our surplus food than to try and consume it all internally, the U.S. has a comparative advantage in food production.Once this comparative advantage has been determined, each country recognizes the need to specialize.Japan can now spend more time producing cars and less time growing food while the U.S. can spend more time in the production of food and less time on the automobile assembly line.Each country is now specializing in the production of a good in which it has a comparative advantage. In order to receive the good it is not producing, it must trade with the other. This trade relationship benefits both partners.Such a relationship breeds an interdependence among trading partners.In many ways, we as Americans tend to view the Japanese as our competitors in the global marketplace. After all, we both produce automobiles and food and are competing for the biggest possible market share of each.But is it right to view this competition as a sports contest, where one side wins and the other side loses?No. Such a limited view tends to ignore the positive benefits of interdependent trade to both countries. In fact, the opposite is true: Trade between two countries makes each country better off.During the pa st thirty years, Japan’s comparative advantage and specialization is the manufacture of automobiles has led it to become a leading industrial power. Many believe that this growth has come at the expense of the American economy. But how true is this?As Japan built up its comparative advantage in auto assembly, the United States was freed up to specialize in other markets where it could built up its own comparative advantage. These markets included finance, high technology and the manufacture of auto parts. Each of these markets are fundamental to the delivery of goods and services including the production of automobiles. By specializing in the areas of their comparative advantage, America and Japan are able to complement each other’s production.By working together in trade, each side can guarantee that the final product is sold at the best price for the consumers of both countries. This allows for a greater number of purchasers for both the Japanese and American firms. Further, the more of these goods that are sold, the stronger the economy will be in each of the partner nations. Such interdependent relationships are becoming more and more common as the global marketplace expands. This expansion of trade guarantees better economies and a brighter future for all nations involved.Principle #6 Markets are Usually a Good Way to Organize Economic ActivityIn any free market economy, the prices of goods and services are determined by the laws of supply and demand.The prices and quantity sold of goods and services reach equilibrium by responding to the behavior of buyers and sellers. The force that moves price and quantity to equilibrium is called “The Invisible Hand,” a phrase coined by Adam Smith in the 1700s.In a marketplace that is heavily regulated by the government, this invisible hand can no longer work, because prices reflect political policy rather than the consumer’s choice.Before 1978, America’s airline industry was a regulated marketplace where prices were determined by the government. Consumers had little choice in terms of fare, airline, or quality of service.After five decades of regulation, prices could not adjust naturally to free market forces. Because fares were set by planning committees, airlines had no incentive to compete for customers or to run efficiently.Airlines had become so inefficient and polluting that the problem came to the attention of the U.S. Congress.Congress reasoned that by setting market forces loose in the airline industry, airlines would soon compete with one another for passengers.In 1978 Congress passed the Airline Deregulation Act with the support of President Carter. They speculated that the invisible hand of a free market was still a good way to organize the economic activity.By opening more routes to competition, more suppliers entered the market. They hoped that this would lead to lower airfares, better efficiency, technological advances, and greater choices for travelers.In the years following deregulation, the invisible hand of the marketplace has benefited all kinds of travelers.Take Amy, for example, who wants to fly our to visit her boyfriend for the weekend.In a regulated market, she would have the choice of one or two carriers and a fare that is fixed by the government. But in a free market, she can choose from a range of fares and companies. All that is required is a call to her travel agent, who can compare the prices of all the major airlines.If she can travel with one airline at an off-peak time, for example, she can save hundreds of dollars off the full fare of another. A regulated marketplace would probably now allow this kind of flexibility.Deregulation has forced airlines to become innovative in competing with one another.This graph demonstrates the hub and spoke system developed by the airlines as a outgrowth of deregulation. As small regional airports, or spokes, feed into larger hubs in a major city, passengers are routed to their destination from the hub. Large airlines can control the terminals at their hub airports and charge other airlines to use them. United Airlines, for instance, often routes passenger traffic through their Chicago hub. They then service smaller airports with economical propeller planes and save large jets for longer routes that have more passengers. For this reason, Amy might make a stop at a large airport before continuing on to her destination.Southwest Airlines is a good example of a company that has benefited by deregulation. It began as a small commuter airline which served markets ignored by larger companies.Flying short and low-maintenance routes enabled Southwest to quickly establish itself as a price leader.Since shorter routes require less maintenance and smaller crews, Southwest streamlined operations. They have developed passenger routing and baggage loading techniques that allow them to turn a plane around in thirty minutes. They save time and money, the keys to survival in the airline business.This efficiency translates into savings on fuel, labor, insurance and other expenses that get passed on to the consumer.Efficiency is the outstanding advantage that Southwest uses over its competitors. To fill an undersold flight, Southwest can add passengers for literally the price of peanuts.Other airlines have tried to mimic Southwest’s success. As they enter the market the increased competition keeps prices in check. This prevents any one airline from monopolizing the market.Some airlines, however, were not able to survive after deregulation. Giants of the past like Pan Am and Eastern airlines folded in 1991 because they were unable to streamline operations and match the lower fares of their competitors. Instead, expenses took there toll as labor unions resisted wage cuts.Other airlines were forced to make trade-offs in their quest for efficiency. Compromises in safety have been uncovered as airline cut expenses to stay competitive. Or some airline are forced to fly an aging fleet longer in an effort to avoid expenditures and keep air fares down.Yet overall, deregulation of the airline industry has been a windfall to the consumer. The US General Accounting Office reports that on average, air fares are down almost 10 percent at small, medium, and large airports since deregulation.The increased number of flights, savings in travel time, and overall efficiency of the hub-and-spoke system has saved US consumers 10.3 billion dollars a year. Deregulation has also spurred overall advances in safely. The accident rate per one hundred thousand departures has dropped 90%.By removing barriers to free competition, the government has allowed the airline industry to demonstrate one of the basic principles of economics: that markets are a good way to organize economic activity.Principle #7 Governments Can Sometimes Improve Market OutcomesThe American public education system has long been a model for the free world. Why is our government concerned with education? Wouldn’t the system work better if left to the free market?There are two reasons why the government stays involved in education - the same two reasons that motivate it to intervene in other markets. The first is to promote equity, and the second is to promote efficiency.The original intent behind the establishment of a public school system was to promote equity for all citizens. Historically, private schools have offered an excellent education. Unfortunately, this education is expensive and therefore is out of the reach of many citizens.The public school system was established to address this inequity by offering a reasonably standardized curriculum with equal access to all. Therefore, all students can gain the opportunities that education makes possible.Primarily viewed as extending from kindergarten through the twelfth grade, this system also reaches into the higher education years with community colleges and state universities.In addition, the government assists higher education through various policies which help students to afford attending private and public institutions. These programs include Pell grants, student loans and government sponsored scholarships, which make higher education more affordable to a large number of citizens.Dale’s education reveals the role of government action in promoting equity and efficiency.For example, a few years back, Dale’s public high school r eceived a Department of Education grant to build a computer lab with Internet access. Computer labs in elementary and high schools ensure that all students have a chance to learn how to use computers.This program not only gave Dale access to the information super-highway, it also helped to ensure that his public school would be able to give him skills equal to the private school graduates. It did this by allowing the school to offer a program that only the private schools had previously been able to afford. In this way, the government-funded computer lab helped to equalize the opportunities available to citizens.When he enters college in the Fall, Dale will be taking pre-med courses to prepare himself for a career in medical research.Dale will finance his education through a series of government-sponsored loans, grants and tuition tax credits. These government programs are necessary because many banks do not give student loans. These private institutions fear that students will be unable to pay back the loans once they leave school.The government also wants the loan to be repaid but knows that society receives other benefits from Dale’s education through positive externalities.A positive externality occurs because the benefits of one person’s education extend to other individuals in society. Since the market does not take account of these externalities, and so does not provide a sufficient level of education, there is a market failure. These externalities are the second reason that governments intervene to promote education.。
TEN PRINCIPLES OF ECONOMICS
TEN PRINCIPLES OF ECONOMICSTEN PRINCIPLES OF ECONOMICSEconomics: the study of how society manages its scarce resources.How People Make Decisions:1. People face trade off.. Efficiency: the property of society getting the most it can from its scarce resources.. Equality: the property of distributing economic prosperity fairly among the members of society.2. The cost of something is what you must give up.. Opportunity cost of some item is what we give up to get that item.3. Rational people think at margin.4. People respond to incentives.How People Interact:5. Trade can make everyone better off.6. Markets are the usually a good way to organize economic activity.. Market Economy: an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services7. Governments can sometimes improve market outcomes.. Two Reasons for Government to Intervene in the Economy:. T o promote efficiency and.T o promote equity.. Market Failure: a situation in which a market left on its ability to allocate resources efficiently. Externality: the impact of one person’s actions on the well-beings of bystanders.. Market Power: the ability of a single economic actor (or small group of actors) to have a substantial influence on market priceHow the Economy as a Whole Works:8. A country’s standard of living depends on its ability to produce goods and services.. Productivity: the quantity of goods and services produced each hour of a work’s time.. Almost all variation in living standards is attributable to differences in countries’ productivity.9. Prices rise when the government prints too much Money. Main causes of INFLATION, an increase in the overall level of prices in economy.. When the governments create too much money, the value of money falls.10. Society faces a short-run trade-off between inflation and unemployment.. Two outcomes of print too much money:. Inflation;.A lower level of unemployment in short-term.. Phillips curve: a curve that shows the short-run trade-off between inflation and unemployment.. Economic policies push inflation and unemployment in opposite directions. THINKING LIKE A ECONOMICST1. The Circular-Flow Diagram. Circular-Flow Diagram is a visual model of the economy that shows how dollars flow through markets among households and firms.. Two Markets Included:- Market for goods and services;- Markets for Factors of Producti on: all inputs including labor, land, and capital.. In the market for goods and services, households are buyers, and firms are sellers.. In the market for the factors of production, households are sellers, and firms arebuyers.. The factors of production flow from households to firms, and the goods and services flow from firms to households.. Spending on goods and services flows from households to firms and income in the form of wages, rent and profit flows from firms to households.2. The Production Possibilities Frontier Model (PPF). The Production Possibilities Frontier is a graph that shows the combinations of output that economy can produce under given the available factors of production and available production technologies.. Economy can produce at any point on or inside the production possibilities frontier, but it cannot produce at points outside frontier according to its limited factor of production.Inside: inefficiency; at point: efficiency; outside: impossible unless improving factors of producti on.. Case Application: the opportunity cost of 100 cars is 200 computers. Because it must give up 200 computers to produce additional 100 cars.. The production Possibilities Frontier shows the trade-off between the production of different goods at given time, but it can change over time.- Application: an economic advance in the computer industry shifts the PPF outward.3. 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.4. Positive statements and Normative statements. Positive statements are descriptive. They make a claim about how the world is.. Normative statements are prescriptive. They make a claim about how the worldought to be.INTERDEPENDENCE AND THE GAIINS FROM TRADE. Absolute advantage: when comparing the productivity of one person, firm, or nation to that of another. The producer that requires a smaller quantity of inputs to produce a good is said to have an absolute advantage in producing that good.. Opportunity cost of some item is what we give up to get that item.. Comparative advantage: when describing the opportunity cost of two producers. The producer who gives up less of other goods to produce good X has the smaller opportunity cost of producing good X and is said to have a comparative advantage to producing it.. Import: Goods produced abroad and sold domestically are called imports . Export: Goods produced domestically and sold abroad are called exports. SUPPLY AND DEMAND1. Competitive Markets. The primary characteristics of perfect competition- The goods being offered for sale are all the same.- The buyers and sellers are so numerous that no single buyer or seller can influence the market price. Competitive market: A market in which there are many buyers and many sellers so that each has a negligible impact on the market price.. Quantity demanded of any good is the amount of the good that buyers are willing and able to purchase.2. Demand. Quantity demanded: the amount of a good that buyers are willing and able to purchase.- Move upward along with demand curve is called increase in quantity demanded.- Move downward along with demand curve is called decrease in quantity demanded.. Law of demand: Other things equal, when the price of a good raises, the quantitydemand of the good falls, and when the price falls, the quantity demand rises.3. Shifts in the Demand Curve. Shifts the demand curve to the right is called an increase in demand.. Shifts the demand curve to the left is called a decrease in demand. Income:. Normal Good: an increase in income leads to an increase in demand.. Inferior Good: an increase in income leads to a decrease in demand. Price of Related Goods:. Substitutes: two goods for which an increase in the price of one leads to anincrease in the demand for the other.. Complements: two goods for which an increase in the price of one leads to a decrease in the demand of the other.Number of Buyers:. Increase of number of buyers will lead to an increase of demand. Summary:VariableA Change in the Variable…PriceRepresent a movement along the demand curveIncomeShifts the demand curvePrices of Related GoodsShifts the demand curveT astesShifts the demand curveExpectationsShifts the demand curveNumber of BuyersShifts the demand curve4. Supply. Quantity supplied of any good or service is the amount that sellers are willing able to sell.- Move upward along with supply curve is called increase in quantity supplied.- Move downward along with demand curve is called decrease in quantity supplied.. Law of supply: Other things equal, when the price of a good rises, the quantity supplied of the good also rises, and when the price falls, the quantity supplied falls as well.5. Shift in Supply Curve. Shifts the supply curve to the right is called an increase in supply.. Shifts the supply curve to the left is called a decrease in supply.Input Prices. Increase in input prices, decrease in supplyT echnology. Improve well-advanced technology, increase in supplyExpectations. Good expectations of the future of certain products, increase in supply Number of Sellers. Increase in number of sellers, increase in supply.6. Supply and Demand together. Equilibrium: The point at which the supply and the demand curves intersect. This point called market’s equilibrium. The price at thisintersection is called the equilibrium price, and the quantity is called the equilibrium quantity.. The equilibrium price is sometime called the Market-Clearing Price.. Surplus: Suppliers are unable to sell all they want at the going price. A surplus sometimes called excess supply. (See p.77 figure 9)- Price is high; respond to cut their. Shortage: Demanders are unable to buy all they want at the going price. A shortage sometimes called excess demand. (See p.77 figure 9)- Price is low; respond to rise their price. Law of supply and demand: The price of any good adjusts to bring the quantity supplied and quantity demanded for that good into balance. Three steps to analyse changes in equilibrium1) Decide whether the event shifts the supply or demand curve2) Decide in which direction the curve shifts.3) Use the supply-and-demand diagram to see how the shift the equilibrium priceand quantity.ELASTICITY AND ITS APPLICATION. Elasticity: a measure of responsiveness of quantity demanded and quantity supplied to one of its determinants.1. Price Elasticity. Price elasticity of demand measures how much the quantity demanded responds to a change in price. Demand for a good is said to be elastic if the quantity demand responds substantially to changes in the price. Demand is said to be inelastic if the quantity demanded responds only slightly the change the pricePercentage change in quantity demandedPrice elasticity of demand = ---------------------------------------------------------Percentage change in price. Demand is inelastic when elasticity is less than 1; Demand is elastic when elasticity is greater than 1; if the elasticity is exactly 1, demand is said to have unit elasticity.. Elasticity is zero, demand is perfectly inelastic; Elasticity is ∞, demand is perfectly elastic.. More elastic, more flatter the demand curve; more inelastic, sharper the demand curve.Variables affect the elasticity of demand:When Calculate, it is a better way to use what is called Midpoint Method, that is: (Q2-Q1)/ [(Q2+Q1)/2]Price elasticity of demand = -------------------------------- (P2-P1)/ [(P2+P1)/2]. Availability of Close Substitutes: Goods with close substitutes tend to have more elastic demand because it is easier for consumer to switch from.. Necessaries VS Luxuries: Necessities tend to have inelastic demands, whereas luxuries have elastic demands.. Definition of the Market: Narrowly defined markets tend to have more elasticdemand than broadly defined markets.. Time Horizon: Goods tend to have more elastic demand over longer time horizon.T otal Revenue and the Price Elasticity of Demand. T otal Revenue: The amount paid by buyers and received by sellers of the good. In any market, total revenue is P × Q. When demand is inelastic, price and total revenue move in the same direction.. When demand is elastic, price and total revenue move in opposite direction.. If demand is unit elastic, total revenue remains constant when the price changes.2. Other Demand ElasticisesThe Income Elasticity of Demand. A measure of how much the quantity demanded of a good responds to consumer’s income.Percentage change in quantity demandedIncome elasticity of demand = -------------------------------------------------------Percentage change in income. Normal goods have positive income elasticity, while inferior goods have negative income elasticity.. Necessities tend to have small positive income elasticity, while luxuries tend to have large positive income elasticity.The Cross-Price Elasticity of Demand. A measure of how much the quantity demanded of one good respond to a change in the price of another good.Percentage change in quantity demanded of good 1Cross-price elasticity of demand = ---------------------------------------------------------Percentage change in the price of good 2. If two goods are substitutes, the cross-price elasticity of demand is positive;. If two goods are complements, the cross-price elasticity of demand is negative.3. Price Elasticity of Supply. A measure of how much the quantity supplied of a good responds to a change in the price of that good. Supply of good is said to be elastic if the quantity supplied responds substantially tochanges in the price. Supply is said to be inelastic if the quantity suppliedresponds only slightly to changes in the price.Percentage change in quantity suppliedPrice elasticity of supply = ---------------------------------------------------------Percentage change in the price. Supply is usually more elastic in the long run than in the short run.. Perfectly inelastic: when the supply curve is vertical.. Perfectly elastic: when the supply curve is infinity.. Elastic supply: elasticity is greater than 1.. Inelastic supply: elasticity is less than 1.. Unit elastic supply: elasticity equals 1.SUPPLY, DEMAND, AND GOVERNMENT POLICIES1. Price CeilingA legal maximum on the price at which a good can be sold.. When the government imposes a binding price ceiling on the competitive market, a shortage of the good arises, and sellers must ration the scarce goods among the large number of potential buyers.*(See more by studying the cases of Oil control and Rent contro l on pp.116-118.)2. Price Floor. Price floor: When the price is not allowed to fall below a particular level that is forced by government, this legislated minimum is called a price floor.. A binding price floor causes a surplus.*(See more by studying the cases of the minimum wage on pp. 121-122.)3. T axesT ax incidence is the manner in which the burden of a tax is shared among participants in a market.Summary:. A price ceiling is a legal maximum on the price of a good or service. An example is rent control. If the price ceiling is below the equilibrium price, the quantity demanded exceeds the quantity supplied. Because of the resulting shortage, sellers must in some way ration the good or service among buyers.. A price floor is a legal minimum on the price of a good or service. An example is the minimum wage. If the price floor is above the equilibrium price, the quantity supplied exceeds the quantity demanded. Because of the resulting surplus, buyers’ demands for the good or service must in some way be rationed among sellers.. When the government levies a tax on a good, the equilibrium quantity of the good falls. That is, a tax on a market shrinks the size of the market.. A tax on a good places a wedge between the price paid by buyers and the price received by sellers. When the market moves to the new equilibrium, buyers pay more for the good and sellers receive less for it. In this sense, buyers and sellers share the tax burden. The incidence of a tax does notdepend on whether the tax is levied on buyers or sellers.. The incidence of a tax depends on the price elasticity of supply and demand.The burden tends to fall on the side of the market that is less elastic because thatside of the market can respond less easily to the tax by changing the quantity bought or sold. CONSUMERS, PRODUCERS, AND THE EFFICIENCY OF MARKETS.1) Consumer Surplus. Willingness to Pay: the maximum amount that a buyer will pay for a good. . Consumer Surplus: the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.Consumer surplus = Value to buyers – Amount paid by buyers. The area below the demand curve and above the price measures the consumer surplus in a market.. Consumer surplus is a good measure of economic well-being.2) Producer Surplus. Cost: the value of everything a seller must give up to produce a good.. Producer Surplus: the amount a seller is paid for a good minus the seller’s cost.Producer surplus = Amount received by sellers – Cost to sellers. The area below the price and above the supply curve measures the producer surplus in a market.. Producer surplus is a good measure of well-being of sellers.3) Market Efficiency. If an allocation of resources maximizes total surplus received by all members of society, we say that the allocation exhibits Efficiency.- Make the economic pie as bigger as possible!T otal surplus = Value to buyers – Amount paid by buyers+ Amount received bysellers – Cost to sellers.That isT otal surplus = Value to buyers – Cost to sellers.. Social Planner also care about Equity—the fairness of the distribution of well-being among the various buyers and sellers.- Divided the economic pie as fairly as possible!EquilibriumWhen Demand and Supply reach equilibrium:1) Free market allocates the supply of goods to the buyers who value them most highly, as measured by their willingness to pay.2) Free market allocates the demand for goods to the sellers who can produce them at least cost.3) Free market produces the quantity of goods that maximizes the sum of consumer and producer surplus.PriceThe T otal Surplus in a non-equilibrium point.Producer Surplus Consumer Surplus Quantity Supply Demand APPLICATION: THE COST OF TAXATION1. The Deadweight Loss of T axation. A tax on a good causes the size of the market for the good to shrink.. T axes cause deadweight losses because they prevent buyers and sellers from realizing some of the gains from trade.. The tax makes buyers and sellers worse off and the government better off. . The losses to buyers and sellers from a tax exceed the revenue raise by the government.2. The Determinants of Deadweight Loss. The greater the elasticity of supply and demand curve, the greater the deadweight loss of a tax.. Size of a tax grows larger; the deadweight loss grows larger;. Size of a tax grows larger; the tax revenue first rises, then falls. This relationship sometimes is called Laffer Curve.EXTERNALITIES. One cause of Market Failure, which is a situation in which a market left on its own fails to allocate resources efficiently.. Externality: the uncompensated impact of one person’s actions on the well-being of a bystander.. If the impact on the bystander is adverse, it is called a negative externality; if it is beneficial, it is called a positive externality.. Because buyers and sellers neglect the external effects of their actions when deciding how much to demand or supply, the market equilibrium is not efficient when there are externalities.Externalities and Market EfficiencyNegative ExternalitiesPositive Externality. Negative externalities lead to markets to produce a larger quantity than is socially desirable. Positive externalities lead markets to produce a smaller quantity than socially desirable.Summary:. The social cost is larger than the private cost.. Thus, QMARKET is larger than the socially optimal quantity, QOPTIMUM. . Reducing the production and consumption below the market equilibrium level raises total economic well-being.. What the government does is to Internalizing the Externality.. That is, altering incentives so that people take account of the external effects of their actions.. The social value is larger than the private value.. Thus, QMARKET is smaller than the socially optimal quantity, QOPTIMUM. . Increasing the production and consumption above the market equilibriumlevel raises total economic well-being.. What the government does is to Internalizing the Externality.T o remedy the problem, the government can internalize the externality by taxing goods that have negative externality and subsiding goods that have positive externalities.3. Private Solutions to Externalities. Coase Theorem: the proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own.. Whatever the initial distribution of rights, the interested parties can always reach a bargain in which everyone is better off and the outcome is efficient. . Sometimes the interested parties fail to solve an externality problem because of transaction costs, the costs that parties incur in the process of agreeing and following through on a bargain.. Reaching an efficient bargain is especially difficult when the number of interested parties is large.4. Public Policies T oward ExternalitiesRegulation. Command and Control based policiesPigovian T axes and Subsidies. Market-based policies. Pigovian tax is a tax which enacted to correct the effects of a negative externality.. Compared with Regulation, T axes can reduce pollution more efficiently because people face incentives to reduce their pollution.Tradable Pollution permits. Selling pollution permits may be better than levying a Pigvian T ax, because government can reach any quantity controlled directly.PUBLIC GOODS AND COMMON RESOURCES1. The Different Kinds of GoodsIn thinking about the various goods in the economy, it is useful to group them according to two characteristics:. Excludability: the property of good whereby a person can be prevented form using it.. Rivalry: the property of a good whereby one person’s use diminishes other people’s use.Private GoodsRival Excludable Natural Monopolies Non-Rival ExcludableCommon Goods Rival Non-excludable Public Goods Non-Rival Non-excludable2. Public GoodsThe Free-Rider Problem:. A person who receives the benefit of a good but avoids paying for it.. Because public goods are not excludable, private market do not want tosupply them. If the government decides that the total benefits exceed the costs, it can provide the public goods and pay for it with tax revenue. Some important Public Goods:. National Defence; Basic Research; Fighting Poverty3. Common ResourcesTragedy of the Commons:. A parable that illustrates why common resources get used more than is desirable from the standpoint of society as a whole.. The tragedy of the Commons arises because of the externality.. Government can; reducing use of the common resources by regulation or taxes, or turn the common resource into a private good.THE COST OF PRODUCTION1. What is Cost?. T otal Revenue: the amount a firm receive for the sale of its output.. T otal Cost: the market value of inputs a firm uses in production.. Profit: T otal revenue minus total cost.. Explicit Costs: input costs that require an outlay of money by the firm.. Implicit Costs: input costs that do not require an outlay of money of money by the firm.. Economic Profit: T otal revenue minus total cost, including both explicit costs and implicit cost.. Accounting Profit: T otal revenue minus total cost, including only explicit costs rather than implicit costs.2. Production and CostsThe Production FunctionThe Production Function is the relationship between quantity of inputs used to make this good and quantity of outputs of that good.The Marginal Product is the increase in output arises from an additional unit of input.. The PF curve tends to be flatter, since with the growth of input, the productivity is decreasing.. The Slop of PF curve measures the Marginal Production.. Diminishing Marginal Product: the property whereby the marginal product of an input declines as the quantity of the input increases.Production FunctionSlop. Marginal Production Input Output T otal Cost Curve. A total-cost curve shows the relationship between the quantities of output produced and total cost of production.. TC curve gets steeper as the amount produced rises, whereas FC curve gets flatter.. Slop of TC curve measures the Marginal Cost. Output Cost Slop. Marginal Cost3. The Various Measures of Cost。
chap1 ten_principles
Fall 2009
HUST
TEN PRINCIPLES OF ECONOMICS
Fall 2009
HUST
Principle #2: The Cost of Something Is What You Give Up to Get It. • Decisions require comparing costs and benefits of alternatives.
• Whether to go to college or to work? • Whether to study or go out on a date? • Whether to go to class or sleep in?
• Households decide what to buy and who to work for. • Firms decide who to hire and what to produce.
Fall 2009
HUST
Principle #6: Markets Are Usually a Good Way to Organize Economic Activity. • Adam Smith made the observation that households and firms interacting in markets act as if guided by an “invisible hand.”
• • • • Guns v. butter Food v. clothing Leisure time v. work Efficiency v. equity
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Why do we study economics?
Understand the way the world works: An useful perspective to explain various events, including economic policies
Develop rational thinking, guiding us to make correct individual decision
经济一词来源于希腊语，意思 是“管理家庭的人”。
A household and an economy face many decisions:
一个家庭和经济体面临很多决策：
Who will work? 谁去工作？
What goods and how many of them should be produced? 应该生产什么物品？应该生产多少？
Make consistent judgments on economic phenomena
Basic knowledge for our major of business and economics
What Is Economics Like Interesting economics: idea Boring economics: technique Useful economics: Alan Greenspan, the chairman of the Fed
Economics 经济学
Society and Scarce Resources: 社会和稀缺资源：
The management of society’s resources is important because resources are scarce. 因为资源是稀缺的，所以社会资 源的管理就很重要。
Scarcity . . . 稀缺…Biblioteka Course Policy
Attending class is strongly recommended, although not required
English is required when writing final exam
Final grade comes mainly from your performance in final exam. Session tests or mid term tests are also counted.
Reference Textbooks Paul Samuelson and William :Economics J. Stiglitz: Economics
Good examples William Baumol and Alan Blinder:
Economics: Principles and Policy
A household and an economy face many decisions:
一个家庭和经济体面临很多决策：
What resources should be used in production? 应该用什么资源生产？
At what price should the goods be sold? 物品的销售价格应该是多少？
Principles of Economics
Third Edition by
N. Gregory Mankiw
经济学原理
（第三版）
Brief Description About This Course
What do we mean by Western Economics?
Western economics versus Marxism Economics (political economy)
Economics (in general) A useful definition
Economics is the study of how a society allocates scarce resources among alternative uses to satisfy human wants Basic Principle in this course
. . . means that society has limited resources and therefore cannot produce all the goods and services people wish to have. …意思是说，社会拥有有限的资源，不 能生产出人们想要的所有物品与劳务。
You are required to apply economics to explain various economic phenomena
Ten Principles of Economics
经济学十大原理
Chapter 1
Economy. . . 经济…
. . . The word economy comes from a Greek word for “one who manages a household.”
How to study economics: Attend class Read textbook: guided by teaching Do exercises Rewrite your class notes Consult instructors
How to use this textbook Guided by class notes Reorganize the contents in a way friendly to your thinking Read summary in the end of each chapter Checking the glossary in the end of this book Refer to other textbooks