In chapter four we learned the basics of the relationship that supply and demand have. Now in chapter 5 we learn about the quantitative side and how people respond to changes in the market.
It's important to note that the way we measure elasticity is a mathematical equation that goes something like this: (Quantity Demanded2-Quantity Demanded2)/ (QD1+QD2/2) all over (Price2-Price1)/ (Price1+Price2/2) An equation much easier written out than typed basically telling us that elasticity= percentage change in quantity demanded over the percentage change in price.
We also learn about the four things that affect elasticity such as the definition of the market, time (the only thing to affect supply), necessity v luxury and the availability of close substitutes.
Definition of the market talks about the narrow and broad perspective. Food is broad and therefore is inelastic because you can't get what you need from it elsewhere. Fries on the other hand are very elastic because you have a variety of options from where to get them. This closes into substitutes, if there are many replacements for it then the product is more elastic.
Necessity versus luxury is inelasticity versus elasticity, respectively. A necessity such as food and water will be paid for at each and every price because it is a need, but a car on the other hand a luxury since we don't have to use it and it's just an extra expense.
In this chapter we also learn about the elasticity of income and as well as the Cross Price elasticity. Income elasticity informs us how the percent in quantity demand changes as the percentage in income changes. The elasticity of this would inform whether a good is generally a normal or inferior one. Cross Price elasticity informs us of the percentage change on one good over the price change in another.
Throughout we learn the forms in which both supply and demand curves appear. A vertical line would imply that they are inelastic while a completely horizontal will imply perfect elasticity.
Tuesday, October 27, 2015
Tuesday, September 29, 2015
Supply and Demand is Basically Econ Life
In chapter 4 we learned about the two key variables that make the market.... the market. Market referring to the group of buyers (DEMAND) and sellers (SUPPLY) of a good or service.
One of the most important parts of this chapter was the term of perfect competition. This can go one or two ways. One could be that the goods offered for sale are all exactly the same . The other way that it goes is that buyers and sellers are so numerous that no single buyer on seller has any influence over the market price. The first would be more of a highly organized commodity and the other would be having no market power. The big thing to know is that it's best to be perfectly competitive because what lies on the other end would be a monopoly.
PRICE TAKERS ARE THOSE WHO ACCEPT THE PRICE DETERMINED BY MARKETS.
So they don't have to buy things but they know and accept the price it is.
DEMANDDD
Demand is pretty self explanatory but it's super important to keep the law of demand in mind. This tells us that if the price of a good increases then the demand decreases. The demand schedule would then be a table that shows the relationship between the price and quantity demanded. The demand curve is then just the graphical representation of that data.
SUPPLYYY
Supply is also something hat I've been aware of my whole life and like the demand curve, it also has its own table and graph. Even more it has its own law: the claim that the quantity supplied of a good rises when the price of the good rises.
EQUILIBRIUM
The last big thing that the chapter talked about was equilibrium which is the situation in which the market price has reached the level at which quantity supplied equals quantity demanded.
One of the most important parts of this chapter was the term of perfect competition. This can go one or two ways. One could be that the goods offered for sale are all exactly the same . The other way that it goes is that buyers and sellers are so numerous that no single buyer on seller has any influence over the market price. The first would be more of a highly organized commodity and the other would be having no market power. The big thing to know is that it's best to be perfectly competitive because what lies on the other end would be a monopoly.
PRICE TAKERS ARE THOSE WHO ACCEPT THE PRICE DETERMINED BY MARKETS.
So they don't have to buy things but they know and accept the price it is.
DEMANDDD
Demand is pretty self explanatory but it's super important to keep the law of demand in mind. This tells us that if the price of a good increases then the demand decreases. The demand schedule would then be a table that shows the relationship between the price and quantity demanded. The demand curve is then just the graphical representation of that data.
SUPPLYYY
Supply is also something hat I've been aware of my whole life and like the demand curve, it also has its own table and graph. Even more it has its own law: the claim that the quantity supplied of a good rises when the price of the good rises.
EQUILIBRIUM
The last big thing that the chapter talked about was equilibrium which is the situation in which the market price has reached the level at which quantity supplied equals quantity demanded.
Monday, September 28, 2015
Gainzzz
In chapter three we read more into the production possibilities graph and how specialization and trade can, of course, better economies. We also learned several new terms such as absolute advantage which is the ability to produce more goods with fewer inputs than another producer.
Comparative advantage was the big thing here. Mr. Waller thought I hadn't learned it but here I am with it memorized. Comparative advantage is the ability to produce an output with a lower opportunity cost than another producer.
In the book we are given the example of the farmer and the rancher. They each face a trade off between and potatoes. They could always make an equal amount of each but when we figure out that there is an opportunity cost and which has a comparative advantage with what, we are able to see that with trade, they could each have more. More in comparison to each trying to make and equal amount of both meat and potatoes. So in the end as long as they both have more with trading than them producing alone, they are better off. Each will always have a comparative advantage because if one has a lower opportunity cost in on thing, that's what they'll produce while the other has a comparative advantage in the other.
Trade = Gainzzz
Comparative advantage was the big thing here. Mr. Waller thought I hadn't learned it but here I am with it memorized. Comparative advantage is the ability to produce an output with a lower opportunity cost than another producer.
In the book we are given the example of the farmer and the rancher. They each face a trade off between and potatoes. They could always make an equal amount of each but when we figure out that there is an opportunity cost and which has a comparative advantage with what, we are able to see that with trade, they could each have more. More in comparison to each trying to make and equal amount of both meat and potatoes. So in the end as long as they both have more with trading than them producing alone, they are better off. Each will always have a comparative advantage because if one has a lower opportunity cost in on thing, that's what they'll produce while the other has a comparative advantage in the other.
Trade = Gainzzz
Monday, September 14, 2015
Economists Bruhh
I have to look back at my notes because it's hard to remember what I just read considering it's almost 2 in the morning.
Chapter 2 talked about who an economist is. He's kind of like a scientist (when he thinks positive statements) and he's also like a policy adviser (when he thinks normative statements). They have their own version of the scientific method with which they observe, make theories, and then continue to observe. They also like to think of things in a simpler way so that it's much easier to later understand the complexity of the world in which we live.
The chapter also explains the tools that economists use to.. well be economists. They make models like the circular-flow diagram which is a diagram that shows how money moves throughout the market of households and firms. Have to study that one because it's a bit too much. But nothing compared to the production possibilities frontier. It's like a graph with a curve. It was a bit more confusing given that I'm a visual learner. Ironic because there was a picture but I do need further explanation on that. It did mention though that the opportunity cost equals the slope of the ppf. Even though I'm not quite sure what that means it seems pretty cool that it all correlates.
Micro and Macro were pretty self explanatory thanks to Mr. Waller.
The rest of the chapter talked about how economists can see things in different perspectives. Back to that whole scientist and policy adviser thing. Some could view what's wrong with something while others think about how they can fix it. The chapter continues to talk about how economists never give straightforward answers, have different values, scientific judgment, and that they may disagree based off of the variety of tradeoffs. But it ends with the happy ending that most economists actually end up agreeing with each other.
Difficulty:1 (Only because of the models and... considering that continuing chapters will be more difficult I'm going to save the 3).
Chapter 2 talked about who an economist is. He's kind of like a scientist (when he thinks positive statements) and he's also like a policy adviser (when he thinks normative statements). They have their own version of the scientific method with which they observe, make theories, and then continue to observe. They also like to think of things in a simpler way so that it's much easier to later understand the complexity of the world in which we live.
The chapter also explains the tools that economists use to.. well be economists. They make models like the circular-flow diagram which is a diagram that shows how money moves throughout the market of households and firms. Have to study that one because it's a bit too much. But nothing compared to the production possibilities frontier. It's like a graph with a curve. It was a bit more confusing given that I'm a visual learner. Ironic because there was a picture but I do need further explanation on that. It did mention though that the opportunity cost equals the slope of the ppf. Even though I'm not quite sure what that means it seems pretty cool that it all correlates.
Micro and Macro were pretty self explanatory thanks to Mr. Waller.
The rest of the chapter talked about how economists can see things in different perspectives. Back to that whole scientist and policy adviser thing. Some could view what's wrong with something while others think about how they can fix it. The chapter continues to talk about how economists never give straightforward answers, have different values, scientific judgment, and that they may disagree based off of the variety of tradeoffs. But it ends with the happy ending that most economists actually end up agreeing with each other.
Difficulty:1 (Only because of the models and... considering that continuing chapters will be more difficult I'm going to save the 3).
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