1 T-I-M-E-R• Non-Price Determinants of Demand

TASTES & PREFERENCES (tickle me elmo, furbies)• Key words: like, love, fashionable, preferred, voted• Students at CyFalls High School vote to have Chik-fil-A for lunch instead of What-a-Burger. What will happen to the

demand for Chik-fil-A?

INCOME • Key words: Bonus, gift card, salary, wages• The stores in the mall decide to give their employees a raise. What will happen to the demand for clothes?MARKET SIZE • Key words: immigration, more students, more housing, population movement• A new sub division opens up north of 290. What happens to the demand for groceries?

EXPECTATIONS OF CONSUMERS • Key words: Future outcomes, sales, ticket purchases, time stamps• After Thanksgiving TV’s go on sale. What happens to the demand for TV’s on black Friday?RELATED GOODS:

SUBSTITUTES (lobster instead of steak)– The news reports that cows in the United States are infected with Mad Cow disease. What happens to the demand of chicken?

COMPLIMENTS (peanut butter and jelly)– A drought causes this years peanut crop to decrease drastically. What happens to the demand for grape jelly?

1 S-T-O-N-E-R• Non-price determinants for Supply• S=Subsidy & Taxes

• T=Technology• O=Other Related products• N=Number of Sellers• E=Expectations of Sellers• R = Resource Price

2 Change in supply – PICK ONE

2

2 Change in Demand – PICK ONE

2

3 & 4 Government InterventionGovernment intervention: gov’t regulations are

imposed to keep the market from reaching equilibrium.Price ceilings: government sets

a maximum price that can be legally charged.

Price floor: minimum price you can charge

– Established on “essential” goods.– Tends to result in shortages because consumers demand more of the product at the ceiling, but producers do not want to supply it.– Occurs below equilibrium because they work to keep prices low and NOT achieve equilibrium.– Benefits consumers. Example: Rent Control.

1. At a price ceiling of $1.00, QD = 250 and QS = 150. As a result, there is a shortage of 100.

Pizzas

$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50

0 100 200 300 400

QD/QS

$

D S

3 Price Ceiling

Pizzas

$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50

0 100 200 300 400

QD/QS

$

D S4 Price Floor

5 Tracking the Business Cycle

TIME/INCREMENTS

PEAK

EXPANSION CONTRACTION

TROUGH

Raise Taxes

Cut Spending

Raise Discount Rate

Sell Bonds

Raise Reserve Requirement Lower Reserve Requirement

Lower Discount Rate

Buy Bonds

Lower Taxes

Increase Spending

You want to: Put money INTO the Government/Fed

You want to: Take money OUT OF the Government/Fed

5

• Expansion:($ are flowing)– period of economic growth– plentiful jobs and falling unemployment– businesses invest in NEW plants, equipment,

salaries ect…..– Inflation (higher prices) can occur.

• Peak:– real GDP stops rising– high production, high employment and stable

prices.– height of expansion

5 The Phases of the Business Cycle

• Contraction:( going down hill)– Deflation (lower prices) can occur– falling output– low levels of investment– Two types:

• Recession: real GDP falls for 2 consecutive quarters, lasts 6-18 months and

• Depression: high unemployment and low factory output

• Trough:– lowest point of economic activity– economy has “bottom-out”

5 The Phases of the Business Cycle

• Leading: stock market prices, interest rates, orders of capital goods• Coincident: change with the business cycle; personal income, sales• Lagging: change after downturn or upturn; use of installment credit (cars, homes)

6. Consumer Price Index an index of the variation in prices

paid by typical consumers for retail goods and other items.

7 GDP

• Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period.

• Though GDP is usually calculated on an annual basis, it can be calculated on a quarterly basis as well.

8 What is a production possibilities frontier? (PPF or PPC)

Production Possibility Frontier or Curve is a graph that shows the combination of goods and services that can be produced when the Factors of Production (LLCE) are utilized to their full potential.

Shows what a country/business can produce for any given amount of the other.

PPF illustrates the basic economic problem of guns or butter – which to produce?

CAPITAl GOODs

Consumer Goods

8 Analyzing PPF

• Any point above the PPF (H) = currently unattainable, however it is a FURTURE goal– We always want our economy to be growing– To reach point H, increase the following:

• technology• debt• investment

G

H

Future – never realized

Economies are all somewhere in here:

8 Analyzing PPF

• Any point above the PPF (H) = currently unattainable, however it is a FUTURE goal– We always want our economy to be

growing– To reach point H, increase the following:

• technology• debt• investment

9• When the economy grows and all

other things remain constant, we can produce more, so this will cause a shift in the production possibilities curve outward, or to the right.

• If the economy were to shrink, then, of course, the curve would shift to the left. When the curve shifts outward, or to the right, that means output is increasing. When the curve shifts inward, or to the left, that means output is decreasing.

• Shifts in the production possibilities curve are caused by changes in these things:

• • Advances in technology• • Changes in resources• • More education or training (that's what we call

human capital)• • Changes in the labor force

10

10

10

11 scarcity• Scarcity dictates that economic decisions must be made

regularly in order to manage the availability of resources to meet human needs.

• Some examples of scarcity include: – The gasoline shortage in the 1970's– After poor weather, corn crops did not grow resulting in a scarcity of

food for people and animals and ethanol for fuel.– Over-fishing can result in a scarcity of a type of fish.– Fewer farmers raising cattle can result in a scarcity of milk and cheese.– An embargo on imports from a country can result in a scarcity of the

resources that country exports.

• Read more at http://examples.yourdictionary.com/examples-of-scarcity.html#sI3B3qAJBcj5yW6a.99

12 Opportunity Costs• Opportunity cost refers to the value forgone in order to make

one particular investment instead of another.

• How it works/Example:• For example, let's assume you have $15,000 that you could

either invest in Company XYZ stock or puttoward a graduate degree. You choose the stock. The opportunity cost in this situation is the increased lifetime earnings that may have resulted from getting the graduate degree -- that is, you choose to forgo the increase in earnings when you use the money to buy stock instead.

13 Free Trade – The unrestricted purchase and sale of goods and services between countries without the constraints of tariffs, duties and quotas.

• Comparative Advantage– “When you restrict foreign competition, you remove

any incentive for American Industries to improve”• Specialization

– “each nation has its own area of expertise and should concentrate on that”• International peace

– “If there are no restrictions on world trade, everyone benefits” – “When you limit imports you hurt exports”

13. Free Trade Zone Organizations

14 Protectionism• Reasons to be Protectionist-ish• Protecting jobs

– “No wonder there is high unemployment”

• Protecting infant (young) industries– “We need tariffs to help new businesses get a start”

• National Security issues– “What if we broke out into war and couldn’t get the

parts for our missile defense?”

15 Absolute Advantage

• Using the same amount of resources, one nation can produce a product at a lower cost and more efficiently than a second nation– Oil Middle East Diamonds South Africa

15 Comparative AdvantageThe ability to produce the same product at a

lower opportunity cost

• Cyclical: associated with fluctuations in the business cycle

– ex. Higher unemployment during recessions/lower in recovery

• Structural: caused by fundamental changes in the economy

– ex. Technological advances or discovery of natural resources

• Seasonal: caused by changes in seasons or weather – ex. Lifeguards or Santa Clause

• Frictional: temporary unemployment because of firings, layoffs voluntary searches for new jobs, etc. Always exists

16 Types of Unemployment

19 Traditional

●Relies on habits, customs or rituals●Roles are passed from generation to

generation

Strengths: highly motivated citizens because your work directly provides for your family

Weaknesses: no “down time” to create, invent, etc

Traditional

●Property Rights – equally owned by family/tribe

●Incentives – provide basic needs for family●Economic Freedom – none, no time for

creativity/relaxation; won’t survive if each person doesn’t do their part

●Competition – none●Role of Gov – (chief, tribal leader) - survival

P- Based on traditions, available resources, & family/village size. D- Individuals, families, or the village.C- Trade within the village

Bedouins (Arabia) Nomadic herders (Sahara Desert)

Command

●central government alone decides●government owns land & capital

Strengths: guaranteed jobs & income

Weaknesses: no individual freedoms; works in theory – not practice; allows for corruption

Command

●Property Rights – government owns property●Incentives – none (why would you work hard

if you can’t advance/get raise, etc) ●Economic Freedom – low●Competition – discouraged by government●Role of Gov – dictates what is produced, who

produces, how materials are distributed

North Korea Cuba China Former USSR

Free Market

●Individuals decideStrengths: individual choices, businesses

can keep profitsWeaknesses: difficult/impossible to

achieve equality, some are very rich/poor

Free Market

●Property Rights – individuals own property●Incentives – individuals want best price &

product; businesses want profit ●Economic Freedom – high●Competition – encouraged by government●Role of Gov – support competition and protect

individuals

Mixed

●Blends a market economy with government intervention and involvement

Mixed: Free Market/US Free Enterprise

●Individuals own and operate the FOP and answer the basic economic questions. Some government regulation mostly for safety of consumer.○ Examples: Canada, US, Mexico

Mixed: Authoritarian Socialism

●Government owns and controls nearly all FOP

●Government officials develop long range plans.○ Examples: Cuba, China

Mixed: Democratic Socialism

●Government owns some FOP (key industries)

●Individuals influence economic planning through elections.○ Examples: Sweden, Poland, France

France Sweden Peru