Economics Lecture

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ECMB02 - TOPIC 1 INTRODUCTION & REVIEW

1. Introduction 2. Review of Market Demand & Supply 3. Math Review

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1. Introduction

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What we will Learn in this Course 1. what influences people’s decisions about what and how much to consume? 2. what influences firms’ decisions about what and how much to produce? 3. how are product prices determined? 4. how to think about/solve economic problems that you can use in later courses and throughout your careers Learning Techniques 1. mathematical models quick and general predictions 2. worked mathematical examples & exercises 3. some classroom demonstrations

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Things to Keep in Mind 1. predictions from mathematical models are “qualitative” ( up/down, more/less) & sometimes no prediction 2. models need to be tested against real data … this is often difficult work and it can take decades for academic consensus to be reached … we study only well-established models in this course 3. price theory guides management intuition,

but managers also need to study their market to make quantitative predictions e.g. if increase price by 5%, how many fewer of our cars will be sold?

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Important Terms and Concepts price theory = microeconomics study of behaviour of individual economic agents such as individuals, households, firms, unions, governments market the meeting of buyers and sellers for the potential exchange of goods and services e.g. product market such as clothing or hairdressing e.g. factor market such as labour or machinery equilibrium a situation where every economic agent is doing the best they can for themself and so does not want to make different choices

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resources the land, labour, raw materials, and machinery used in the production of goods and services resource allocation how society decides to allocate its scarce resources, i.e….. how it decides what goods and services to produce, how much to produce, and for whom to produce them command system economic system where the government makes the resource allocation decisions market system economic system where individuals and firms make the resource allocation decisions in pursuit of their own self-interests mixed system economic system where government places significant restrictions on market decisions efficient situation where it is impossible to reallocate resources differently to make some better off while leaving everyone else as well off as before

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Course Structure

Market Demand and Supply Review

Individual Decision Making and Individual Demand for Goods and Services

A Firm’s Decision Making and a Firm’s Supply of Goods and Services

Market Demand

Market Supply under Perfect Competition

Richer Models of Individual Demand

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2. Review of the Market Demand and Supply Model

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Market Supply

P = price of a pair of shoes $150 S= market supply of shoes

$5 200 1000 Q

Q = number of pairs of shoes that could be produced for the current season

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Market Demand Model

P = price of a pair of shoes $150

D = market demand for shoes $5 200 1000 Q

Q = number of pairs of shoes that could be sold in the current season

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Market Equilibrium

P = price of a pair of shoes $150 S = market supply of shoes E * 200 400

$8 $5

D = market demand for shoes 1000

Q = number of pairs of shoes that could be sold in the current season

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Increase in Market Supply

P = price of a pair of shoes $150 S1 = old market supply of shoes larger S2 = new supply 200 900 1000 Q = number of pairs of shoes that could be produced for the current season

$25 $5

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Increase in Market Demand

P = price of a pair of shoes $150...
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