Archive for Portfolio

Reflections

Here are the two links to my previous reflection blog posts

1. Price Control

2. IB Economics style

Leave a Comment

Elasticities

Elasticity is simply the economist’s word for responsiveness. Price elasticity shows how responsive the demand is to the changes in price.

Elastic

Describes a supply or demand curve which is relatively responsive to changes in price. That is, a curve wherein the quantity supplied or demanded changes easily when the price changes. A curve with an elasticity greater than or equal to 1 is elastic.

Inelastic

Describes a supply or demand curve which is relatively unresponsive to changes in price. That is, the quantity supplied or demanded does not change easily when the price changes. A curve with an elasticity less than 1 is inelastic.

Equilibrium Price
The price of a good or service at which quantity supplied is equal to quantity demanded. Also called the market-clearing price.
Equilibrium Quantity

Amount of goods or services sold at the equilibrium price. Because supply is equal to demand at this point, there is no surplus or shortage

There are four types of Elasticities, which are:

  • Price elasticity of demand (PED)
  • Cross elasticity of demand (XED)
  • Income elasticity of demand (YED)
  • Price elasticity of supply (PES)

Price Elasticity of Demand (PED)

A measure of the responsiveness of the quantity demanded or a good or service to a change in its price

Formula:

Price elasticity of demand = % change in Qd / % change in P

Where Qd = Quantity demanded
and P = Price


Example of PED: Here


Cross Elasticity of Demand

A measure of the responsiveness of the demand for a good or service to a change in the price of a related good

Cross elasticity of demand = % change in Qdx / % change in Py

Where Qdx = Quantity demanded of Good X
and Py = Price of Good Y

More details click here

Income elasticity of Demand

A measure of the responsiveness of demand for a good to a change in income

Income elasticity of demand = % change in Qd / % change in Y

Where Y = real income
and Qd is the quantity demanded

Price elasticity of Supply

A measure of the responsiveness of the quantity supplied of a good or service to a change in its price

———————————-

Normal Good

A positive YED so that as income rises, demand increases.

Inferior Good

A negative YED so that as income rises, demand decreases

Indirect Tax

An expenditure tax on a good or service

Incidence of Tax

The amount of tax paid by the producer or the consumer

Compliments

Goods which are used together. They have a negative XED

Substitutes

Goods that can be used instead of each other. They have a positive XED

Shortage

Situation in which the quantity demanded exceeds the quantity supplied for a good or service; in such a situation, the price of a good is below equilibrium price.

Surplus

Situation in which the quantity supplied exceeds the quantity demanded for a good or service; in this situation, the price of a good is above equilibrium price.

Leave a Comment

Collaborations

Blog Comments: I have commented on Mana and Akash’s blog but there’s no link for the comment.

Diigo Contribution: Diigo links Click on the link to see my contribution to the class’s diigo. I have read news from the internet and wrote some comments about the main idea and purposes of the articles and wrote my opinion about them.

Shared Docs: During our study on elasticities, I had to make a presentation on XED with 3 other people and we have shared a google doc. Click here to see the powerpoint on google doc.

Leave a Comment

Definition: Introduction to economics

Introduction to Economics

What is Economics?

Economics is the study of how scarce resources are and how to be used.

Microeconomics is concerned with the individual parts of the economy.

Macroeconomics is the opposite to the microeconomics. It is concerned with the whole part of the economy and it is the study of the total economic activities.

Economic Growth

Economic growth is the increase in GDP.

GDP stands for Gross Domestic Product. It measures the output of the economy.

Demand

Demand is the desired, the willingness to buy and the ability of the consumers to purchase the products in a given period of time.

This is a diagram of the law of demand:

As you can see from the graph, The law of demand basically means that the lower the price, the greater the quantity demanded and vice versa. P stands for Price and Q stands for Quantity. P1 moves to P2 due to the increase in Q1 to Q2.

Shifts of the demand curve


A shift of a demand curve to the right will mean that more will be demanded at each and every price. A shift to the left will reduce the quantity demanded at each and every price.

Supply

Supple is the ability and the willingness the producers have to product goods and services for the consumers in a given period of time.

When supply increases from S1 to S2, the quantity supplied by producers increases at every price which leads to the change in Q1 to Q2

Indirect taxes

They are imposed by the government on producers – but the burden of the tax can be passed onto consumers depending on the price elasticity of demand and elasticity of supply for the product. Therefore in most cases, consumers end up paying some (or all) of any indirect tax introduced into a market.

The diagram above shows the effect of a specific tax, the diagram below shows the effect of an ad valorem tax.


The burden of an indirect tax can be passed onto the consumer by the producer – but not all of it. The ability to pass the burden of the tax depends on price elasticity of demand and price elasticity of supply. When demand is inelastic, most of the tax is passed onto the consumer. When demand is elastic, the producer must carry most of the burden of the tax – they risk losing a large slice of total demand if they pass the tax onto the consumer in the form of higher prices.

The effect of indirect taxes on goods and services also depends on the degree of competition between producers in a market. In some industries – particularly those for luxury goods where the demand is relatively elastic – intense price competition between producers may limit the extent to which a firm is prepared to pass on any extra taxes to consumers.

Scarcity

Scarcity occurs when individuals want more of something than is readily available. Scarcity makes people make choices because people cannot have everything.

Market

The process by which buyers and sellers interact, which sets the prices for goods and services.

Factors of Production

Factors of production are various types of resources used in the production of goods and services. The types are Land, Labour and Capital.

Land

Air, sunlight, forests, earth, water and minerals are all classified as land. They are not created by people. Everyone must have the access of land to be able to live.

Capital

When some of the wealth is used to produce more wealth, economists refer to it as Capital. Capital are simply the materials people use for production. Capital also increases labor’s ability to produce wealth (and services too). Therefore, there is always a demand for capital goods, and some labor will be devoted to supplying those goods, rather than supplying the consumer goods that directly satisfy desires.

Labour

In economics, labor is human exertion, mental or physical, in production. Like capital, however, “labor” is a loaded term that is used in various ways. “Labor” can refer to the social class that stands in opposition to “Capital” or, “Labor” might refer to the organized labor union movement.

Competition

When producers compete to bring goods and services to market, consumers benefit from lower prices and better quality. Thus, competition can be seen as a kind of “unconscious cooperation” that benefits the entire society.

Equilibrium

In a market, equilibrium is the point at which the quantity supplied of a good or service equals the quantity demanded. Markets tend to move toward equilibrium as a consequence of the fact that people seek to satisfy their desires with the least exertion. Equilibrium is a characteristic of any kind of market, whether individual or aggregate.

Opportunity Cost

The highest income, profit or satisfaction that one gives up when choosing something

Giffen Good

A Giffen good is a good for which an increase in price results in an increase in demand for the good.

Veblen Good

A Veblen good is a good that has an upward-sloping demand curve. People buy more of the good because it is more expensive and therefore demand is higher when the price is higher.

Specific Tax

A specific tax is a fixed amount of tax charged on each unit. A specific tax will shift the supply curve vertically upwards by the amount of the tax

Ad-valorem Tax

A tax that is levied as a percentage of the selling price.

Subsidy

A payment made to firms or consumers designed to encourage an increase in output

Leave a Comment

Theory Of Firm



THEORY OF FIRM

Product: Total output of firm

Average product: TP/V

Marginal product: Change in TP/Change in V

Marginal Cost: the additional cost of producing an additional unit of output

Total cost: TC = TFC+TVC

Average fixed cost: They are costs of production that do not change with the level of output. They will be the same for one or any other number of units. The equation is TFC/q

Average variable cost: They are costs of production that vary with the level of output. The equation is TVC/q

Average total cost: TC/q

Economy of scale: Ability of larger business to produce things more cheaply because they product so many.

* Bulk buying, Advertising, Specialization and savings

Example: Cruise review

Diseconomy of scale: When a business grows so large that the costs per unit increase.

* Poor communication, Lack of motivation

Marginal Cost: The extra cost of producing another unit

Marginal Cost

The extra cost needed to produce one more unit of output (or the reduction in total cost of producing one less unit of output).

Marginal Revenue

The additional revenue (income) that a firm gets from selling one more unit of output. Thinking in terms of marginal revenue helps firms decide how to set a price for their products in advance.

REVENUE THEORY

Total revenue: TR = Q*P

Marginal Revenue: MR = Change in R/Change in Q

DIAGRAMS

Cost Curve

TFC, TVC, TC

LRAC and SRAC

Short run

The short run is the period of time in which at least one factor of production is fixed.

Long Run

The period of time in which all factors of production are variable

SRAC stands for short run average cost. LRAC means long run average cost. As you can see from the SRAC lines, the line increases in return and then it gradually changes to the diminishing return due to the increase in numbers of variable factor such as workers. Hamburger shop would be a good example for this graph.

Long run average cost curve is determined by the existence of economics and diseconomies of scale.

Diminishing Returns

When additional units of a factor of production are added, a point will be reached where the additional output resulting from each added unit begins to decrease. That is called the point of diminishing returns. A colloquial expression of this is “too many cooks in the soup”. Diminishing returns is a universal principle (all else being equal) because production is limited in space and time, and things can get crowded.

Example: Tennis Ball game

Economic of scale

They are any fall in long run unit costs that come about as a result of a firm increasing its scale of production.

Diseconomies of scale

Any increase in long run unit costs that come about as a result of a firm increasing its scale of production.

Total revenue

The aggregate revenue gained by a firm from the sale of a particular quantity of output.

Average revenue

Total revenue received divided by the number of units sold.

Normal profits

The amount of revenue gained from selling an additional unit of a good or service.

In a long run all firms will earn normal profits in perfect competition, because if abnormal profits or losses are being made, firms will enter or leave the industry until all the firms in the industry are making normal profits.

Abnormal Profit

They are any level of profit that is grater than that required to ensure that a  firm will continue to supply its existing good or service.

In short firms in perfect competition may make abnormal profits, where AR>AC at the profit maximizing output level, but the new firms will enter the industry and the profits will be competed away. In the long run normal profits will be made.

 

 

 

 

Leave a Comment