Exam 1 Team #9 Portfolio by lindsey hill

The Circular Flow Model

AlexaBrinkman — 2020-10-08 19:01:51 UTC

In the circular flow model there are two players in the private market. These players are the business firms and the households. There are also two markets: the resource market and the product market.

Circular Flow Diagram

AlexaBrinkman — 2020-10-08 19:03:17 UTC

Understanding the Circular Flow Model

AlexaBrinkman — 2020-10-08 19:03:52 UTC

When looking at the circular flow model you want to start with the households because of private property ownership. So when starting with the households we see that..
1. Their land, labor, capital, and entrepreneurial ability are all put into the resource market. A real example of this could be a job.
2. Then from the resource market the Factors of Production move to the business firms which are turned into goods and services that can be used and sold in the product market. From the product market these goods and services go back to the households for them to also use and buy.
3. Households receive income from the resource market in return for their land, labor, capital, and entrepreneurial ability in the forms of rent, wages, interest, and profit.Households use this income to purchase goods and services from the product market. Revenue from the product market then makes it back to the business firms who pay rent, wages, interest, and profit to the resource market.

Understanding the governments role in the circular flow model.

AlexaBrinkman — 2020-10-08 19:05:57 UTC

The government purchases resources from the resource market and receives factors of production. This is good for households because it increases household income. However, this is competing with business firms and raises prices for business firms.
The government also purchases goods and services from the product market. This increases business firm revenue. However, when the government buys limited products from business firms it makes the cost of goods and services for households more expensive.
Households pay the government taxes while the government can give the households transfer payments which are payments like welfare, medicaid, and student grants. These are not passing through the resource or product market.
Business firms also pay the government taxes and receive transfer payments back.

Understanding the governments role in the circular flow model continued.

AlexaBrinkman — 2020-10-08 19:07:15 UTC

The arrow solely from the government to the product market represents a public good. A public good is a product provided by the government that is non rival and non excludable and for which there is no direct payment back.

Rival and Excludable Goods

AlexaBrinkman — 2020-10-08 19:08:19 UTC

Rivalry: As one person enjoys the good it is used up and there is less of it for someone else.
1. Less and less pizza available for others as I eat more of the people.
2. Business firms want their products to be rival.
Excludability
1. Use is limited to the person who purchases it.

Six Economic Functions of Government

AlexaBrinkman — 2020-10-08 19:10:21 UTC

Article One Section Eight of the Constitution

AlexaBrinkman — 2020-10-08 19:11:30 UTC

1. Maintain the legal and social framework.
2. Maintaining Competition
3. Provide Public Goods and service.
4. Correct for Externalities
5. Stabilizing the Economy
6. Redistributing Income

Trivia Check!!

AlexaBrinkman — 2020-10-08 19:13:11 UTC

Question 1

AlexaBrinkman — 2020-10-08 19:13:36 UTC

Smoke from a factory drops ash all over your car. Governments economic function in this case is to

Stabilize the economy
Maintain competition
Provide public goods and services
Correct a negative externality

Question 2

AlexaBrinkman — 2020-10-08 19:13:55 UTC

Establishing and Enforcing Clearly defined property rights is an example of

Providing a social and legal framework
Maintaining competition
Providing public goods and services
Redistributing income

Demand, Supply, and Equilibrium

lindsey_h12 — 2020-10-08 19:28:05 UTC

When the market is at equilibrium, it is balanced and perfectly efficient
Qs>Qd we have a surplus
Qs

Price Ceilings / Price Floors

lindsey_h12 — 2020-10-08 19:28:40 UTC

Price Ceiling

Placed below the equilibrium and creates imbalance
It is binding - meaning it is a law created by the government
- Example: Rent Control
  - Transfer of benefits go from the landlords to renters
  - No perfect singular point anymore, there is a gap for equilibrium

Price Floor

Placed above the equilibrium and creates imbalance
Price floor is binding - meaning it is a law
- Example: New higher minimum wage rate
  - Suppliers are willing to work more hours
  - Firms say the labor price is too high, "I dont wanna buy"
  - No perfect singular point anymore - there is a gap in equilibriums
  - Creates a surplus of labor in that gap - That is unemployment

Doty Mantra

spencerlyon78 — 2020-10-08 20:49:01 UTC

Everything we value is scarce. Because everything we value is scarce, we cannot have it all. Because we cannot have it all, we have to make choices. Every choice we make means giving up something else. That most valued alternative that we give up when we make a choice is our opportunity cost

The Production Possibility Curve

spencerlyon78 — 2020-10-08 21:30:00 UTC

The Production possibilities frontier is the graphic representation of scarcity, choice, and opportunity cost. Every point along the cure is possible and efficient. The points below the curve are possible and inefficient and the points above are impossible without obtaining more resources.

The guide to economic reasoning

spencerlyon78 — 2020-10-08 21:35:00 UTC

1. People choose
2. The choices people make involve cost
3. People respond to incentives in predictable ways
4. People create economic systems that influence individual choices and incentives
5. People gain when they trade voluntarily
6. Peoples choices have consequences that lie in the future

Questions Economist must answer:

spencerlyon78 — 2020-10-08 21:38:35 UTC

1. What to produce?
2. How to produce?
3. For whom to produce?

Consumer, Producer, & Total Surplus

lindsey_h12 — 2020-10-08 22:11:15 UTC

Consumer Surplus

Consumer surplus happens when the price that consumers pay for a product or service is less than the price they're willing to pay
Represented as the triangle above equilibrium & inside demand curve (Same for all)
- Triangle area is the calculated amount: Base x Height / 2

Producer Surplus

The benefit the sellers get when they are willing to sell at a lower price but they do not have to
Triangle below equilibrium inside demand curve

Total Surplus

Total Surplus = Consumer Surplus + Producer Surplus

Deadweight Loss

lindsey_h12 — 2020-10-08 22:20:55 UTC

The triangle in the gap of the new & old equilibriums with price ceilings / price floors
It is the loss of economic efficiency in terms of utility for consumers/producers such that the optimal or allocative efficiency is not achieved.

Marginal Benefits and Costs - Private and Social

lindsey_h12 — 2020-10-08 22:22:25 UTC

Society’s optimal output in a particular market is where marginal social benefit (MSB) equals marginal social cost (MSC). The market output is determined by marginal private benefit (MPB) being equal to marginal private cost (MPC).

Positive / Negative Externalities

lindsey_h12 — 2020-10-08 22:22:43 UTC

Positive Externalities

Example: Immunizations
- More people benefit than just those who get the shot. The MSB>MPB
- Consumers, on their own will not pay for this benefit.
AKA Spillover benefit
To correct the government will fine / regulate

Negative Externalities

Example: Pharmaceutical Company pollutes waterways
- The company benefits with artificially low costs and high profits and customers benefit from low prices. The MSC>MPC
Producers, on their own will not pay for this cost.
AKA Spillover cost
To correct the government will subsidize

The Free Rider Problem

lindsey_h12 — 2020-10-08 22:25:01 UTC

"It is an inefficient distribution of goods or services that occurs when some individuals are allowed to consume more than their fair share of the shared resource or pay less than their fair share of the costs."
https://www.investopedia.com/terms/f/free_rider_problem.asp

The Optimal Level of Pollution

lindsey_h12 — 2020-10-08 22:25:49 UTC

"The level of pollution that maximizes social welfare by equating the marginal cost of additional pollution with the marginal benefit. The concept of the optimal level recognizes that there may be benefits to allowing pollution which would be lost were pollution to be eliminated."
https://academic.udayton.edu/PMIC/Exercises/Exer6-1.htm

Market Failures and Property Rights

lindsey_h12 — 2020-10-08 22:26:07 UTC

When consumers own resources, they have the incentive to to allocate those resources to their most highly valued uses

Elasticity

leozapata101 — 2020-10-08 22:26:41 UTC

Elasticity refers to how sensitive quantities demanded and quantities supplied are to changes in variables influencing demand and supply

The Coase Theorem

lindsey_h12 — 2020-10-08 22:28:06 UTC

"Affirms that where there are complete competitive markets with no transaction costs, an efficient set of inputs and outputs to and from production-optimal distribution will be selected, regardless of how property rights are divided."
Application: "The Coase Theorem is applied to situations where the economic activities of one party impose a cost on or damage the property of another part"
https://www.investopedia.com/terms/c/coase-theorem.asp

AlexaBrinkman — 2020-10-08 22:28:30 UTC

If my friend found a twenty dollar bill on the ground and offered to give me two dollars while she would keep eighteen dollars I would still take the two dollars. This is because even though it might not seem fair, two dollars for me is still more money than I had before she found the money. If I would decline the offer then I would gain no money. Economically gaining some money even if it's not a lot is better than gaining none.

AlexaBrinkman — 2020-10-08 22:30:40 UTC

There will be a benefit to trade when trading partners have different opportunity costs. This is because each will have a comparative advantage in one product.

AlexaBrinkman — 2020-10-08 22:31:36 UTC

The only variable to move the quantity demanded and quantity supplied along the curves is price.
Determinants of demand and supply shifts the quantity demanded and quantity supplied.

AlexaBrinkman — 2020-10-08 22:32:15 UTC

Competitive markets do not always produce the correct amount of a good or service.

Market Failure, Taxes, Subsidies Summary Video

lindsey_h12 — 2020-10-08 22:32:34 UTC

AlexaBrinkman — 2020-10-08 22:32:56 UTC

When the price drops and a product is elastic than the total revenue increase. But, when the price keeps dropping and the product is inelastic total revenue decreases.

spencerlyon78 — 2020-10-08 22:37:10 UTC

Supply and Demand

82blakereagan — 2020-10-08 22:38:55 UTC

In economics, supply and demand are the relationship between the quantity of a product that producers desire to sell at different prices and the quantity that consumers wish to purchase. In economic theory, it is the key model of price determination used.

82blakereagan — 2020-10-08 22:39:19 UTC

82blakereagan — 2020-10-08 22:40:24 UTC

A commodity's price is determined by the supply and demand relationship of a market. The resulting price is known as the equilibrium price and is an arrangement between the suppliers and the buyers of the goods. The quantity of goods supplied by manufacturers is equal to the equilibrium quantity ordered by consumers.

spencerlyon78 — 2020-10-08 22:41:59 UTC

Utility equals satisfaction and is measured in utiles. The more utiles there are the more you are willing to pay.

82blakereagan — 2020-10-08 22:42:08 UTC

In the product sector , companies include families, purchased goods and services, and the government's 6th economic role is to take steps to help stabilize the economy.

82blakereagan — 2020-10-08 22:45:04 UTC

The study of how people try to satisfy what appears to be seemingly unlimited and competing wants through the careful use of relatively scarce resources is?

Price Elasticity of Demand

leozapata101 — 2020-10-08 22:48:11 UTC

Demand is more elastic when:

Many Substitutes are available
The product represents a large proportion of the budget
The market is defined narrowly
There is more time to adjust to a change in price
The good is a luxury vs a necessity

The Economic Way of Thinking Summary Video

lindsey_h12 — 2020-10-08 22:48:38 UTC

82blakereagan — 2020-10-08 22:48:41 UTC

If one nation is better off producing apples over bananas and the other country is better off producing bananas over apples, one nation will concentrate its attention on apples while the other focuses on bananas. The advanced items would then be traded by both nations.

Price Elasticity of Supply

leozapata101 — 2020-10-08 22:49:01 UTC

Supply is more elastic when:

There is more time
Supply is especially influenced by time because productive resources are fixed in the short run
Supply is more elastic in the long run because additional resources can be obtained in the long run

82blakereagan — 2020-10-08 22:50:10 UTC

Getting a flu shot is an example of a ____ externality.

82blakereagan — 2020-10-08 22:53:11 UTC

For example, a price increase for a fancy cut of steak will make several clients prefer a hamburger instead. For the fancy cut, a bargain price would lead many clients to upgrade to the fancy cut. The price elasticity of demand is called inelastic, which is less than 1.

Comparative Advantage & Trade Summary Video

lindsey_h12 — 2020-10-08 22:53:28 UTC

lindsey_h12 — 2020-10-08 22:56:22 UTC

Marginal Analysis & Elasticity Summary Video

lindsey_h12 — 2020-10-08 22:58:40 UTC

Market Efficiency Summary Video

lindsey_h12 — 2020-10-08 22:59:39 UTC

Relatively Elastic Demand

leozapata101 — 2020-10-08 23:01:42 UTC

The upper portion of the demand curve
Elasticity coefficient is >1
% change in quantity demanded is greater than % change in price
Numerator greater than denominator
Purchasers sensitive to price

Relatively Inelastic Demand

leozapata101 — 2020-10-08 23:11:41 UTC

The lower portion of the demand curve
Elasticity coefficient is <1
% change in quantity demanded is less than % change in price
Numerator less than denominator
Purchasers insensitive to price

Unit Elastic Demand

leozapata101 — 2020-10-08 23:20:56 UTC

The middle portion of the demand curve
Elasticity coefficient is = 1
% change in quantity demanded is equal to the % change in price
Numerator same as denominator
Purchasers respond

Circular Flow Summary Video

lindsey_h12 — 2020-10-09 01:11:06 UTC

Supply & Demand Within The Circular Flow Chart

lindsey_h12 — 2020-10-09 01:14:30 UTC

Businesses: They supply the product markets, but have demand from the resource market.

Households: They have demand from the product market, but supply the resource market with their land, labor, capital, and entrepreneurship.

Marginal Utility and Total utility

leozapata101 — 2020-10-09 01:42:17 UTC

With each additional unit of the same product that we consume, we get a little less satisfaction, our total utility (or total satisfaction) continues to increase as long as our marginal utility is postive

Elasticity Stacked Graph

lindsey_h12 — 2020-10-09 02:13:27 UTC

An example of the graph to show elastic vs unit elastic vs inelastic.

Excludable vs Non-Excludable & Rival vs Non-Rival

lindsey_h12 — 2020-10-09 02:22:49 UTC

spencerlyon78 — 2020-10-09 06:56:52 UTC

When you participate in trade you can produce outside the Production Possibility Curve.

In a Market Economy how do we produce?

spencerlyon78 — 2020-10-09 07:07:52 UTC

We produce efficiently or we get eaten by competition.

Law of Demand

spencerlyon78 — 2020-10-09 07:15:31 UTC

As the price of a good or service decreases, purchasers have an INCENTIVE to buy more of that good or service.

Law of Supply

spencerlyon78 — 2020-10-09 07:26:43 UTC

As the price of a good or service increases, suppliers have an INCENTIVE to provide more of that good.

Six Economic Functions of Government

spencerlyon78 — 2020-10-09 07:55:44 UTC

1. Maintain the legal and social framework

Define and enforce property rights
establish a monetary system

2. Maintain competition

Create and enforce anti-trust laws
regulate natural monopolies

3. Provide public goods and services

Public goods and services are those that markets will not provide in sufficient quantities.

4. Correct for externalities

Reduce negative externalities
Encourage increased production of goods and
services that have positive externalities

5. Stabilize the economy

Reduce unemployment and inflation, and promote economic growth

6. Redistribute income

Redistribute income from people who have higher incomes to those with lower incomes

Comparative Advantage Math Practice Video

lindsey_h12 — 2020-10-09 13:22:24 UTC

avesmf — 2020-10-09 17:33:38 UTC

Comparative advantage is the foundation of trade. When there is comparative advantage, there will be more product specialization, which will lead to measurable benefits of trade. Refer back to the Guide to Economic Reasoning, People gain when they trade voluntarily.

Four Market Behaviors:

leozapata101 — 2020-10-09 18:02:52 UTC

1) Supply can decrease
2) Supply can increase
3) Demand can decrease
4) Demand can increase

Government Failure

leozapata101 — 2020-10-09 18:16:17 UTC

Government failure is commonly defined as a situation where government intervention in the economy creates inefficiency and leads to a misallocation of scarce resources.

Shifting Curves & Changing Equilibrium

avesmf — 2020-10-09 18:22:43 UTC

Demand Determinants (RINTE):
- Related Goods
- Income
- Number of Buyers
- Tastes & Preferences
- Expectations
Supply Determinants (GRANET):
- Government
- Resources
- Alternatives
- Number of Sellers
- Expectations

Market Failure

avesmf — 2020-10-09 18:57:04 UTC

Market failure is an economic situation where the distribution of goods and services in the free market is inefficient. The individuals in the group could make the right decisions for themselves but end up being wrong as a group.

Relevance of Elasticity

avesmf — 2020-10-09 19:04:36 UTC

Understanding elasticity in general or even on a graph is very practical and it provides greater insight. Elasticity helps business firms determine how to price their products.

Six Key Ideas that help define the Economic Way of Thinking

avesmf — 2020-10-09 19:23:48 UTC

1. Trade-Offs
2. Rational Choices
3. Benefits
4. Opportunity Cost
5. Margins
6. Incentives