Advanced Economics Week #2

Advanced Economics Week #2

Spring 2012

Advanced Economics 3/26/12http://mrmilewski.com

• OBJECTIVE: Examine the fundamental economic concepts from Chapters#7,13,&14.

• I. Journal#5 pt.A-Watch the following:-'The Hunger Games' Phenomenon: Examining

Film's Buzz, 'Insane' Marketing• II. Journal#5 pt.B

-notes on microeconomics (Chapters#7,13&14)• Notice: 55 Days until the Senior’s Last Day!

Surplus & Shortage• Surplus – a situation in which the quantity

supplied is greater than the quantity demanded at a given price.

• Shortage – a situation in which the quantity demanded is greater than the quantity supplied at a given price.

Four types of Market Structures1.) Perfect Competition2.) Monopolistic Competition3.) Oligopoly4.) Pure Monopoly

Perfect Competition1.) # of Firms

-Many2.) Influence over prices

-None3.) Product Differentiation

-None4.) Advertising

-None5.) Entry into market

-EasyExample: Trucking, Lawn

service

http://robertstrucking.com/trucking_files/trhgway.jpg

Monopolistic Competition1.) # of Firms

-Many2.) Influence over prices

-Limited3.) Product Differentiation

-Fair amount4.) Advertising

-Fair amount5.) Entry into market

-EasyExample: Gas Stations (Pop)

http://www.lowcarbluxury.com/extrabooks/faygo-diet.jpg

Oligopoly1.) # of Firms

-few2.) Influence over prices

-some3.) Product Differentiation

-Fair amount4.) Advertising

-some5.) Entry into market

-DifficultExample: Auto companies, fast-

food, domestic airlineshttp://www.20minutestolessstress.com/supersize%20fast%20food.jpg

Pure Monopoly1.) # of Firms

-One2.) Influence over prices

-Extensive3.) Product Differentiation

-None4.) Advertising

-None5.) Entry into market

-Almost impossibleExample: Water

http://www.systemsandsoftware.net/uploadImages/logo_detroit.gif

Laissez-faire• “allow them to do”• In Adam Smith’s day the average factory was

small, and business was competitive.• Smith’s, role for government is confined to:

-protection of private property-enforcing contracts-settling disputes-protecting business from foreign competition

What is market failure?• Market failure – occurs when the following four factors

are present:1.) inadequate competition – not enough suppliers2.) inadequate information – knowledge of supply and/or demand is unknown by either producers or consumers3.) resource immobility – land, labor, capital, and entrepreneurship do not move when market returns are the greatest4.) externalities – an unintended side effect that either benefits or harms someone who was not involved in the activity that caused it.

The Business Cycle• Business cycle - the rise and fall of GDP over

time.• GDP – Gross Domestic Product• GDP= C+I+G+(X-M)• C – consumer• I – business• G – government• X – exports• M - imports

GNP v. GDP• GDP- the dollar value of all final goods

and services produced within a country’s national borders in a year.

• GNP- the dollar value of all final goods, services, and structures produced with labor and property supplied by a countries residents.

Phases of the Business Cycle

• Ch#14 sec#1 p.376

Advanced Economics 3/27/12http://mrmilewski.com

• OBJECTIVE: Examine the fundamental economic concepts from Chapters#.

• I. Journal#6 pt.A-Watch the following:-Supreme Court Considers Health Reform Day 1

Recap: Jurisdiction, Tax Questions• II. Journal#6 pt.B

-notes on microeconomics (Chapters#)• Notice: 54 Days until the Senior’s Last Day!

Monetary Policy• Monetary policy – the expansion or contraction of the

money supply in order to influence the cost and the availability of credit.

• In English, when the Fed raises interest rates the amount of money in the economy gets smaller.

• When the Fed lowers interest rates, the amount of money in the economy gets bigger.

• Higher interest rates encourage people to save money.• Lower interest rates encourage people to spend and

borrow money.

Easy Money Policy

• If the Fed wants the money supply to grow they can do the following:

• 1.) Lower the interest rate• 2.) Lower the reserve requirement• 3.) Buy securities (buy bonds)• This is known as easy money policy.

Tight money policy

• If the Fed wants the money supply to contract, or slow they can do the following:

• 1.) Increase the interest rate• 2.) Increase the reserve requirement• 3.) Sell securities (sell bonds)• This is known as tight money policy.

Advanced Economics 3/28/12http://mrmilewski.com

• OBJECTIVE: Examine the fundamental economic concepts from Chapters#.

• I. Journal#7 pt.A-Watch the following:-Frontline: The Warning-Take notes while watching the film

• Notice: 53 Days until the Senior’s Last Day!

Advanced Economics 3/29/12http://mrmilewski.com

• OBJECTIVE: Examine the fundamental economic concepts from Chapters#.

• I. Journal#8 pt.A-Watch the following:-High-Tech Illinois Company Looks to Bridge Workers

' 'Skills Gap'• II. Journal#8 pt.B

-notes on microeconomics (Chapters#)• Notice: 52 Days until the Senior’s Last Day!• Notice: Fundamental Economic Test Tomorrow!

What is international trade?

• When goods and services are bought and sold between nations.

• Import – something made in another nation and sold here.

• Export – something made here and sold in another nation.

Why do nations trade?• Not all nations can produce what they need at

home.• For example, Japan is an industrial nation, yet they

have no domestic sources of oil. They import it.• The United States uses more energy than we

produce, so we have to import oil. We produce more food than we can consume. We export crops like wheat and corn, but we also import food like bananas and coffee because the climate in the United States isn’t right for those products.

Why trade?• Specialization – assignment of tasks so that each

worker performs fewer tasks more frequently• i.e. – Detroit specializes in cars, Florida in

oranges, Texas in cattle• Exports – what a nation specializes in.• Individuals engage in trade because they believe

what they gain is equivalent in value to what they give up.

Advantage

• Absolute advantage – when one country can produce more of a product than another country

• Comparative advantage – the ability of a nation to produce a product at a relatively lower opportunity cost than another nation.

• Opportunity cost – cost of the next best alternative use of money, time, or resources when one choice is made over another

Alpha & Beta• Country A• PPF –

40 lbs of coffee8 lbs of cashew nuts

• Opportunity cost 5 coffee for 1 cashew

• Country B• PPF-

6 lbs coffee6 lbs cashew nuts

• Opportunity cost1 coffee for 1 cashew

Before & After Trade• Before Trade• Alpha produced

20 lbs coffee4 lbs cashews

• Beta produced5 lbs coffee1 lbs cashews

• Totals25 lbs coffee5 lbs cashews

• After Trade• Alpha specializes in coffee

40 lbs coffee0 lbs cashews

• Beta specializes in cashews0 lbs coffee6 lbs cashews

• Totals40 lbs coffee6 lbs cashews

The Gains of TradeCh#17 sec#1 p. 469

Figure 17.2a Figure 17.2b

NAFTA• North American Free Trade Agreement – reduced

tariffs between the U.S., Canada, and Mexico

Advanced Economics 3/30/12http://mrmilewski.com

• OBJECTIVE: Demonstrate mastery of Fundamental Economic Concepts.

• I. Administrative Stuff-attendance & test procedures

• II. Test on Fundamental Econ Concepts-Test on Chapters1,2,3,4,4,6,7,10,12,14,&17

• III. Various Films on Economic Concepts• Notice: 51 Days until the Senior’s Last Day!