1 2 3 4 5 67 8 9 10 11 12

13 14 15 16 17 1819 20 21 22 23 2425 26 27 28 29 30

Explain a diagramExplain a diagram

Exchange ratesExchange rates

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MSC

MPC

MSB

P

Q

P*

Q*

Welfare loss

Negative externality of production

ExternalitiesExternalities

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MSC

MPC

MSB

P

Q

P*

Q*

Welfare gain

Positive externality of production

ExternalitiesExternalities

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Natural monopolyNatural monopoly

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Pric

e/co

st

Output

MC

MR

D=AR

ACP

c

a

b

q

MonopolyMonopoly

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Pric

e/co

st

Output

MC

MR

D=AR

ACPC

q

ProfitProfit

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D

Sdomestic

Sworld

Pe

Pw

Q1 Qe Q20

Sworld + tariff

Q3 Q4

Pw+t

TariffsTariffs

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D

Sdomestic

Sworld

Pe

Pw

Q1 Qe Q20 Q3

Sdomestic+subsidy

Pw+S

SubsidiesSubsidies

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D

Sdomestic

Sworld

Pe

Pw

Q1 Qe Q20 Q3

Sdomestic+Quota

Pquota

Q4

QuotaQuota

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Circular flowCircular flow

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Pric

e (P

)

Quantity (Q)

S

S1

SupplySupply

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S

D

Pric

e ($

)

Quantity

P

Q

D1

Q1

P1

DemandDemand

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SRAS

AD

Aver

age

pric

e le

vel

Real Output (Y)

P

Q

AD1

Q1

P1

Demand pull Demand pull

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SRAS

AD

Aver

age

pric

e le

vel

Real Output (Y)

P

QQ1

P1

Cost pushCost push

SRAS1

Pric

e (P

)

Quantity (Q)

D

p

q

D1

q1

Demand and substitutes

Demand and substitutes

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Pric

e (P

)

Quantity (Q)

D1D

p

q q1

Demand and complements

Demand and complements

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Scho

ols

Y

CarsX

PPPPPP

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Average price level

Real output (Y)

LRAS

AD

P

Yf

AD1

P1

New classicalNew classical

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Aver

age

pric

e le

vel

Real output (Y)

LRAS

AD

P

YfY

Deflation gap(output gap)

Deflation gapDeflation gap

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Aver

age

pric

e le

vel

Real output (Y)

LRAS

AD

P

Y1Y

Inflation - KeynesInflation - Keynes

AD1

P1

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Keynes vs HayekKeynes vs Hayek

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D

Pric

e

Quantity5 10 15

10

5

a

b c

PEDPED

Price from 10 to 7 – 30%

Quantity from 8 to 10 – 25%

PED?

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ElasticityElasticity

Home

Pric

e (P

)

Quantity (Q)

SS1

q q1

p

SupplySupply

Better technologyBetter technology

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S

D

Pric

es ($

)

Output (Q)

P

Q

SurplusSurplus

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Real

GD

P

Time

Actual output

Business cycleBusiness cycle

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Cum

ulati

ve p

erce

ntag

e of

tota

l inc

ome

Cumulative percentage of total population

Country A

Country B

Lorenz Lorenz

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5

4

3

2

1

01 2 3 4 5

Country A

Country B

Baco

n (k

g)

Beer (litres)

Comparative advantage

Comparative advantage

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Low incomeLow income

Low economic growth

Low economic growth

Low level of savings

Low level of savings

Low level of investmentLow level of investment

Low level of human capital

Low level of human capital

Low education and health levelLow education

and health level

Low productivity

Low productivity

Poverty trap Poverty trap

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Qua

ntity

of p

otat

oes

dem

ande

d

Income

EngelsEngels

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