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isplayed graphically by the sloped lines. We will use graphs more frequently in this book than algebra, but now you know the math behind the graphs. Growth Rates Growth rates are frequently encountered in real world economics. A growth rate is simply the percentage change in some quantity. It could be your income. It c... |
raph (sometimes called a pie chart) is used to show how an overall total is divided into parts. A circle represents a group as a whole. The slices of this circular “pie” show the relative sizes of subgroups. Figure A6 shows how the U.S. population was divided among children, working age adults, and the elderly in 1970,... |
appear bigger than others. If you are making a bar graph, you can make the vertical axis either taller or shorter, which will tend to make variations in the height of the bars appear more or less. Being able to read graphs is an essential skill, both in economics and in life. A graph is just one perspective or point of... |
by anyone else. They are only based on the assumptions that when people have less of one good they need more of another good to make up for it, if they are keeping the same level of utility, and that as people have more of a good, the marginal utility they receive from additional units of that good will diminish. Given... |
ew choice is B, the point of tangency between the new budget constraint and the lower indifference curve. Point C is the tangency between the dashed line, where the slope shows the new higher price of haircuts, and the original indifference curve. The substitution effect is the shift from A to C, which means getting fe... |
hed line being parallel to the new budget constraint). The income effect, encouraging Petunia to consume both more leisure and more income, is drawn with arrows on the horizontal and vertical axis of Figure B5. 516 Appendix B Putting these effects together, Petunia responds to the higher wage by moving from choice A to... |
insert point B so that it lies a little to right of the original point A, then the substitution effect will exceed the income effect. If you insert point B so that it lies a little to the left of point A, then the income effect will exceed 520 Appendix B the substitution effect. The income effect is the movement from ... |
out what they are worth in present discounted value terms. The calculations applying the present value formula are shown in Table C2. Stream of Payments (for the 8% interest rate) Present Value (for the 8% interest rate) Stream of Payments (for the 11% interest rate) Present Value (for the 11% interest rate) $240 payme... |
d weather increases the need for heating oil. This causes a rightward shift in the demand for heating oil and thus oil. Since the demand curve is shifting up the supply curve, the equilibrium price and quantity both rise. c. A discovery of new oil will make oil more abundant. This can be shown as a rightward shift in t... |
ange in price = $9 – $8 ($9 + $8) ÷ 2 × 100 × 100 = 1 8.5 = 11.76 Elasticity of Supply = 33.33% 11.76% = 2.83 The supply curve is elastic in this area; that is, its elasticity value is greater than one. From point L to point M, the price rises from $10 to $11, while the Qs rises from 80 to 88: % change in quantity = 88... |
toward less capital and more labor. 8. This is the situation that existed in the United States in the 1970s. Since there is only demand enough for 2.5 firms to reach the bottom of the average cost curve, you would expect one firm will not be around in the long run, and at least one firm will be struggling. Chapter 8 1.... |
ger was allowed. 4. The common expectation is that the definition of markets will become broader because of greater competition from faraway places. However, this broadening doesn’t necessarily mean that antitrust authorities can relax. There is also a fear that companies with a local or national monopoly may use the n... |
omething for resale, presumably both the buyer and the seller benefit—otherwise, they would not need to make the transaction. However, the company also reduces the amount of garbage produced, which saves money for households and/or for the city that disposes of garbage. So the social benefits are larger than the privat... |
orkers. The combination of these two programs will result in a lesser degree of inequality. The following figure illustrates these two labor markets. In the market for high-wage labor, a skills program will shift supply to the right, which will tend to drive down wages for high-skill workers. 10. A very strong push for... |
rman workers will reduce video camera production by 3/4 of a camera. Producing an additional television set in Poland requires six workers, and shifting those workers from the other good reduces output of video cameras by 6/ 12 of a camera, or 1/2. Thus, the opportunity cost of producing televisions is lower in Poland,... |
e rest of the world. 556 Answer Key 18. Competition from firms with better or cheaper products can reduce a business’s profits, and may drive it out of business. Workers would similarly lose income or even their jobs. 19. Consumers get better or less expensive products. Businesses with the better or cheaper products in... |
ssociation. Accessed March 12, 2015. http://www.bookweb.org/news/federal-judge-findsamex%E2%80%99s-anti-steering-rule-violates-antitrust-law. Massachusetts Historical Society. “The Coming of the American Revolution 1764-1776: The Boston Tea Party.” Retrieved from http://www.masshist.org/revolution/teaparty.php. Massach... |
an B. Kruger. “Trends in Relative Black–White Earnings Revisited (Working Paper #310).” 1992. Research. December the National Economic Bureau and of Princeton University http://harris.princeton.edu/pubs/pdfs/310.pdf. Donovan, Theresa. Jurist. “Federal Judge Rejects Class Status in Wal-Mart Discrimination Suit.” Last mo... |
Health Reform: Summary of the Affordable care Act.” Last modified April 25, 2013. http://kff.org/health-reform/fact-sheet/summary-of-new-health-reform-law/. Financial Markets National Venture Capital Association. “Recent Stats & Studies.” http://www.nvca.org/ This OpenStax book is available for free at http://cnx.org/c... |
ph, 502 Barriers to entry, 216 barriers to entry, 231 Behavioral economics, 147 behavioral economics, 150 behavioral economists, 385 bilateral monopoly, 337, 347 biodiversity, 288, 291 Bipartisan Campaign Reform Act (BCRA), 431 bond, 404, 423 bond yield, 409, 423 bondholder, 404, 423 bonds, 409, 523 break even point, 1... |
4 price, 31, 47, 52, 75, 248 price cap regulation, 266, 270 price ceiling, 68, 72, 75 price control, 72, 75 price controls, 68, 100, 434 Price elasticity, 108 price elasticity, 127 price elasticity of demand, 108, 127 price elasticity of supply, 108, 127 price floor, 68, 73, 76 price taker, 188, 209 price takers, 236 p... |
y, constructed a system to explain a set of forces that would guide social and economic behavior. In The Theory of Moral Sentiments [1759] he showed the need for justice and a system of morality. In An Inquiry into the Nature and Causes of the Wealth of Nations [1776] he describes the role of self-interest and markets.... |
l cannot do. Both are means to increase the production of goods and services. Specialization is the case where an individual (firm, organization or country) focuses on the production of a specific good (or group of goods). It can increase the amount of goods that can be produced. It also requires some form of social in... |
organs for transplantation. INHERITANCE AND THEFT Inheritance is the process transferring private property rights from a dead person to an agent. The form that the inheritance laws take may greatly influence the accumulation of wealth in a society. Theft is the process of transferring property rights by illegitimate f... |
e intuitive process. 2.8.3 REASON AND RATIONAL BEHAVIOR Orthodox, modern economic analysis is generally regarded as the study of alternative uses of resources to achieve objectives. At a technical level, economic analysis is used to evaluate rational decisions. Rational behavior that the agent has identified an objecti... |
s.” (Alfred Marshall) The term law is used to represent a widely accepted premise or theory about a particular causal relationship. It is more widely accepted than a theory. In economics some writers refer to a “law of demand.” (The belief that demand functions are inverse relationships between price and quantity that ... |
wo goals are not symmetrical: it is possible to explain an event or phenomenon without being able to predict the probability of its occurrence: at the same time, it is possible to predict an event without being able to explain its nature or causes. Mark Blaug identifies two problems that arise from the “Symmetry Thesis... |
to be based on proportional knowledge. Individuals can learn to do things without knowing why they work. Once you know why techniques (prescriptive knowledge) work, (propositional knowledge), it is easier to invent improvements to old techniques and develop of new ones. 3.6.1.3 AN EXAMPLE Knowledge about baking includ... |
greater scope for confusion about the methodological principles involved. More than other scientists, social scientists need to be conscious about their methodology.” (Friedman, p 40) 3.6.4 DEIRDRE MCCLOSKEY Of all the individuals whose views on methodology have been discussed, Friedman and McCloskey are the only writ... |
cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies, much less to render them necessary.(Smith WN, p 128) Participants in markets may also use formal institutions (law, regulations) to benefit themselves: 65 4 Individuals and Community The int... |
ospitals and doctors would receive financial payment. The insurance and health care providers (doctors, pharmaceutical, hospitals and insurance industries and firms) have a vested interest in maintaining the system that maintains their sources of revenue. 70 4.2 Institutions and Costs The vested interests have an incen... |
enting a principal, there may be a conflict or incompatibility among their objectives. This is referred to as the principal/agent problem. The agent has a conflict of interest. A stockbroker acts as an agent for an investor: a doctor may act as the agent for a patient. The lawyer acts as an agent for her client, the pr... |
rmined by) the quantity of goods and services they consume. Since utility can’t be measured and is a function of the quantity of goods, an increase in the quantity of goods consumed is assumed to increase utility or welfare: more goods are preferred to fewer goods. As a result, economic growth, producing more goods (as... |
Efficiency is a measure of the extent to which an objective has been achieved. If an objective is immoral or unethical, efficiency can still be used to evaluate the extent to which the objective is met. Consider the construction of ovens. If an oven is “too small”, there is inefficiency in the loss of energy because t... |
e or economic efficiency might be represented as: Allocative efficiency = value of output value of input = 90 P Q + QY .3.2 Production Possibilities Function Given the original PPF as line RA. An improvement in technology that impacts only the production of xebecs can be seen as a shift from RA to RB. An improvement in... |
ttee suicide before you tackle the rest of the day. Decisions in economics are always made at the “margin.” A decision to change one variable will cause a change in some other related variable. An act or choice will have benefits and costs associated with that act. An increase in the production of xebecs may require a ... |
urn out to belong to.” (Rawls, P 137) Individuals must be prepared to be placed in a society and no matter the circumstances, say “That’s fair.” 5.3.5 EFFICIENCY AND ETHICS (AGAIN!) If the objective is to maximize the welfare or utility of a group, an alternative with a benefit/cost ratio that exceeds 1 will increase t... |
ts, desertification, over hunting specific animals are examples of events that traditional societies may not be able to deal with. Native Americans in the plains developed societies that were dependent upon the bison. Their economies, social structure, politics and religions were based on bison. With the advent of Euro... |
icular, trade-unions, the problems of how to deal with those monopolies or quasi-monopolistic positions which would remain in a otherwise sensibly drawn-up framework, the problems of taxation, and th problems of international trade, particularly, in our time, of the relations between free and planned economies. As far ... |
ights tends to be static while pragmatism tends to justify property rights that evolve to meet the needs of changing circumstances (population, technology, environment, etc.). Hayek, a market oriented economist, seems to focus on a pragmatic approach to property rights: Where the law of property is concerned, it is not... |
BILITY In many cases, it is technically impossible to transfer property rights. The property rights to a person’s height or athletic skill cannot be transferred. I cannot become a professional basketball player by purchasing a player’s height or skill. I might hire some one to coach me but there is no way to transfer p... |
y of another person would increase the welfare of society. This improvement is called a Pareto improvement and the result is said to be Pareto superior to the initial alternative. Generally, a person would enter into a voluntary exchange if they can improve their welfare or increase their utility. It is assumed that an... |
ce the level of consumption. Where MU=MC maximum utility is attained. If there are two or more goods that have a price (or cost), the process of utility maximization requires that each additional expenditure be made on the good that has the highest marginal utility. To maximize utility with several goods that have econ... |
tarianism. The classical school of economics tended to advocate markets as the primary allocative mechanism. They followed the concept of natural liberty and are associated with the concept of “classical liberalism.” 7.1.2.6.2 (2) MARXIST Karl Marx [1818-1893] was a critic of the capitalist system and of most of the cl... |
set of markets in a market system). In principles of economics, most models deal with partial equilibrium. In a partial equilibrium model, usually the process of a single market is considered. The behavior of potential buyers is represented by a market demand function. Supply represents the behavioral pattern of the pr... |
ift of the demand for good X to the right (In Panel A, this is shown as a shift from D X to DX*, an increase in the demand for good X). At PX a larger amount (X3) is purchased A decrease in PY will increase the quantity demanded for good Y. This will reduce the demand for good X, the demand for good X will shift to the... |
paribus as a means to isolate and analyze each market separately. Marshall understood that all markets were interconnected but chose to analyze each market individually. The concept of partial equilibrium is used in introductory economics courses and for some analysis. 8.3.1 MARKET ADJUSTMENT TO CHANGE Market systems ... |
orm. The information contained in Figure IV.A.1 is shown in Table IV.1 Marginal utility (MU) is the change in TU that is “caused” by a change in the quantity consumed in the particular period of time. MU was defined: MU = Δ TU ΔQ TABLE IV.1 TOTAL & MARGINAL In Table IV.1 marginal utility is calculated by subtraction. T... |
uy two units of good X (2X) and three unit of good Y (3Y), they obtain 54 units of satisfaction (TUX for 2X is 18 and TUY of 3Y is 36). If they bought 1X and 4Y 177 their TU would be 50. If they bought 3X and 2Y their TU is 52. Clearly they cannot increase their utility by altering their purchases. 9.1.1 Utility Given ... |
P = Q 1 - Q 2 Q1 P1 - P1 = ΔQ ΔP x P1 Q 1 Q1 = 6 units, P1 = $ 4 Q 2 = 8 units, P 2 = $ 2 ΔQ = +2, ΔP = −2 E P = ΔQ ΔP ∗ P 1 Q1 = +2 −2 4 ∗ 6 = −1 ∗ 4 6 = −.67 Calculating the EP for a price change from $4 to $2 in Figure IV.A.10 , a move from point B to point C: Note that the EP is the same whether the price is increa... |
A.12 the original demand function is represented as D. D1 represents a decrease in demand (at each price a smaller quantity is purchased. When a larger quantity is purchased at each price, this will represent an increase of demand to D2. 194 $ e c i r P 10 9 8 7 6 5 4 3 2 1 Given the original demand function (D), consu... |
ion is another strategy to influence production and associated costs. A firm or plant may produce several products. Alfred Marshall (one of the early Neoclassical economists in the last decade of the 19th century) considered the problem of “joint costs. “ A firm that produces two outputs (beef and hides) will find it n... |
e. A person who opens their own business and decides not to pay himself or herself any wages must realize that there is a “cost” associated with their labor, they sacrifice a wage that they could have earned in some other use. A worker earns a wage based on their opportunity cost. An employer must pay a worker a wage t... |
reases to LA the TP in the upper panel increases at an increasing rate to point A. In this range the marginal product (in the middle panel) will rise. When more than LA amount of the labour input is used, the MP will decrease for each additional unit. The inflection point at A in the upper panel is consistent with the ... |
specialization and/or division of labor. Plant D, represented by ACD, represents the plant with the lowest cost per unit. As the plant size increases above D, the short-run average cost begins to rise. This region is often referred to as “diseconomies of scale.” Lack of information to make wise production choices is u... |
Allocative or economic efficiency is required to answer that question Figure I.A.6 Q X Allocative or economic efficiency includes the values or relative prices of outputs and inputs. The benefit or value of a choice is represented by the product of the price and quantity of each good or output (value of output = PxQx ... |
n to gather wild blackberries (good X). The cost of travel to the blackberry patch is treated here as a sunk (fixed) cost, we are already at the patch. How many berries shall we pick? The answer depends on our analysis of the benefits and costs of each unit of berries we pick. Generally, the marginal benefits of berrie... |
firm’s product. The demand faced by a single firm is perfectly elastic at the market 242 12.2 The Firm in Pure Competition price. This is represented as a horizontal line at the price of P EM in Panel B. Remember that demand and AR coincide. Marginal revenue decreases at twice the rate (has twice the slope of the AR) a... |
es of short run periods with different plant sizes. In the long run the firm is essentially able to select the scale of plant (or a specific set short run production and cost functions associated with a specific fixed (in the short run) input). The is essentially the meaning of “relative ease of exit and entry from the... |
to entry. Monopolies rarely occur in a pure form. There are almost always substitutes or methods of possible entry into a market. When the term “monopoly” is used it is usually referring to a degree of monopoly or market power. In many cases the existence of a monopoly results in regulation or the enforcement of antitr... |
gallon in its store (plant) at the corner of High Street and Broadway, has helped the market to perform. Persuasive advertising is an attempt to alter preference functions. Driving a new SUV makes one a member of the right social group. Smoking a (given brand) makes one sexier or more macho, independent or whatever. I... |
chmark for market performance. As market power is 266 13.2.2 Performance increased the price tends to rise above the MC suggesting less than an optimal allocation. When price is greater than MC, it should be considered as evidence that something may be amiss. It does not mean that it must be corrected. Just as a body t... |
market for an input includes all potential buyers and sellers of an input. The demand reflects the decisions of the buyers of the inputs and is based on the MRP for the factor. $ W H W R W L The supply function represents the decisions of w H the factor owners to supply the input at various prices. Figure IX.3 represen... |
be enforced in formal or informal ways. Both Adam Smith and Karl Marx believed that one of the primary functions of government 282 15.3 Enforceability was to enforce property rights. Explicit laws enforced by the state are often used to define and determine the nature of property rights. Property rights can also be en... |
Keen Sam and Anne Valley-Fox. Your Mythic Journey, Jeremy P. Tarcher, Inc.: LA 1989. Kuhn, Thomas. The Structure of Scientific Revolutions, 2cd Edition, University of Chicago Press: Chicago, 1970. Lakatos, Imre and Alan Musgrave. Criticism and The Growth of University Press: Cambridge, 1970. Knowledge , Cambridge Laka... |
..........................................................................24, 32 Copernican.................................................................................................................49 Copyright........................................................................................................... |
...........................................................................289 Hayek..............................................................................39, 114-116, 121, 122, 127, 146 Hébert...............................................................................................................145, 289 ... |
..................................................................................117 Neoclassical....14, 83, 106, 113, 116, 136, 139, 145, 148, 160, 161, 163, 168, 202, 226, 239, 281 Neumann..................................................................................................................264 Newton........ |
.................................148, 292 Sweezy......................................................................................................................264 Tallis.........................................................................................................................292 Technical Efficienc... |
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