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ECONOMICS - “Science of scarcity”. - the study of the choices people make in an effort to satisfy their unlimited needs and wants from limited resources. The science of “scarcity”. Is There A Social Cost. To Extended Unemployment?. Is There A Social Cost To Extended Unemployment?

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Economics science of scarcity
ECONOMICS - “Science of scarcity”

-the study of thechoicespeople make in an effort to satisfy

their unlimited needs and wantsfromlimited resources.

The science of “scarcity”


Is There A Social Cost

To Extended Unemployment?


Is There A Social Cost To

Extended Unemployment?

Here Is What Happens.

With pressure from

bill collectors (and his

wife),he holds up a

7-11 & shoots a clerk.

Then, after many

rejections, he

becomes a reluctant

discouraged worker.

At first the job seeker

optimisticallylooks

for his next job.


Then What?

And – the Texas

Justice System will

tell him to,

“Take that.”

And his kids will

cry because they

no longercan go

to private school.

Eventually he is

caught and

incarcerated.


And – how did President George W. Bush do in college economics?

Let’s take a look at his college transcript.


President Bush’s College Transcript economics?

Gov 73 /71

Econ 71/ 72

“So - If your son or daughter is having ahard

time in economics, don’t worry about it. They are

on schedule to be President of the United States.”

Kerry’s overall college ave. was 76.

Overall average 77


Law of Demand [Change in QD] economics?

iPod

Nano

D

Reasons For Downsloping “D” Curve

1. Income Effect –current buyers buy more.

2. Substitution Effect– new buyers now purchase.

3. Diminishing MarginalUtility - because buyers

of successive units receive less marginal utility,

they will buy more only when the price is lowered.

$250.00

Change in QD

1. Price change

2. Movement

[up/down the demand curve]

3. Point to point [along the curve]

Price

QD

Inverserelationship

QD1

QD2

“D”refers to the“whole curve”.[“all prices”]

“QD”refers to a“point on the curve”

based on a“particular price.”


“Demand Shifters” [TIMER] economics?

1. Taste [direct]

2. Income [normal-direct] [inferior-inverse]

3. Market Size [number of consumers-direct]

4. Expectations [of consumers about future *price-direct,

about future availability-inverse, or about future income–direct.

5. Related Good *Prices [substitutes-direct] [complements-inverse]

D

D1

D1

D2

D3

P1

D1

D3

D2

P

P

P2

P

Complement

[inverse]

QD1QD2

Substitute

[Direct]

Bread

Butter

Bagels

Changes in “D” [curve]

1. Non price change [“TIMER”]

2. Whole “D” curve shifts

[There is a change in “QD” but it is

not caused by a change in “price.”

[QD-”single price”; D-”all prices”]

QD3

QD2

QD1


C economics?

Change in AD

1. “Non price Level” change-either C, Ig, G, or Xn

2. “Whole AD curve” shifts

[There is a change in AQD but it is not caused by

a change in price level.]

Consumption

Mariah Carey Concert

Ig

AD1

AD2

AD3

G

PL

Let there be more

military weapons

XN

AQD1

RDO

AQD3

AQD2

Chevy Ferarri

[Exports-Imports]


Macro Law of Supply ["Law of AS"] economics?

Price Levelincreases; AQSincreases

Price Leveldecreases; AQSdecreases

Direct

“AS” refers to the “whole AS curve” & refers to “all price levels”

“AQS” refers to a “point on the AS curve” & refers to a “particular price level”

Change in “AQS”

1. Price Level change

2. Movement (up/down) “AS” curve)

3. Point to point (along “AS” curve)

AS

PL2

PL1

AQS1

AQS2

Reasons For Upsloping “AS” Curve

1. There is increasing opportunity cost if firms don’t produce.

2. Current producers produce more [overtime/more shifts]

3. New producers are attracted to the market.


Tax $ economics?

Ben Stein’s part in this

movie as a boring econ

prof was voted one of the

50 most famous scenes

in American film.

100%

0%

Tax Rate

Ben Stein [from “Ferris Bueler’s Day Off”] graduated from

Columbia University in 1966 with a degree in economics

and from Yale Law School in 1970 as valedictorian. He was

a speech writer for Nixon. He has written 16 books, including

his latest humor book, “How To Ruin Your Life”.


A d a p t i ve e x p e c t a t i o n s v i e w s r p c lrpc
A economics? daptive expectations view - SRPC& LRPC

There is aSRPC[output prices are changing]and a LRPC

[output & input prices chg after unanticipatedinflation or disinflation]

LRPC- when unemployment = the natural rate and there is

no tendency for PL to be incr/decr. PL is stable & contracts reflect it.

LRPC

My salary just isn’t keeping up.

Let’s say thatinflation

has averaged3% forthree

years. 3% is anticipated.

15%

12%

9%

6%

3%

SRPC3

Wow, my raise exceeds inflation.

b3

But my raise

was only 6%.

But when it comes time to sign

a new contract, his boss says …

SRPC2

a3

It can’t get any better.

My raises exceed inflation.

b2

SRPC1

c3

a2

Let’s say thatinflation

has averaged 9% for

the past few years.

9% is anticipated.

But my salary went up by only 3%.

b1

a1

c2

Inflat.

Gap

Recess.

Gap

C1

0 2%4%6%8% 10%


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