PPFPPFDEMAND AND SUPPLYDEMAND AND SUPPLY

April 14, 2011

QUIZ #2QUIZ #2

1. The next best alternative foregone.

2. A group of buyers and sellers.3. What causes demand pull

inflation in the long run?

BONUS: Who is the father of modern economics? (Clue: AS)

QUIZ #2QUIZ #2

PRODUCTMARKET

FACTORMARKET

HOUSEHOLDS

FIRMS

ANSWERANSWER

PRODUCTMARKET

FACTORMARKET

HOUSEHOLDS

FIRMS

RECAPRECAP

Opportunity Cost Rationality

Principle Marginal

Changes Incentive Positive Eco

Descriptive Eco Economic Theory

Normative Eco

Role of Assumptions

Ceteris Paribus

Circular Flow Diagram

PRODUCTION POSSIBILITIES PRODUCTION POSSIBILITIES FRONTIERFRONTIER MARGARITA RECIPE

1.5 oz tequila 0.5 oz triple sec Dash of lemon or lime zest 3 oz sour mix Lime wedge for garnish Salt or sugar to rim glass (optional)

http://cocktails.about.com/od/atozcocktailrecipes/r/marg_cktl.htm

PRODUCTION POSSIBILITIES PRODUCTION POSSIBILITIES FRONTIERFRONTIER

TEQUILA SUNRISE 1.5 oz tequila 6 oz. orange juice 0.5 oz grenadine Orange for garnish

http://www.drinkoftheweek.com/drink-recipes/tequila-sunrise/#axzz1JPpRR5sf

PRODUCTION POSSIBILITIES PRODUCTION POSSIBILITIES FRONTIERFRONTIER REQUIREMENTS 3 oz tequila 0.5 oz triple sec 3 oz sour mix 6 oz orange

juice 0.5 grenadine

AVAILABLE 10 oz tequila 2 oz triple sec 7 oz sour mix 14 oz orange

juice 4 oz grenadine

PRODUCTION POSSIBILITIES PRODUCTION POSSIBILITIES FRONTIERFRONTIER

Option 1: 2 margaritas Option 2: 2 tequila sunrises Option 3: 1 margarita, 2 tequila

sunrise

Unavailable options: 2 margaritas, 1 tequila sunrise 2 margaritas, 1 tequila sunrises

PRODUCTION POSSIBILITIES PRODUCTION POSSIBILITIES FRONTIERFRONTIER

Shows the combination of output that the economy can possibly produce given the available factors of production and the available production technology.

PRODUCTION POSSIBILITIES PRODUCTION POSSIBILITIES FRONTIERFRONTIER

PRODUCTION POSSIBILITIES PRODUCTION POSSIBILITIES FRONTIERFRONTIER

Resources are limited – choose the best combination of output that is possible

Along the curve Shows the different

combinations of A and B that you produce given your resource

Extremes – how much of A you can make if you’re not producing B and vv

PRODUCTION POSSIBILITIES PRODUCTION POSSIBILITIES FRONTIERFRONTIER

Inside the curve Combinations of output that are

possible BUT does not maximize inputs

INEFFICIENT Outside the curve

Combinations of output that are impossible to produce given the available inputs

PRODUCTION POSSIBILITIES PRODUCTION POSSIBILITIES FRONTIERFRONTIER

Trade off between 2 goods No way to produce one good

without reducing the production of the other good

Opportunity Cost of one good as measured in terms of another good

PRODUCTION POSSIBILITIES PRODUCTION POSSIBILITIES FRONTIERFRONTIER

A – possible but inefficient

X – impossible B, D, C –

possible and efficient

PRODUCTION POSSIBILITIES PRODUCTION POSSIBILITIES FRONTIERFRONTIER

Point A B Give up 200 guns to make 100 bread At point A, opportunity cost of 100

bread is 200 guns (1 bread = 2 guns) SLOPE opportunity cost

Slope is not constant Opportunity cost of bread highest at E,

when economy is producing more bread, less guns

Slope is steep but lowers as it flattens

PRODUCTION POSSIBILITIES PRODUCTION POSSIBILITIES FRONTIERFRONTIER

The PPF shows the trade-off between two goods at a given time but may change over time Example: Technological advance in

gun industry produce more For any given amount of bread, more

guns can be produced If the economy does not produce

guns, it can still produce 1000 bread (stays put in graph)

PRODUCTION POSSIBILITIES PRODUCTION POSSIBILITIES FRONTIERFRONTIER

Scarcity Efficiency Trade-offs Opportunity Cost Economic Growth

TAYO NA SA TALIPAPATAYO NA SA TALIPAPA

Find a partner. Sit beside him/her. Each pair will be assigned a role:

buyer or seller.

SELLERS Fixed amount of goods to sell Some more than others

TAYO NA SA TALIPAPATAYO NA SA TALIPAPA

BUYERS Fixed amount of money to spend

Each good has a corresponding price and an equivalent number of points

GOAL: Get the highest number of points

PRIZE: +2 for the quiz today

TAYO NA SA TALIPAPATAYO NA SA TALIPAPA

MECHANICS: There will be 4 rounds, 3-4 minutes

each. During each round, go around the

classroom and trade with each other. Prices are not fixed; you may haggle

with the sellers At the end of each round, we’ll

calculate the scores

TAYO NA SA TALIPAPATAYO NA SA TALIPAPA

MONEY: Green – P5 Yellow – P10 Blue – P50

1 winner for buyers 1 winner for sellers

TAYO NA SA TALIPAPATAYO NA SA TALIPAPA

GOODS PRICE* POINTS

Rice P5 5

Water P10 20

Pork P15 10

Beef P30 10

Clothes P100 15

Ipad P200 30

Car P500 50

Rent (Condo)

P1000 100

*Prices are negotiable. You may haggle with the sellers.

ROUND 2ROUND 2

NEWS: Foot-and-mouth disease in pigs

Point equivalent of pork falls to 5 points

Price of beef increases to P50Lotto winner: pair #16

Gets an additional P500

TAYO NA SA TALIPAPA – TAYO NA SA TALIPAPA – Round 2Round 2

GOODS PRICE* POINTS

Rice P5 5

Water P10 20

Pork P15 5

Beef P50 10

Clothes P100 15

Ipad P200 30

Car P500 50

Rent (Condo)

P1000 100

*Prices are negotiable. You may haggle with the sellers.

ROUND 3ROUND 3

Each seller gets additional goods.

Foot-and-mouth disease over Point equivalent of pork back to 10

Price of beef back to P30

TAYO NA SA TALIPAPA – TAYO NA SA TALIPAPA – Round 3Round 3

GOODS PRICE* POINTS

Rice P5 5

Water P10 20

Pork P15 10

Beef P30 10

Clothes P100 15

Ipad P200 30

Car P500 50

Rent (Condo)

P1000 100

*Prices are negotiable. You may haggle with the sellers.

ROUND 4ROUND 4

Each buyer gets additional money

Last chance to increase your score!