Unit 1 Notes
Correlation
January 23rd
Positive Correlations
Variable A increases, while Variable B increases
Negative Correlations
Variable A decreases, while variable B decreases
Talk of the Morning
The top 8 richest people
1. Own the same amount of wealth as the lowest 50% of the population's wealth
The top 1%
1. 36.6% are aged 45-54
2. 79.9% are men
a. The top 1% are mostly men because when men and women are at the same
level economically companies will higher the man because he cannot get
pregnant
i.
Therefore men have longer time to move up in their company because
they do not take 18 months off of work
b. Men are also at top paying jobs such as boards, this is because when there is a
board person needed the application cater to men
i.
This is because board members of companies want CEO, more than half
of CEO of companies are men (around 95%)
ii.
Only 4% of Fortune 500 companies are minorities
3. 2nd most Major in Economics are in the top 1%
Statements
January 24th
Talk of the Morning
SAT Scores
People with the highest test scores are from wealthier families
1. Increase in critical reading test scores, increase in family income from 20,000 to 200,000
2. Increase in math scores, increase in family income
3. Increase in writing scores, increase in family income
Why?
1. Families that have higher income send their kids to private schools
a. Private schools are generally better for learning and getting kids ready for the
SAT’s
2. Families with higher income have connections to people, kids are easier to get help from
high up people who can help and have done the SAT’s
3. Kids from families who have parents with higher income are generally more driven to be
just as successful as their parents
Positive Statements
A statement that can be backed up by facts and or knowledge and statistics.
Normative Statements
A statement that is based off of opinion, differentiates from person to person.
Economic Book Chapter One
Notes
● The Economic Problem
○ Focus on logic that underpins human behaviour
○ People normally engage in Rational Behaviour
■ Making choices by logic of weighing the benefits and costs of available
action, then selecting the most attractive
■ This though doesn’t mean the decisions are right or ethical
○ Wants
■ Vary from person to person but can be analyzed, wants have a direct
correlation to choices
■ These many choices, the sum of the total wants is virtually unlimited this
is the economic problem
● Having unlimited wants but limited resources with which to satisfy
them
○ The limited resources or scarcity makes choices have to be made based off of
non economic factors like need for security and economic factors
○ Time and money are most scarce
■
■
●
●
Basic items used in all types of production
Economic Resources
● Basic items used in all types of production including natural,
capital, and human resources
○ Natural Resources
■ Resources needed from the land or nature
■ Also farmers, roads, buildings
■ Natural, used in production, land, raw materials
○ Capital Resources
■ Equipment and buildings used in production
■ The real assets of an economy
○ Human Resources
■ Labour
● Human effort employed directly in production
■ Entrepreneurship
● Initiative risk-taking and innovation necessary for production
● Brings together everything to produce a good or service
○ Resource Incomes
■ Economic resources have corresponding incomes which reflect their
contributions to production
■ Natural resource is employed owner receives payment for supplying the
resource
■ So do providers of capital (bonds, financial support/providers) receive
income in interest
■ Human resources paid wages for their labour and profit for their
entrepreneurship
Economics Defined
○ Economics
■ The study of how to distribute scarce resources among alternative ends
○ MicroEconomics
■ The branch of economics that focuses on the behaviour of individual
participants in various markets (specifics)
■ How people decide on quantities of product, or business to produce, or
how prices are set, what determines income to different people in
economy?
○ MacroEconomics
■ Wide ranging view of the economy, study the behaviour of the economic
sectors (global economy)
■ Households, businesses, government, and foreign markets
● How sectors interact with unemployment rate, general level of
prices, total economic output
Economic Models
○ Generalization about or simplification of economic reality; also known as laws,
principles, or theories
■
○
○
○
○
Keeping track of sales and purchases made each day through
abstractions of a economic model allows economists to see the forest
instead of the trees
Cause and Effect
■ Explain economic trends and behaviours
■ Economic models based off of variables
● Independent Variable
○ The variable in a casual relationship that causes change in
another variable
● Dependant Variable
○
The variable in a casual relationship that is affected by
another variable
Inverse and Direct Relationships
■ What effect one variable will have on another
■ Inverse Relationships
● Change in the independent variable opposite direction of the
dependant variable
■ Direct Relationship
● The independent variable causes the same change in the
dependent variable
The need for Assumptions
■ To focus on two variables, assumptions must be made to temporarily
simplify the real world
■ Other factors are ignored or assumed to be non existent
● Ceteris Paribus
○ The assumption that all other things remain the same
Positive and Normative Economics
■ When using models, we must distinguish two types of economic enquiry
● Positive Economics
○ The study of economic facts and why the economy
operates as it does
○ Accepted or rejected facts through scientific method
● Normative Economics
○ The study of how the economy ought to operate
○ Policy economics
Economic Resources
January 25th
Talk of the Morning
Race in the Big Schools of America
1. Decrease in white percent of people in schools since 1980 to 2010
2. Black percent average much lower than national average
3. Increase in Hispanic percent of people in schools since 1980 to 2010
4. Increase in Asian percent of people in schools since 1980 to 2010 but hugely higher
than the national average
Equal Opportunity or Equal Outcome
Should everybody get what they need to be able to achieve a certain state, or do we give
everybody the same opportunity to be able to get somewhere?
Canada Supreme Court chose Equal Outcome.
When there is an economic disaster the government will take resources from specialized
schools like Bill Crothers, to put into making people be able to get to the same place.
Economics and Economic Resources
Economics is creating ways to distribute people's wants (resources) which are scarce and
limited.
Land Resources
- Lumber, Coal, Oil, Gold, Food
- Russia has the most fresh water
- Canada has the most potash
- Brazil grows the most amount of food
- These countries win in terms of natural resources
Labour Resources
- China
- India
- South East Asia
- Nothing in Canada is made in Canada, as minimum wage increases it is must
cheaper to produce goods in places like the up above countries
Capital Resources
- Buildings and Equipment
- Stuff that makes stuff is capital
- Machines that make products
- United States (everything)
- Germany (cars, utilities)
- Japan (technology)
Human Capital
-
-
-
Using the minds of the people
Finland (no grades until grade. 11)
- People are told they aren’t good at things by grades
- Finland moves everyone up to the top by putting people in different places of the
same course
South Korea (Brains)
- At night people go to Kumon to be the best
- The whole country is doing it, comparative
- Highest suicide rate because of this
- But they only know academics
Businesses have global competition not just local
United States
- ‘smart ‘ people go here to learn educationally
Factors of Production
Land
Rent
Labour
Capital
Wages
Interest
INCOME
Production Possibilities
January 26th
Textbook Reading
Human
Capital
Profit
●
●
Economic Choice
○ How people choose between scarce resources they have, by comparison of the
actions costs and benefits
○ Utility Maximization
■ Assume whenever an economic choice is made you are trying to
maximize your own utility
■ Utility is the satisfaction gained from any action
■ Economists assume first the self-interest motive
● The assumption that people act to maximize their own welfare
○ Opportunity Cost
■ The utility that could have been gained by choosing an action’s best
alternative
■ Used instead of measuring cost in terms of money, to tell why people
make economic decisions
■ Also relates to time, since time passed in one activity means less devoted
to another
○ Utility is subjective and differs from one person to another
○ Rough estimate of utility made by using opportunity cost to make a rough
estimate
The Production Possibilities Model
○ Model that illustrates the tradeoffs that society faces in using scarce resources,
abstraction of the real world based on various simplifications
○ Assumptions are made, only two items are produced, resources and technology
are fixed, and all economic resources are employed to their full potential
○ Two Products
■ An immense range of goods and services are produced in any nation’s
economy
■ Production possibilities models narrows down to two
○ Fixed Resources and Technology
■ Assumed that there is a set amount of available economic resources and
that technology remains constant
○ Full Production
■
In the model, all economic resources are employed; that is, there is no
excess
■ Resources are used to their greatest capacity, no matter which good they
are producing - in this case, computers and hamburgers
○ The Production Possibilities Curve
■ To maximize the welfare of its citizens, a society must make economic
choices
■ How much of each good should be produced in a certain year, given the
resources at the society’s disposal, producing more of one item means
making less than another
○ Production Possibilities Schedule
■ A table that shows the possible output combinations for an economy
○
●
Production Possibilities curve
■ A graph that illustrates the possible output combinations for an economy
The Role of Scarcity
○ Law of Increasing Opportunity
■ The concept that as more of one item is produced by an economy, the
opportunity cost of additional units of that product rises
○ Economic Growth
■ An increase in an economy’s total output of goods and services
Bric Countries
Getting together to go up against the states with a new currency - resource countries
1. Brazil
2. Russia
3. India
4. China
Opportunity Cost
Combinations
Widgets
Reemistrans
A
0
20
B
1
18
C
2
14
D
3
8
E
4
0
As you build more Widgets you lose the amount of Reemistrans you can build, and as you build
more Reemistrams you lose the ability to make more Widgets.
MOVE FROM TOP TO BOTTOM
Producing the Second Widget
- Row C
- 18 - 14 = 4
- Difference between 1st and 2nd Widget
Producing Two Widgets
- Row C
- 20 - 14 = 6
- Difference between 0 widgets and 2 widgets
Opportunity Cost of Producing:
a) The first widget?
b) The second widget?
c) Two widget?
2
4
6
d)
e)
f)
g)
The third Widgets?
Three widgets?
The fourth Widget?
Four Widgets?
6
12
8
20
Combinations
Fradistats
Kadiddles
A
0
6
B
6
5
C
11
4
D
15
3
E
18
2
F
20
1
G
21
0
MOVE FROM BOTTOM TO TOP
Producing the 1st Kadiddle
- Row F
- 21 - 20 = 1
- Difference between no kadiddles and 1 kadiddle in same rows opposite column
(fradistats)
Producing the 2nd Kadiddle
- Row E
- 20 - 18 = 2
- Difference between one kadiddles and two kadiddles in same rows opposite
column (fradistats)
A) Opportunity Cost of Producing:
The 1st Kadiddle?
1
The 2nd Kadiddle?
2
The 3rd Kadiddle?
3
The 4th Kadiddle?
4
The 5th Kadiddle?
5
The 6th Kadiddle?
6
Opportunity Cost and Wealth Inequality
January 28
Talk of the Morning
Wealth Inequality in America
● 5000 Americans asked how wealth is distributed
○ They believed that money distributes 100x better than what it actually was
● Top 1% of America has 40% of America's wealth
○ owns 50% of the stock market and investments
● Bottom 80% own 7% of the nation's wealth
○ Own 0.9% of stocks and investments
2009 Stock Market Crash
- Bank Bailout bill rejected by congress
- This is the top 1% that were saved because they own half of the stocks
- Government wanted to bail out the big companies, these are the stock owners
- Dow Jones dropped to 777.68 points
Opportunity Cost
TV’s
Radio’s
A 0
30
B 1
25
C 2
19
D 3
13
E 4
8
F 5
0
1) Draw production possibilities curve (kadiddles on vertical axis)
- The curve is the best we can do, this is Efficiency
- One the line 100% Utilizing LAND, CAPITAL, LABOUR
- Inside the curve is easily obtainable
- Outside of curve in unobtainable unless you increase land labour capital
- Recession not enough demand therefore we decrease land capital and labour
- More of one than another difference between one product amount and another
Opportunity Cost Graphs
January 29
1. An island castaway spends eight hours each day acquiring two items - coconuts and fish
- based on the following production possibilities schedule.
Production Scenario
Coconuts
Fish
A
24
0
B
20
1
C
12
2
D
0
3
a)
b)
c)
d)
e)
f)
4 coconuts, 8 coconuts, 12 coconuts
Yes
Convex
That he is using all his resources to meet the production possibilities curve
It increases in both amount of fish and coconuts caught and harvested
More fish would be able to be caught
Increasing Opportunity Cost Curve
Opportunity Cost is increasing
Constant Opportunity Cost Curve
Same number opportunity cost
Economic Systems
February 1
Command, we all work together and collectively live
Market, all for yourselves, do whatever you want to do
1
Command
Market
Government Decides
Individuals or Companies
What to produce?
2
How to produce it?
Government Decides
Individuals or Companies
3
Who gets it?
Government
Individuals who can afford it
NDP
Democrats
Liberals
Command
North
Korea
Middle
Cuba
Canada
Conservatives
Republicans
Market
United
States
CANADA
- Health Care
- Future in Private Healthcare
- Would allow less crowded public
- People who can pay money should be able to be treated better …?
- Creates competition for public system (could make it better)
- Better doctors would go to this sector (getting paid better)
- Social Welfare
- Education
- More Market incorporated than Command
- Stock Market
- Choice in Education
- High Taxes
- Ranks 28 in Healthcare … Can be improved.
Communism vs Capitalism
February 5th
Adam Smith (1723-1790)
Division of Labour
- Individualizing peoples jobs by dividing jobs up which increases productivity by 500
times
- England came up with this first
- Specialization
Invisible Hand
- If everybody looks out to be #1 the economy itself will benefit
- The unobservable market force that helps the demand and supply of goods in a free
market to reach equilibrium automatically is the invisible hand
- From the book The Wealth of Nations
- It is not of the benevolence of the butcher (provides the meat) the baker (the bread) and
the bruier(the beer) that you get your dinner tonight
- They are not being kind, they are doing it for their own self interest
- They get something out of what they are doing
Competition
1. Prices go down
2. Quality goes up
3. Without competition quality would be horrible
4. Capitalism creates competition
Principles of laissez Faire
- The driving principle behind laissez-faire, a French term that translates as "leave alone"
(literally, "let you do")
- The less government involvement in the open market the better off businesses will be,
which helps society as a whole
- Key part of free market capitalism
Karl Marx (1818 - 1883)
Labour Theory of Value
- Products prices were based on how much labour went into the products
Theory of Exploitation
- Bourgeoisie were taking advantage of the proletariat - one day communist society will be
created by the proletariat overcoming the bourgeoisie to be all equal
- Competition made business owners pay their workers less but work longer hours
because they need to keep up with wages lowering and quality increasing
$4
$5
Labour
Labour
Competition
$1
$2
$2
-
$1
Profit
Profit
Advantages and Disadvantages of Capitalism
Advantages
Disadvantages
Consumer Sovereignty
Income Distribution
Innovation
Market Problems
Instability
Advantages and Disadvantages of Communism
Advantages
Disadvantages
Income Distribution
Planning Difficulties
Economic growth “controlled”
Inefficient
Lack of Freedom
Interesting Statement by York University Research
Whether the LCBO should or should not be privatized - sold out to private owners - is a question
that cannot and should not be answered on the basis of political ideology and generalized faith
in the private sector. The success of free enterprise is not the issue, but rather whether
unchecked market forces are suitable to the entire liquor market in Ontario. The efficiency of
markets is agreed to in principle, but the differences are more subtle than the similarities
between situations in which the market or alternative modes of economic organization may be
more efficient. It is naive to argue that markets are inherently more efficient than some
alternative arrangement. If markets were always more efficient, than large corporations like
General Motors would have subcontracted much of their operations to smaller firms. But they do
not because it is more profitable that they do these operations themselves in-house. The more
efficient and less expensive but controlled health care system in Canada compared with the
market-based but expensive and inequitable one in the United States provides a striking
example of possible market failures.
Economic Goals
February 8th
Economic Goals
1. Low unemployment 3
2. High wages
3. Better education/better teachers
4. More sports programs for developing athletes
5. Lower cost of living
6. Increased ability to for Canadians to be homeowners
7. Decreased homeless
8. Decrease drug use / more drug programs
9. No debt
10. Better Canadian $
11. Low crime rate
12. Low poverty
13. Price stability / Inflation 2
14. Steady Economic Growth
15. Free Post Secondary Education 1
16. Environment
17. Renewable Energy
Complementary Goals
Some of these goals are monopolies of each other, when one is solved or decreased others will
also benefit.
Conflicting Goals
When one is solved then another cannot be solved.
United States has 1.4 Trillion in Student Debt
- If you wipe out the debt, the economic benefit will out weight the debt in about 10 years
- Liberals in Canada have been doing this for Canadian students, wiping out % of
students debt
Thursday, February 15
Absolute vs Comparative Advantage
Matches
Memory Sticks
Matt
16
25
Nick
21
26
No specialization in this PPC, there is just one person making these things
Matt
Nick
Match
Match
16
21
25 Mem
26 Mem
If you have a lower opportunity cost you should specialize in that production.
Nick produces memory sticks as he has lower opportunity cost
- 21/26 = 0.80 memory
- 26/21 = 1.23 matches
Matt is making matches as he has lower opportunity cost
- 25/16 = 1.56 matches
- 16/25 + 0.64 memory
This was they will be able to produce more of everything when they come together.
Fallacies
Fallacy of Composition
“What is true of the part must be true of the whole”
You can prove that if you save most of your money you are going to be better off in the future
But if you tell everyone in the country to save all your money, everybody will not be better off as you need people to spend money on the countries products in order for an economy to be
good.
Fallacy of Decomposition
“What is true of a whole must be true of the part”
Just because the economy is doing well doesn’t mean that every individual is also doing well in
the country.
Post - Hoc Fallacy
“If x came after y then y must of caused x”
These are superstitions, they are not facts, unprovable.
If it rains one day and the stock market goes up, the next time it rains doesn’t mean you should
start buying stocks.
Production Possibility Curve
Chair
I
H
A
G
E
ppc
D
ppc2
C
F
A)
B)
C)
D)
E)
F)
G)
H)
B
Tables
Production is inefficient
Production of chairs is attainable but tables is unattainable
Production of goods is efficient but more tables are produced than chairs
No opportunity cost of increasing the amount of chairs
If company decided to use all of its resources to production of tables
Decrease of of 5 workers due to layoffs
Shows the effects of a new efficient machine bought by the company that helps create
both products
I) An efficient economy that recently had 1000 new immigrants, and only 500 could find
jobs
J) Economy that's more efficient in the production of tables due to increase in technology
(new ppc, line starts same at chairs but moves out for tables)
Unit 2 Notes
Demand
February 21
Textbook
● Product market, households and businesses buy and sell consumer products
● Demand
○ The relationship between the various possible prices of a product and the
quantities of that product consumers are willing to purchase
○ Price is an independent variable
● Quantity Demand
○ The amount of a product consumers are willing to purchase at each price
○ Dependant variable on the price of the product
● Law of Demand
○ States that there is an inverse relationship between a product’s quantity
demanded and its price
○ As price falls people are willing to buy more of product
○ As price increases people are less willing to buy product as there is less
satisfaction from what paid and what you are getting
● Demand Curve
○ Graph showing the quantities demanded of a product at different price points
■ Any possible combinations
■ Independent variable is on the y axis
■ Dependant variable is on the x axis
○ Demand Schedule
■ The table that expresses the different combinations of prices and
quantities demanded of the product
● When the demand curve is negative slope
○ An increase in the products price decreases the quantity demanded
○ Vice versa
● Is the law of demand ever broken?
○ This happens when a products high price is seen as a status symbol
○ Demand for a designer shirt may go up if the price goes up, as more people
become attracted to the shirt
○ Veblen Effect
■ Positive demand curve
● Market Demand
○
○
●
The sum of customers purchases or quantity demanded at each price
Each person's demand for product at a certain price even if different added
together
Demand Factors
○ Factors that can cause an increase or a decrease in a product’s demand
○ Cause the entire market demand curve to shift, these are;
1. Number of Buyers
2. Average Income
3. Prices of other Products
4. Consumer Preference
5. Consumer Expectations (prices and incomes)
■ All other factors remain constant
Five Shifts In Demand
February 22 and 23
Change in Population
- When number of buyers for a certain product increases, more purchases are made
- Thus demand for product increases
- Increase in Demand
- Decrease in Demand
- When the number of buyers in the market decreases
- Demand for the product will also decrease
Change in Price of other Products
- Substitute Products
- Products that can be consumed in place of one another
- When the prices of a good goes up, people will buy an alternate product that has
a more reasonable price
- Vice Versa
- Complementary Products
- Products that are consumed together (hotdogs and hotdog buns)
- An increase in the price of one product causes a decrease in demand for its
complement
Change in Income
- When consumers incomes increase, they purchase luxury products
- Expensive jewellery and caviar, as they have more money to spend
- Necessities also rise, like milk and shoes
- Demand increases, demand curve shifts right
- Direct Changes with Income
-
Normal Products
- Products whose demand changes directly with income
- Few Products that change with income inversely
- Inferior Products
- Products whose demand changes inversely with income
- Consumption of these products fall, as buyers switch to consuming more
expensive vegetables or organic milk
- Thus decreasing demand and moving demand curve to left
Change in Consumer Preference
- People's preferences affect buying patterns
- Shift in consumer concerns, like nutrition and health
- Or influences on fashion and styles
- Increasing demand shift curve or decreasing demand shift curve, if good news or bad
news
Change in Consumer Expectations
- The expectations that consumers have about future changes in prices and their own
incomes affect their current purchases
- If majority of consumers are told that the price of gas will go up tomorrow, the demand
for gas will go up today
- If price of laptop computers are expected to fall, the current demand for laptops
decrease
- This is because consumers will delay their purchases of laptops until the
expected drop in price occurs
- Incomes
- If consumers expect their incomes to grow and the prices of products they buy to
remain constant - they expect their standards of living to rise - their current
demand for normal products will increase, and their current demand for inferior
products will decrease
Change in Quantity Demanded versus Change in Demand
● Both changes are shown in diagram
● Change in Quantity Demanded
○ Occurs from the changes in the products own price
○ When prices of product decreases, there will be an increase in the demand of the
product
○ Varying the products own price doesn’t effect the curve
a
Price
b
Demand
●
Change in Demand
○ Results in a change of factors of demand
○ These changes cause the demand curve to shift left or right
D D
D
Dema
Demand Questions
1. Kate buys 3 milkshakes per week at a price of $1.50, 5 at a price of $!, and 7 at a price
of 50 cents. Her friend Carlo buys 5 milkshakes at a price of $1.50, 8 at a price of $1,
and 11 at a price of 50 cents.
a. If these two friends are only consumers in the market for milkshakes, what are
three points on the market demand curve?
Kate
Carlo
Market
$
Q
$
Q
$
Q
1.5
3
1.5
5
1.5
8
1
5
1
8
1
13
.50
7
.50
11
.50
18
b. Does this market demand curve satisfy the law of demand? Why?
Yes, because as the price of the product goes up, the demand of the product will
go down.
Supply
February 26
Morning Talk
Assume one hundred people, the first person makes a little amount of money, the last people
are the rich of the rich.
If You were the premiere where would teachers be on the scale?
Where do they deserve to be on the scale?
50%-55%
Based on 2010:
Teachers were in
93%
Teachers in the
States + where
people think
teacher should
The command market overpays their workers
Gym teachers get paid $93,000 to teach 3 gym classes
Textbook on Supply
● Supply
○ The relationship between the various possible prices of a product and the
quantities of the product that businesses are willing to supply
● Quantity Supplied
○ The amount of a product businesses are willing to supply at each price
● Market Supply
○ The sum of all producers’ quantities supplied at each price
● Law of Supply
○ States that there is a direct relationship between a product’s quantity supplied
and its price
● Supply Curve
○ Illustrated in a Supply Schedule
■ A table that shows the possible combinations of prices and quantities
supplied of the product
○ A change in the products price causes a movement along the curve
○ Thus causing a change in quantity supplied
○ Positive Upward slope
● Changes in Quantity Supplied
○ Is a shift on the supply curve, as it moves prices of the product
○ The supply curve has possible prices that the product can be sold at
b
Price
a
●
Quantity Supplied
Change in Supply
○ Is a factor that causes a shift to the supply curve
○ Either increasing supply which shift curve below original curve
○ Or decreasing supply which shifts the curve above the original curve
S2
S0
S1
Factors Changing Supply
Supply factors - factors that can cause an increase or a decrease in a product’s supply
Number of Producers
- An increase in the number of producers of a product
- Increases Supply
- Therefore there is a higher amount of the product being supplied at each
possible price of the product
- A decrease in the amount of producers of a product
- Decreases Supply
- Therefore there will be less amount of product being supplied at each possible
price of the product
Resource Prices
- Businesses buy various resources, both natural and capital
- If the price of resources increases
- Decrease in Supply
- Fewer units of the product can be produced for the same expenditure
- Therefore businesses will decrease the amount of their product they are
supplying at each possible price
-
If the price of resources decreases
- Increase in Supply
- More units can be made as more resources can be bought to make maximum
profit
- Therefore businesses will supply more of product at each possible price of the
product
State of Technology
- Technological progress in the making of products
- With increased efficiency to produce
- Increase in Supply
- Businesses will supply more at each possible price of the product
Changes in Nature
- Changes in nature can make resources be supplied more or less depending on whether
the change is good for the producer or bad for the producer
- Therefore
- Increase in Supply
- Decrease in Supply
Prices of Related Products
- A products supply can be influenced by change in the prices of other products
- Price of corn declines
- Increase in Supply of Wheat
- This is because producers are not making as much money in corn therefore they
supply more of a product that is making more money
- Vice Versa
Producer Expectations
- If producer expects the price of an item to decrease in the future
- Supply increase
- This is because producers want to get rid of their product now at the higher
possible prices of the product
- If producer expects the price of their item to increase in the future
- Supply Decreases
- This is because the producer wants to have a high supply of their product in the
future, so they hold back on supplying their product currently so they have more
to supply later
Equilibrium
February 27
Textbook Reading
● Market Equilibrium
○ The stable point at which demand and supply curves intersect
○ Whenever the market is out of the equilibrium the quantity supplied cannot meet
the quantity demanded, or vice versa
● Effects of a surplus
○ The excess amount of product that have not been sold because demand does
not meet the amount of supply is a Surplus
■ An excess of quantity supplied over quantity demanded
○ Surplus puts pressure on the market to sell these excess goods therefore the
price falls and inventory rises
■ Two adjustments are made when this happens
■ 1. Consumers by more at lower price, so quantity demanded rises
● Increase in the quantity demanded is shown as a move down the
demand curve
■ 2. Producers offer less for sale so that the quantity supplied drops
● This decrease in quantity supplied is shown as a move down the
supply curve
○ Moves supply curve down/right
● Effects of a shortage
○ When price is below the equilibrium,the quantity of product that consumers wish
to consume exceeds the quantity supplied, this is called a Shortage
■ An excess of quantity demanded over quantity supplied
○ Shortage in competitive market pushes prices higher
■ When people know that producers do not have enough to satisfy the
demanded, demand of consumers who are determined to get product
causes producers to raise the price of their product
○ Both consumers and producers react to the price increase
■ Consumers purchase less, decreasing the quantity demanded on
demand curve
■ Producers provide more for sale, raising quantity supplied on supply
curve
○ Soon shortage shrinks until demand and supply meet equilibrium again
○ Moves supply curve up/left
● Role of Price
○ If there's a shortage or surplus the price of the competitive market changes until
equilibrium is attained
○
●
Market will stay in equilibrium until there is a change in supply of demand factor,
which causes either a shortage or surplus that will force market to new
equilibrium
Changes in Both Demand and Supply
○ When both demand and supply shift Simultaneously the equilibrium moves as
well
■ Both demand and supply curves move if simultaneous is used
○ Quantity will change as a given if both curves move, but price or quantity can be
indeterminate as it depends on how much the curves move
MEMORIZATION
SUPPLY FACTORS (6) - Nice Rats Teach Nature Related Products
1. Number of producers
2. Resource prices
3. Technology
4. Nature
5. Related products
6. Producer expectations
DEMAND FACTORS (5) - PEPPI
1. Expectations
2. Preferences
3. Price of other products
4. Income
5. Population
Unit 2: Part 2
March 5
Morning Article
What if there were no borders to our countries?
- Yes or no?
- Borders protect citizens but also allow racism and discrimination
- No borders would create huge influx of people migrating across the world
- If no, what would be the rules for the people who immigrate into your country
- Extremely hard decision to make
- Don’t be as intense as Trump, not to open like no borders (very fine line)
Elasticity
The responsiveness to the change of price
Perfectly Inelastic
QUANTITY
Flat
%𝛥Q > %𝛥P
Unit Elastic
PRICE
PRICE
D
PRICE
Perfectly Elastic
QUANTITY
Vertical
%𝛥P > %𝛥Q
QUANTITY
45∘ 𝐿𝑖𝑛𝑒
%𝛥P = %𝛥Q
The Perfectly Inelastic Demand Curve would be the demand elasticity that you would want as, if
you raise price and still same amount of people buy the product is better.
Total Revenue = Price x Quantity
Elastic Good = Total Revenue Increase = Decrease Price
Inelastic Good = Total Revenue Increase = Increase Price
Four Factors of Elasticity
March 6
Morning Talk
More women are going to university than men.
- Women mature faster then men
- Women have to prove themselves more in school with grades in order to get the best
jobs
- Men may be more willing to go to colleges and do trades, which are more hands on
- Now more women want to be independant make their own money, and not depend on
men to do so
Needs vs Wants
1. A need is very inelastic
a. With a huge price change people still need the product therefore will still buy the
product no matter what if they need it
2. A want is very elastic
a. If there is a huge price change, since consumers do not need the product
therefore if price is to high they will not buy the product
Access to Substitutes
1. Few Substitutes
a. Inelastic
i.
Cannot buy other things that are at a lower price, because there is
nothing else to buy
2. A lot of Substitutes
a. Elastic
i.
If huge price increase, consumers will go somewhere else to buy the
product
Example: Gas itself is very inelastic, but individual gas companies are more horizontal
because they compete with other companies.
Portion of Income
Certains items if increase in price effect some people worse than other because they have a
large or smaller income.
1. Small
a. Inelastic
i.
These consumers take a bigger hit if the price increases, because they
have less money to spend on this item
2. Large
a. Elastic
i.
These consumers do not take big hit if the price goes up for a product as
they have more money to spend on that item
Time
1. Lots
a. Elastic
i.
When consumers do not need something at the moment they will wait to
buy the product at a price they like
2. Little
a. Inelastic
i.
When consumers need a product immediately they will pay for the
product at any price it is being sold at, even if unusually high
Elasticity Formula
March 7
𝜉 = |𝛥𝑄 ÷ 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑄| Elastic
Inelastic
Unit
|𝛥𝑃 ÷ 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑃| 𝜉 > 1 𝜉 < 1
𝜉=1
1. Difference of quantity (Q-Q)
2. Divided by the Difference of Quantities, divided by two (Q-Q/2)
3. All Divided by
4. Difference of price prices (P-P)
5. Divided by the difference of prices, divided by two (P-P/2)
Pants
Using equation, if negative will become positive as the equation is absoluted.
$
Q
𝜉
0
5
>0.11
1
4
>0.43
2
3
>1.00
3
2
>2.33
4
1
>9.00
5
0
Point Formula
March 8
Talk of the Morning
School shooting
- Out of all the kids who have done school shootings only 1 have a father in their home
- All are males under 21
- The ACES factors are factors that make it more likely for a child to do dangerous or
illegal things
- African Americans have the highest amount of these bad factors
- Yet why has all of the school shootings been white males
- African Americans have violence within their community and shoot each other and not
random people
- White privileged kids, grow up with everything given to them, so when things go wrong
these kids don’t know how to deal with it
- Social media idealizes killing and death
Finding % Change Using Point Formula
New - Old
Old
=
𝜉 = %𝛥𝑄 ÷ %𝛥𝑃
=
Example= Stock goes from $6.50 to $10.30
Income and Cross Price Elasticity
March 19
Using point formula and elasticity formula calculate elasticity of:
Price of hats fall from $20 to $17 and the quantity demanded of them rises from from 200 to
280. Calculate 𝜉.
Point
17 − 20/ 20 = −15%
280 − 200/200 = 40%
40%/−0.15% = 2.67
Normal
(80/240) ÷ (3/18.50) = .33/.16 = 2.06
If given two data points use the normal formula, as using point formula can give you two
different answers.
Income Elasticity
𝜉𝐼 = 𝛥𝑄 ÷ 𝐴𝑉𝐺 𝑄 - Not an Absoluted Formula
𝛥𝐼 ÷ 𝐴𝑉𝐺 𝐼
Shifts in Demand
Income - Normal Goods or Inferior Goods
A fall in consumer incomes from $80,000(old) to $65,000(new) lowers purchases of Pizza’s from
40/year(old) to 32/year(new).
65000 − 8000 = −15000 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐼𝑛𝑐𝑜𝑚𝑒 (80000 + 65000) ÷ 2 = 72500 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑐𝑜𝑚𝑒
40 − 32 = −8 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦
(40 + 32) ÷ 2 = 36 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑐𝑜𝑚𝑒
𝜉𝐼 = (−8 ÷ 36) ÷ (−15000 ÷ 72500) = +1.073
Normal Good
Positive Coefficient (+)
Inferior Good
Negative Coefficient (-)
Cross Price Elasticity
𝜉𝑥𝑦 = 𝛥𝑄𝑥 ÷ 𝐴𝑉𝐺 𝑄𝑥
𝛥𝑃𝑦 ÷ 𝐴𝑉𝐺 𝑄𝑦
Price of Snickers goes up fro, $1.00 to $1.40 and the quantity of mars bars purchased goes up
from 72 to 90. Calculate 𝜉𝑥𝑦.
1.00 − 1.40 = 0.40 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑃𝑟𝑖𝑐𝑒
72 − 90 = 18 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦
𝜉𝑥𝑦 = 18 ÷ 81
0.40 ÷ 1.2
(1.00 + 1.40) ÷ 2 = 1.2 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑃𝑟𝑖𝑐𝑒
(72 + 90) ÷ 2 = 81 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦
= +0.6
Substitute
Positive Coefficient (+)
Compliment
Negative Coefficient (-)
Multiple Choice Questions
1. If demand of product x is inelastic , a 4% increase in the price of x will decrease the
quantity demanded for x by less than 4%
2. The demand for such products as salt, bread and electricity tends to be relatively
inelastic
3. The price elasticity of supply measure how responsive the quantity supplied of X is to
changes in the price of X
4. Price floors and ceiling cause surpluses and shortages respectively
Chapter 3 Textbook
Textbook: Chapter 3 Terms
Price Elasticity Demand
The responsiveness of a product’s quantity demanded to a change in its price.
Elastic Demand
Demand for which a percentage change in a products price causes a larger percentage change
in quantity demanded.
Inelastic Demand
Demand for which a percentage change in a products price causes a smaller percentage
change in quantity demanded.
Perfectly Elastic Demand
Demand for which a products price remains constant regardless of quantity demanded.
- Horizontal
Perfectly Inelastic Demand
Demand for which a products quantity demanded remains constant regardless of price.
- Vertical
Total Revenue
The total income earned from a products, calculated by multiplying the products price by its
quantity demanded.
𝑇𝑅 = 𝑃 × 𝑄𝑑
Unit Elastic
Demand for which a percentage change in price causes an equal change in quantity demanded.
Elastic Demand
Inelastic Demand
Unit-Elastic Demand
Price Change
Change in Total Revenue
Up
Down
Down
Up
Up
Up
Down
Down
Up
Unchanged
Down
Unchanged
Factors That Affect Price Elasticity of Demand
1. Portion of Income
2. Access to Substitutes
3. Necessities vs. Luxuries
4. Time
Formulas
Elasticity
𝜉 = |𝛥𝑄 ÷ 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑄| Elastic
Inelastic
Unit
|𝛥𝑃 ÷ 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑃| 𝜉 > 1 𝜉 < 1
𝜉=1
Point Formula
New - Old
=
Old
𝜉 = %𝛥𝑄 ÷ %𝛥𝑃
Income Elasticity
The responsiveness of a products quantity demanded to a change in average consumer
income.
𝜉𝐼 = 𝛥𝑄 ÷ 𝐴𝑉𝐺 𝑄 - Not an Absoluted Formula
𝛥𝐼 ÷ 𝐴𝑉𝐺 𝐼
Normal Good
Positive Coefficient (+)
Inferior Good
Negative Coefficient (-)
Cross Price Elasticity
The responsiveness of a products quantity demanded to a change in the price of another
product.
𝜉𝑥𝑦 = 𝛥𝑄𝑥 ÷ 𝐴𝑉𝐺 𝑄𝑥
𝛥𝑃𝑦 ÷ 𝐴𝑉𝐺 𝑄𝑦
Substitute
Positive Coefficient (+)
Compliment
Negative Coefficient (-)
Price Elasticity of Supply
The responsiveness of a products quantity supplied to a change in price
Elastic Supply
Supply for which a percentage change in a products price causes a larger percentage change in
quantity supplied.
- More Horizontal
Inelastic Supply
Supply for which the percentage change in a products price causes a smaller percentage
change in quantity supplied.
- More Vertical
Factors Affecting Supply Elasticity
Time is the only thing that will tilt supply
1. The Immediate Run
a. The production period during which none of the resources required to make a
product can be varied.
b. The product cannot be made very quickly if there is a spurt in demand, like the
production of strawberries
c. 3 Economic resources cannot change; Land, Labour, Capital
i.
Perfectly Inelastic
2. The Short Run
a. The production period during which at least one of the resources required to
make a product cannot be varied
b. In the case of strawberry farming, the strawberries cannot be made quickly but
the amount of labour used to pick the strawberries can be increased to maximize
the drop, which able to be done when there is a price increase
c. One to Two Economic resources can change
i.
Unit Elastic
3. The Long Run
a. The production period during which all resources required to make a product can
be varied, and businesses may either enter or leave the industry
b. With strawberries the long run can be a decade. A rise in the price of
strawberries causes increase in profits temporarily, these lures farmers into
putting more resources into the strawberry industry and more people join
industry. Causing; Elastic
1. Constant-cost Industry
a. An industry that is not a major user of any single resource
i.
Price will continue to decrease until it returns to the
original price every new season
ii.
Supply Perfectly Elastic
2. Increasing-cost Industry
a. An industry that is a major user of at least one resource
i.
Greater quantity supplied leads to an increase in
price
ii.
Price is driven down, until its lowest point, but
producers will now have to pay higher per-unit
costs
iii.
So long-run supply curve has a positive upward
slope but is very Elastic
iv.
Quantities supplied are highly sensitive to price
changes
Calculating the Price Elasticity of Supply
𝑒𝑑 = 𝛥𝑄𝑠 ÷ 𝐴𝑉𝐺 𝑄𝑠
𝛥𝑃 ÷ 𝐴𝑉𝑃 𝑃
Excise Taxes and Price Controls
March 20
Excise Taxes
Gasoline, Airport tickets, Highly inelastic goods
● The Impact
○ Excise Taxes
■ A tax on a particular product expressed as a dollar amount per unit of
quantity
○ The taxes are usually paid half producers and half consumers
● The effect of price elasticity of demand
○ Division of tax burden is not always equal because of the elasticity of demand
○ When demand is Elastic, the tax portion paid by consumers is smaller than that
paid by producers
○ When demand is inelastic, the tax portion paid by consumers is higher than that
paid by producers
○ Rule 1 : Whenever supply is given, a more inelastic demand curve means a
greater portion of an excise tax is paid by consumers
● The effect of price elasticity of Supply
○ The division of tax burden also depends on the price elasticity of supply
○ Elastic supply
■ The tax portion paid by consumers exceeds that of producers
○ Inelastic Supply
■ Tax portion paid by consumers is lower than producers
○ Rule 2 : When demand is given, a more inelastic supply curve means a great
portion of an excise tax is paid by producers
● The role of elasticity in tax policy
○ The two rules explain why public authorities are so interested in estimating price
elasticities of both supply and demand when considering an excise tax
○ The combines impact of the price elasticities of demand and supply determine
which group ends up paying the bulk of the tax
Price Controls
● Government see fit to control prices, overriding the forces of demand and supply and the
invisible hand of competition
● There are two types of price controls;
○ Price Floor
■ A legal minimum price
■ Only effective when set above the equilibrium
○ Price Ceiling
■ A legal maximum price
■ Only effective when below the equilibrium
●
●
●
Demand and supply can be used to analyze the effects of government programs to
control prices
○ Analyzing these price controls lso involves weighing one goal against another,
the analysis on the value judgments and so is part of normative economics
Agricultural Price Supports
○ Milk has been named a necessities that must be sold at a high price, or else
there will be a huge problem due to national security
○ So the demand curves are inelastic
○ This causes changes in demand and supply to have a large price changes
○ Unstable prices can cause large fluctuations in farmers incomes, low prices
cause revenues to plummet
■ Therefore farmers can go out of business, and if canada were to go to
war our armies would be frail and weak
■
Farmers are winners
■ Consumers are losers
Rent controls
○ Apartments have a price ceiling made by government to allow more people to be
able to afford places to live as it is a necessity to Canadians
○ But these renters create slums, and become slum gods by doing deals under the
table getting people who will pay under the table what the actual equilibrium price
is
○ Then people who are paying the ceiling price are mistreated because the renter
would rather them leave to allow the room for he people who will pay the higher
price under the table
Unit 3: Macroeconomics
GDP
April 30th
Top GDP Countries
1. United States GDP 20 trillion
12. Canada 1.6 trillion
Top GDP Countries per Capita
1. Qatar, 129.726
24. Canada, 46.239
Gross Domestic Product
The total value of goods and services produced in a country in a given year
Expenditure Approach
G.D.P = C + I + G + (X-M)
- C
- Consumption
- Everything bought
- I
- Investments
- Machinery to make something
- G
- Government Spending
- Spending on people's salary, roads and such
- Net Exports
- X
- Exports
- What we sell to other countries
- I
- Imports
- What we buy from other countries
Problems Associated
1. Price Increase
a. Inflation
i.
2017 100 shoes made sold for $10 = $1000 g.d.p
ii.
2018 100 shoes sold for $12 = $1200
1. Up to 20% but your not producing any more
2. Population Increase
a. More people more production for the more people
b. GDP calculated “per capita” basis
i.
$Value (GDP) / Population
3. Market Prices
a. Doing something yourself vs paying someone to do something for you
b. Goods that do not have a price
4. Types of Goods
a. Military and Nukes
i.
Government spending but it does not have a price tag on it
ii.
GDP cannot calculate the different types of goods
5. Illegal Items
a. Drugs, prostitution, some construction like pacific mall
i.
Paying with cash underhandedly
6. Quality of life
a. Longer work weeks, production increases, yet quality of life will decrease
b. Shorter work weeks, production decreases, yet quality of life will increase
Real GDP Calculation
(Current GDP/Price Index)(100%) = Real GDP
Inflation
May 7
A price increase of goods and services that we sell in our country.
Zimbabwe
- 11.2 MILLION % in inflation increase
- Bread, tomatoes costed millions, billions, trillions
- Cash shortage 300 zimbabwe : 1US
What Happens?
- Dictators
- Robert Mugabe
- Taxed everything they could tax
- Printing money that they didn’t have, but economy couldn’t produce any
more goods
- More dollars for the same amount of goods
- Prices rose, therefore money printed even more
-
- This looped, 100% a year price increase to 1000% a year
- Printing 100 trillion dollar notes
- Allowed 4 other currencies to end hyperinflation
Inflation is caused by the excess amount of money being printed and to the same
amount of goods produced
How to win in inflation
- Take peoples nickels, pennies and copper coins, which they did not care about
because it was worth nothing at the time
- Sold it to US manufacturers
Who Benefits
1. Debtors
a. People who borrow money and repay their debts with money that is valued less
b. If money is invested in assets that rise quickly because of inflation they benefit
2. Producers
a. Businesses that purchase their inputs at current prices and then sell at inflated
prices can benefit as profit will increase
Who Suffers
1. Creditors
a. Money that is paid to creditors has lost purchasing power
b. Inflation is rising faster that the rate of interest (cost of borrowed money)
2. Fixed Income Earners
a. Pay more for the same amount of goods and services, with the same amount of
income
3. Savers
a. The value of the money saved does not have as much purchasing power
b. The dollar value in an asset is rising slower than the rate of inflation
Effects on Economy
1. Short Term Investment Mentality
a. Investors will not leave their money in assets if inflation is harming their store of
value
2. Interest Rate Increase
a. Gov and banks try to protect economy and themselves against rising inflation by
increase interest rates on loans
b. Consumers/businesses will not spend as much
Demand Pull
- Increase in the demand for a product results in the price to increase
- Because of factors affecting demand Increasing
- Population
- Expectations
- Preferences
- Price of other goods
- Income
- Demand curve moves right
Cost Push
- An overall decrease in business supply will result in price increases
- Because factors affecting supply will rise
- Price of resources
- Supply curve will move right
High to low percentage of Spending
1. Shelter
a. 26%
2. Transportation
a. 19%
3. Food
a. 17%
4. Entertainment
a. 12%
5. Household operations & furnishing
a. 11%
6. Clothing
a. 5%
7. Health & Personal Care
a. 4%
8. Alcohol & Tobacco
a. 3%
Unemployment
May 2
Unemployment is when you do not have a job but you are actively looking for a job
Types of Unemployment
1. Frictional
a. 2-3% natural in economy
i.
In between Jobs
ii.
Out of Uni
2. Seasonal
a. Golf
b. Skiing
i.
Jobs that are seasonal
3. Cyclical
a. Business cycle
b. Results from change in demand or consumer preferences
i.
Expansion
ii.
Peak
iii.
Contraction
iv.
Trough
4. Structural
a. Do not have the skill now to do the job that you are used to doing
i.
Tech driven
ii.
Policy driven
iii.
Demographically driven
2004
Population
31.9 billion
Working Age
25.6 million
Labour Force
17.3 million
Unemployed
1.3million
Non Labour
Force
8.3 million
1. Retired
2. Full time
students
3. Child Rearing
4. Financially
Independent
5. Discouraged
Workers
Employed
16million
Unemployment Rate
Unemployed / Labour Force x100% = unemployment rate
Non Working
Age
6.3 million
1. <15 years
2. Mental
Institution
3. Penal
Institution
4. Aboriginals
5. Territories
6. Armed
Forces
Participation Rate
Labour Force / Working Age x100% = participation rate
Problems Associated w/ Unemployment
Understated
- Lowers the rate
- Underemployed
- To become employed in Canada, you must work 1 hour a week
- This lowers the unemployment rate, but these people are not even making
enough to be sustainable
- Discourage Workage
- People got there cheques after a year, then knowing they would not get a cheque
will no longer go to the office
- So assumption made that they are financially independent
- Lowers unemployment rate - discouraged workers
Overstated
- Raises the rate
- Illegal workers
- Can get the cheque for being unemployed, but can be working for people in cash
- They take advantage of the system
- This makes rate larger than actual
- Welfare
- 2,3,4 kids at home, trying to find a job but can’t find a job
- Paid for welfare for amount of kids had
- Put in unemployment but should not be as generally not looking for job
- Raises rate
Three Values of a Dollar
May 14th
USD vs CAD
$1 CAD buys $0.78
Interest RateCost to borrow a 1$
Direct
Direct
Inflation Rate-
Exchange
RateInverse
When Interest rate goes up, we save by puting our money in the bank. Therefore exchange rate
will go up, more money to spend dollar increases.
Exchange Rate goes up, the cost of a dollar will go up therefore inflation will go down because
goods will be able to be bought cheaper.
If inflation rate goes up, interest rate will also go up because people would never lend money
lower than inflation therefore would make you less money.
Interest Rate
Inverse
Depends on
Exchange
Inflation
Inverse
If the Interest rate goes up, the inflation rate goes down because we will save more money.
Therefore when we are saving more money demand for goods goes down, therefore inflation
goes down.
If Inflation rate goes up, the exchange rate will go up because goods are more expensive
therefore the Canadian dollar will be worth less.
If exchange rate goes up or down, the Interest rate will be moved up or down depending on the
government.
Fiscal Policy
May 15
Business Cycle
GD
Peak
Expansion
Expectatio
Contractio
Trough
Contractionary Policy
Raise Taxes - Decrease Government money
a. During the good times, allows surplus of money to be collected by the government
Expansionary Policy
Lower Taxes - Increase Government Spending
a. This is during the bad times, which is followed by the contractionary policy, therefore the
government has money to pump into the economy
Stabilization Policy
Government policy designed to lessen the effects of the business cycle
Fiscal Policy
A stabilization policy that uses taxes and government purchasing as its tools; budgetary policy
Fiscal Year
The 12 month period to which a budget applies
Monetary Policy
Government stabilization policy that uses interest rates and the money supply as its tools
Discretionary Policy
Intentional government intervention in the economy , such as budgeted changes in spending or
taxation
Automatic Stabilizers
Built in measures, such as taxation and transfer payment programs, that lessen the effects of
the business cycle
Net Tax Revenues
Taxes collected minus transfers and subsidies
Multiplier
May 16
The magnified impact of a spending change on aggregate demand
MPC
Marginal Propensity to Consume
- The effect on domestic consumption of a change in income
- MPC = Change in consumption of domestic items / change in income
MPW
Marginal Propensity to Withdraw
- The effect on withdrawals- saving, imports, and taxes- of change in income
- MPW = Change in total withdrawals / change in income
Savings
15%
Taxes +
13%
Imports
18%
Total
46%
Total
MPC + MPW = 100%
1 = MPC + MPW
Multiplier =
1
=
MPW
1
0.46
=
2.17
What impact to the GDP would a 1 billion dollar government increase program have?
1 billion x multiplier = m
GDP - M = Decrease in GDP