Current Issues - LHS
• Supply
– Reflects the amount of a
product available to be
purchased at a particular price
– UPWARD slope
• Higher the price, the more
quantity of a product is
available
• Lower the price, the less
quantity of a product is
available
– Suppliers produce more when
prices are high b/c they make
more money selling products
at the higher price
Supply Curve
• Demand
– Reflects the desire for a
product at a particular
price
– DOWNWARD slope
• The higher the price the less
demand for a product
• The lower the price, the
more demand for a product
– The higher the price, the
lower the quantity
someone buys
Demand Curve
• Finding “equilibrium”
between supply and
demand
– Equilibrium = where
supply, demand curves
intersect
– Means that the amount of
goods being supplied is
exactly the same as the
amount of goods being
demanded
– When this happens,
everyone is happy!
(unfortunately, it’s only
theoretical)
• What happens to
demand if price goes
UP?
• What happens to supply
if price goes UP?
• What happens to
demand if price goes
DOWN?
• What happens to supply
if price goes DOWN?
• OC is the cost of any
activity in terms of the
value of the next best
alternative that is not
chosen
• The “cost” is the lost
opportunity that results
from making your choice
– Ex 1: Choosing between 2
TV shows (w/ no chance to
record the one not watched)
– Ex 2: College vs. working
– Ex 3: Going to Disneyland
vs. remodeling bathroom
• Refers to shifts in the
economy over time
• Measured by the growth
rate of the Gross
Domestic Product
– GDP = total market value
of goods and services
produced in a year
– GDP per Capita = GDP
per person
– Used as a common
comparison point
between countries
• Expansion (increase in
production and prices)
• Crisis (stock exchange
crash, b/k)
• Recession (drops in price,
output)
• Recovery (stocks recover
b/c price, incomes fall)
• Since WWII, business
cycle has not been as
extreme (gov’t use of
fiscal, monetary policy to
avoid worst effects)
• Model showing the
circulation of income
between producers
(businesses or “Firms”) and
consumers (“Households”)
• Firms use Factors of
Production (Land, Labor,
Capital) to produce goods
and services
• Shows how money circulates
between businesses and
households
– If one part of model stops
spending, what happens to
economy?
– Where does government fit in
this model?
•
Where consumers are “households”,
businesses are “firms”, and “factors”
refer to factors of production (Land,
Labor, Capital)
• Two categories
– Economic regulations
seek to control prices
• Prevent monopolies from
gouging consumers
• Stabilize agricultural prices
– Anti-trust law strengthens
market forces to avoid
direct regulation
• Prohibit practices that
lessen competition
• Prevent mergers that would
limit competition
• Other bases of
government regulation
– Protecting public’s health
and safety
– Maintain clean and
healthy environment
– Preventing businesses
from failing
• Bailouts, direct purchase of
business by government
• Nationalization of
businesses: appropriate or
not?
• Conservatives usually
support fewer
regulations on business
• They argue that
regulations:
– Interfere with free
enterprise
– Increase costs of doing
business
– Contribute to inflation
• Is deregulation
appropriate or not?
Public utility deregulation