Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,*,Question from last years final,Smith and Jones comprise a two-person economy.Their hourly rates of production are shown below.,The opportunity cost of an extra calculator for Smith is _ and for Jones it is _.,A).10 computers;.05 computers,B)10 computers;6 computers,C)1 computer;.5 computers,D).6 computers;1.2 computers,E).05 computers;.10 computers,Who has the comparative advantage?,Given two producers with PPCs of different slopes,the producer with the,FLATTER,curve has the comparative advantage in the good measured along the,HORIZONTAL,.,Fuel Efficiency Standards,Should they be legislated?,Winners?Losers?,Any alternative?,2.In the long-run if the production of all goods increases for a society(there is a economic growth),it will cause the production possibility curve to,A)shift inward,B)shift outward,C)first shift inward and then shift outward,D)stay the same,E)none of the above,Supply,Demand and Market Equilibrium,Competitive Market,Lots of buyers and sellers dealing in identical goods,and enjoying well-defined property rights.,Law of Demand:P,Q,D,Market Demand as the Sum of Individual Demands,Shifts in the Demand Curve,Shift Factors for Demand,Income.,Number of buyers.,Prices of related goods(substitutes and complements).,Expectations.,Demographic changes.,Tastes/Preferences.,Shifts in the Demand Curve versus Movements along the Demand Curve,Figure 3 How the Price Affects Consumer Surplus,Copyright2003 Southwestern/Thomson Learning,Consumer,surplus,Quantity,(a)Consumer Surplus at Price,P,Price,0,Demand,P,1,Q,1,B,A,C,Figure 3 How the Price Affects Consumer Surplus,Copyright2003 Southwestern/Thomson Learning,Initial,consumer,surplus,Quantity,(b)Consumer Surplus at Price,P,Price,0,Demand,A,B,C,D,E,F,P,1,Q,1,P,2,Q,2,Consumer surplus,to new consumers,Additional consumer,surplus to initial,consumers,3,.,Which of the following will NOT cause a shift in the demand curve for Athlon processors(Pentium III processors are substitutes for Athlon processors,processors are a major part of a computer)?,A)An increase in the price of memory.,B)A decrease in the price of Pentium III processors.,C)A decrease in the price of motherboards.,D)A decrease in the price of Athlon processors.,E)An increase in consumers incomes.,When the market price for gasoline rises from$1.25 to$2.00 a gallon,the quantity demanded in the market,falls insignificantly from 8 to 7 million units per week.,In contrast,when the market price for tacos rises from$1.25 to$2.00,quantity demanded in the market falls significantly from 8 to 4 million units per week.,Elastic and Inelastic Demand Curves,$2.00,$1.25,D,Tacomarket,1,2,3,4,5,6,7,8,9,$1.00,Gasolinemarket,D,1,2,3,4,5,6,7,8,9,$2.00,$1.25,$1.00,Quantity,(tacos),Quantity,(gasoline),Price,Price,Market Supply as the Sum of Individual Supplies,Market Supply as the Sum of Individual Supplies,Shifts in the Supply Curve,Shift Factors for Supply,Input prices.,Technology.,Weather,natural disasters&political disruptions.,Taxes.,Number of sellers.,Expectations.,Figure 6 How the Price Affects Producer Surplus,Copyright2003 Southwestern/Thomson Learning,Producer,surplus,Quantity,(a)Producer Surplus at Price,P,Price,0,Supply,B,A,C,Q,1,P,1,Figure 6 How the Price Affects Producer Surplus,Copyright2003 Southwestern/Thomson Learning,Quantity,(b)Producer Surplus at Price,P,Price,0,P,1,B,C,Supply,A,Initial,producer,surplus,Q,1,P,2,Q,2,Producer surplus,to new producers,Additional producer,surplus to initial,producers,D,E,F,When the market price for soft drinks increases from$1.00 to$1.50 a six-pack,the quantity supplied to the market rises from 100 to 200 million units per week.,When the market price for physician services rises from$100 to$150 an office visit,the quantity supplied rises from 10 to 12 million visits per week.,Elastic and Inelastic Supply Curves,$200,$150,S,Physician Services market,100,$100,Soft drinkmarket,S,4,6,8,10,12,$2.00,$1.50,$1.00,Quantity,(millionvisits),Quantity,(million 6-packs),Price,Price,50,150,200,2,16,18,20,14,The Equilibrium of Supply and Demand,Markets Not in Equilibrium,A Three-Step Program for Analyzing Changes in Equilibrium,Decide whether the event shifts the supply or demand curve(or perhaps both).,Decide in which direction the curve shifts.,Use the supply-and-demand to see how the shift changes the equilibrium price and quantity.,How an Increase in Demand Affects the Equilibrium,How a Decrease in Supply Affects the Equilibrium,A Shift in Both Supply and Demand,Figure 7 Consumer and Producer Surplus in the Market Equilibrium,Copyright2003 Southwestern/Thomson Learning,Producer,surplus,Consumer,surplus,Price,0,Quantity,Equilibrium,price,Equilibrium,quantity,Supply,Demand,A,C,B,D,E,The Invisible Hand,“Every individual is continually exerting himself to find out the most advantageous employment for whatever capital income he can command.It is his own advantage,indeed,a