Markets and Economies Week 1 PDF

Markets and Economies Week 1 Dr. Magdalena Cutler  Dr Magdalena Cutler About me: Located in Scottsdale, Arizona, U.S. Education: Ph.D. Economics and M.S. information Management from Arizona State University, U.S., BA Applied Economics from AUBG, Bulgaria...

Markets and Economies Week 1 Dr. Magdalena Cutler  Dr Magdalena Cutler About me: Located in Scottsdale, Arizona, U.S. Education: Ph.D. Economics and M.S. information Management from Arizona State University, U.S., BA Applied Economics from AUBG, Bulgaria Dissertation: “Monopoly, Competition, and Information Acquisition” Professional Experience: Technical Production Manager and Econometrician, American Express Co. Faculty at College of William & Mary, CSUMB, JWMI, ASU, AUBG, and others. Launched businesses in online business education, assisted living, real estate and Amazon. Quantic Help and Resources Quantic Help and Resources OPTIONAL LIVE EVENTS Topics - Week 1 Topics - Week 2 Topics - Week 3 Topics - Week 4 Case Analysis M&E INDIVIDUAL PROJECT  Outside Resources Books: Principles of Economics (free text from Openstax) Mankiw, N. Gregory. Principles of Economics, Ninth Edition. Boston, MA: Cengage, 2018. Videos: Federal Reserve of St Louis: Economic Lowdown Video Series Marginal Revolution University Microeconomics Marginal Revolution University Macroeconomics Khan Academy, ACDC Economics, Mjfoodie and others by search. Podcast: Federal Reserve of St Louis: Economic Lowdown Podcast Series NPR: Planet Money Practice: Ahlersten, Krister. Microeconomics: Exercises with Suggested Solutions. Telluride, CO: Ventus Publishing, 2008. Week 1 - Topics Microeconomics I - Supply and Demand Fundamentals of Supply and Demand Utility and Elasticity Microeconomics II - Shape Your Economics Worldview Think Like an Economist Demand, Supply and Equilibrium Demand Factors Consumer Income ○ Normal goods Shifts in Demand ○ Inferior goods Population growth Consumer Preferences (tastes) Prices of related goods ○ Substitutes ○ Complements Expectations Anything Else Supply Factors Shifts in Supply Number of firms Technological progress Prices of inputs Prices of related outputs in multiproduct industries Expectations Anything Else  1. What are the equilibrium price and quantity of Air Fryers? $100 and 400 Air Fryers 2. Suppose that the price in the market is $120. What quantity is actually sold at this price? Identify the amount of the surplus/shortage, if any. 340 – a surplus of 120 units 3. Suppose that a price ceiling is set at a price of $120. What is the resulting price and quantity sold? $100, 400 4. Suppose that a price ceiling is set at a price of $80. What is the resulting price and quantity sold? $80, 340 5. Suppose that a government agency issues a warning against the use of Air Fryers for cooking. What happens to the demand for Air Fryers? The demand shifts to the left (decreases), causing equilibrium price and quantity to fall. 6. Suppose that the price of Toaster Ovens increases and Toaster Ovens are a substitute for Air Fryers. What happens in the Air Fryer market? The demand shifts to the right (increases), causing equilibrium price and quantity to rise. 7. Suppose that the price of Avocado Oil (a complement to Air Fryers) increases. What happens in the Air Fryers market? The demand shifts to the left (decreases), causing equilibrium price and quantity to fall. 8. Suppose that the price of steel used in the production of Air Fryers increases. The supply shifts to the left (decreases), causing equilibrium price to rise and quantity to fall. 9. Suppose an increased income causes the demand for Air Fryers to decrease as people substitute for buying a more expensive combo Air-Fryer/Convection/Dehydrator Oven. Are Air Fryers a normal or an inferior good? Inferior 10. Suppose the government imposes a $40 tax on the Air Fryer market. What happens to consumer surplus, producer surplus, and Total Welfare in this market as a result? A. Buyers’ price will rise to $120, and sellers will receive $80 in revenue, with the difference of $40 going to the government as a tax. The quantity sold will decrease to 340, and the deadweight loss will be $1200. Consumer and Producer Surplus Deadweight Loss from Tax Practice Scenario: The economy is growing, and average household income has risen by 10%. The market in question is for a normal good, such as smartphones. Question: How does the increase in income affect the demand curve for smartphones? Illustrate this on a graph (don’t forget to label the axes). What happens to the equilibrium price and quantity in the smartphone market? Practice Scenario: The price of beef, a substitute for chicken, increases significantly. Question: How will this price increase in beef affect the demand for chicken? Illustrate on a graph. What will happen to the equilibrium price and quantity in the chicken market? Practice Scenario: The price of crude oil, a key input for plastic production, rises significantly. The market in question is for plastic products. Question: How will this increase in the cost of crude oil affect the supply curve for plastic products? Illustrate on a graph. What happens to the equilibrium price and quantity? Practice Scenario: A new, more efficient technology has been developed for producing electric cars, reducing production costs significantly. Question: How does this affect the supply curve for electric cars? Illustrate on a graph. What happens to the equilibrium price and quantity of electric cars? How does this affect the supply curve for electric cars? Illustrate on a graph. How does this affect the demand curve for gas powered vehicles? Illustrate on a graph.. Practice Scenario: The government imposes a per-unit tax on the sale of sugary drinks. Question: How does this tax affect the supply curve for sugary drinks? Illustrate on a graph. What happens to the equilibrium price and quantity of sugary drinks?. Practice Scenario: Consider the market for bicycles. Due to a rise in environmental awareness, the demand for bicycles increases. Simultaneously, a shortage of steel (a key input for bicycle production) decreases supply. Question: How do these simultaneous changes affect the supply and demand curves? Illustrate both shifts on a graph. What can be said about the new equilibrium price and quantity?. Elasticity PED PES If we only use the absolute value for elasticity Practice Problem: If a 15% increase in price causes a 30% decrease in quantity, what is the price elasticity of demand? Is demand price elastic, inelastic, or unit elastic? % Change in Price = 15% % Change in Quantity = 30% Price Elasticity = 0.30 / 0.15 = 2 Practice Problem: If the price elasticity of demand for a good is -0.5, how will a 20% increase in price affect the quantity demanded? Is this demand elastic or inelastic? Practice Problem: The price of a product increases from $10 to $12, and as a result, the quantity demanded decreases from 100 units to 80 units. Calculate the price elasticity of demand (PED). Is the demand elastic, inelastic, or unit elastic? P1 = $10 Q1 = 100 P2 = $12 Q2 = 80  Elasticity Suppose that you are the manager of a movie theater and you are looking to increase sales. Would you increase or decrease price if demand is elastic? If demand is inelastic? ChatGPT (or other AI) Practice Prompts 1. Create a few problems/questions to practice demand and supply shifts and equilibrium. Include two-dimensional graphs with quantity on the horizontal axis and price on the vertical axis and show the corresponding shifts. 2. Create a few practice questions for price elasticity of demand. Questions ? Ask questions in the “Academic Office” channel on Slack Sign up for a 1:1 office hours 15 minute appointment Contact us at [email protected] Information Economics Asymmetric Information Moral Hazard – after the transaction Adverse Selection – before the transaction Principal-Agent problem