Introduction to Economics

Scheduling and Test Expectations

Last topic covered: Tariffs and Quotas.
Discussion about market interference and its effects on prices.
Emphasized the supply and demand model as a tool to predict market behavior under constant conditions.

Real-life complexities exist: affecting factors include weather, social dynamics, etc.
Introduction of price controls as a complex factor affecting economic models.
- Price control: government-imposed limits on how high or low a price can go.

Example to elucidate price control effects on the rental market.
- Current Situation:
- Equilibrium Price: $500 per month.
- Quantity Supplied: 1,000 apartments at this price.
Scenario development: Students organize to petition for a rent cap.
- Students demand a maximum rent of $400.

New Law: Rent cannot exceed $400.
- This is referred to as a price ceiling.
Outcomes of Price Ceiling:
- Quantity Supplied decreases to 500 apartments.
- Quantity Demanded increases to 1,500 students.
Explanation of market reaction:
- Landlords are unwilling to supply more apartments because they cannot cover their costs.
- Many students might now consider renting more affordable apartments to save money.

Conceptual understanding of price ceilings and price floors:
- Price Ceiling: maximum allowable price (e.g., $400).
- When ceilings are imposed, shortages occur (more demand than supply).
Example of market outcomes under price control:
- Some landlords may offer units under certain conditions (e.g., lower quality apartments).
- Control by local government can distort market dynamics, pushing towards shortages.

Example: Landlords lobby to raise minimum rent to $600.
Outcomes of Price Floor:
- New price increases demand but causes a surplus as supply outstrips demand.
Conceptual distinction:
- Price Floor: Minimum allowable price (e.g. $600).
- Price controls lead to either surplus or shortage depending on context.

Market interventions lead to disruptions in traditional supply and demand balance.
Such interventions can provoke market failures if not properly managed.

Increasing Demand: Prices tend to rise; quantity supplied may also rise.
Increasing Supply: Prices likely fall; quantity typically increases.
Decrease in Demand: Generally leads to lower prices and potentially reduced quantity.
Decrease in Supply: Causes higher prices and usually results in lower quantity available.

Scenario analyses based on changes in supply and demand:
- If both demand and supply increase, higher quantity is guaranteed while price changes are indeterminate.
- If both decrease, the quantity falls and price implications are unclear.
Intersectional shifts in demand and supply require keen observation of market conditions to predict outcomes effectively.

Models aid in assessing different market situations and predict responses to changes.
Understanding these frameworks is key to grasping economic principles and real-life implications.

Exam format: Multiple choice, with true or false questions occasionally.
Areas of focus include:
- Understanding of 10 economic principles.
- Definitions of economic terms like scarcity, trade, supply, and demand.
- Graph interpretations and their application to solve economic problems.
- Differentiate between normal and inferior goods, substitutes and complements.
Preparation advice: Review graphs, understand definitions, apply concepts rather than memorize.

Transition to discussing macroeconomics; focus on GDP (Gross Domestic Product).
Definition of GDP:
- Measures total economic output, including depreciation.
Comparison of GDP vs. GNP:
- GDP measures output produced within a country’s borders (domestic).
- GNP focuses on ownership of production, regardless of location (national).
- Relevant to understanding employment patterns tied to economic output.

Sources contributing to GDP include all produced goods and services.
- Excludes unpaid household services to prevent double-counting.
Effectiveness in measuring a country’s economic performance hinges on accurately capturing productive activities.
Importance of understanding the nuances of GDP, especially for business students dealing with economic data.

Emphasis on comprehension and application of economic concepts.
Clarification that theoretical understanding leads to practical applications in real-world scenarios.