Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-1 Microeconomics Supply and Demand ●Review –Factors affecting demand curve –Factors affecting supply curve

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Changes in Supply and Demand ●When factors change, analyze in 3 steps 1.Which curve is affected? 2.Which way does the curve move? 3.What happens to P and Q? ●Important – There is a difference between “demand” and the “demand curve”. –Can think of “demand” as quantity Q –The demand curve shows the demand at every price 1-2

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Changes in Demand Curve 1-3 Demand Curve Shifts Left

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Changes in Supply Curve 1-4 Supply Curve Shifts Left

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-5 Economics - 2 Macroeconomics

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-6 Macroeconomics Issues for the Entire Economy ●Capitalism: The Private Enterprise System ●Private enterprise system—economic system in which business success or failure depends on how well firms match and counter the offerings of competitors. ●Adam Smith’s “Invisible hand” ●Our economic system assumes that everyone will act in their own best interest –This benefits themselves –This benefits society – How?

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-7 Types of Competition –Pure competition  Commodities –Monopolistic competition  Differentiated products –Oligopoly  Small number of suppliers –Monopoly  One dominant supplier –Monopsony  One dominant customer

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-8 Planned Economies: Communism and Socialism ●Communism: planned economic system in which private property is eliminated, goods are owned in common, and factors of production and production decisions are controlled by the state ●Socialism: planned economic system characterized by government ownership and operation of all major industries

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-9

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Economic Forms ● What are some government owned businesses in the U.S.? Other countries? ● Privatization – Examples of companies going private? – What about the reverse direction?

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Planned Economies vs. Capitalism ●The major issue: Who knows what’s best – the government or the people? ●With Adam Smith’s “invisible hand,” people and businesses “vote” with their dollars. – The ‘best’ survive, the ‘poor’ fail – Allocation is done by voting with dollars – Have even used this to predict elections

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Discussion ●Will increased government regulation of vaccines, help or hurt flu vaccine shortages?

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Government Economic Decisions What is the economic impact of each of these? ● Government lowering the price for surgeries? ● Minimum wage law ● Limiting prices on flu vaccines ● A tax on medical equipment? ● Lowering interest rates ● Raising interest rates