1. Supply and Demand

2. What, why and for whom?
Three Problems All Economic Systems Must Address
What should be produced?
How should it be produced?
For whom will it be produced?
Lots of ways to do this
Feudalism, guilds, central planning, caste systems, participatory democratic processes, etc.
We will focus on competitive markets

3. Is a focus on competitive markets appropriate? Recent Headlines
Europe's Bad Habit of Fishing for Jobs
Rich Tax Breaks Bolster Video Game Makers
Corn Ethanol Subsidies May Be in Jeopardy
‘Serious’ Error Found in Carbon Savings for Biofuels
Food Prices Stir Concern About Biofuels Mandates
Bail outs, etc.

4. Supplying food to NYC
How does the right amount of the right food get to the right place at the right time for the right price?
And does it?
Food comes from around the world
Requires land, chemicals, labor, farm machinery, transport, processing, packaging, etc., etc., etc.
No central authority, no central source of knowledge, no coercion.
Does anyone get insufficient food?
Does anyone get too much?

5. Housing in NYC Housing shortage Too few new units Too few repairs
Homelessness
Is this the result of rent controls?
Food comes from around the world. Where does the land on which to build houses come from?

6. Central planning vs. the market
Guatemala and Cuba: free market vs. socialist dictatorships
Guatemala
You can buy anything you want, no lines in stores
Short life expectancy, high illiteracy, infant mortality, malnutrition
More disappearances (political murders) than all other LA countries combined
Massive aid from US
Cuba
Very difficult to buy anything, long lines
Long life expectancy, low illiteracy, lower infant mortality than NYC, low malnutrition
Limited freedom
Massive obstruction from US, embargo
CHANGE THIS SLIDE. GO WITH HEALTH CARE IN USA VS. EUROPE

7. What’s the better system?
We should not base our economic system on ideology, but rather on a careful understanding of the scarce resources and desired ends.

8. What system does the US use?
How do big firms make their decisions?
Corporations are islands of central planning in a sea of competitive markets
51 of the world’s 100 biggest economies are multinational corporations
Corporate welfare: sole source, bail outs, subsidies (energy, timber, mining, grazing, agriculture)

9. In perfect Free-Market or Capitalist Economic Systems
Individual choices determine
Which careers to pursue
Which products to produce or buy
When to start and shut-down a business
Who gets what
BUT…..
Consumer choice is individual preferences weighted by purchasing power
No money = no choice

10. What is a market?
A market consists of all buyers (or potential buyers) and all sellers (or potential sellers) of a good or service

11. DETAILS: Web Registration (Option 1) in the i>clicker 5
DETAILS: Web Registration (Option 1) in the i>clicker 5.4 Quick Start Guide available at

12. The Supply Curve
A curve or schedule showing the quantity of a good that sellers wish to sell at each price (usually drawn as a straight line)
Sellers must receive a higher price to produce additional units of a product to cover the higher opportunity costs of each additional unit
Why are marginal opportunity costs increasing?
Are they always increasing?

13. Supply curve: hamburgers in NYC
Marginal cost = sellers reservation price=
Lowest amount at which seller will produce good

14. What’s the supply curve for land in NYC?

15. Demand curve
A schedule or graph that tells us the quantity of a good that buyers wish to buy at each price
As price of a good or service goes up, what happens to the amount you want to buy?
demand curve is downward-sloping
IS THIS TRUE?

16. Law of Demand?
Other things remaining the same, if the price of a good rises, demand for that good falls, and vice versa.
How true is this?
Stock markets
Land
Speculation

17. What’s the supply curve for stocks?

18. Demand curve: hamburgers in NYC
buyers reservation price: The largest dollar amount the buyer would be willing to pay for a good

19. The Substitution Effect
Why do buyers purchase a greater quantity at lower prices and vice-versa?
The Substitution Effect
The change in the quantity demanded of a good that results because buyers switch to substitutes when the price of the good changes
Do substitutes always exist?
The Income Effect
The change in the quantity demanded of a good that results because a change in the price of a good changes the buyer’s purchasing power

20. Supply and demand together

21. Surplus and Shortage