Economics for Leaders

1. Economics for Leaders Lesson 4: Markets In Action

2. Joke Of The Day A traveler wandering on an island inhabited entirely by cannibals comes upon a butcher shop. This shop specialized in human brains differentiated according to source. The sign in the shop read: Artists' Brains $9/lb Philosophers' Brains $12/lb Scientists' Brains $15/lb Economists' Brains $19/lb.

3. Joke Of The Day Upon reading the sign, the traveler noted, My, those economists’ brains must be popular! To which the butcher replied,

4. Joke Of The Day Are you kidding?! Do you have any idea how many economists you have to kill to get a pound of brains?

6. In The Chips

7. Buyers • Sellers Equilibrium • Property rights, information, interaction and competition. • Price squeezes to where Qs = Qd & market clears. • This price facilitates all transactions that can make both a buyer and a seller better off.

8. Buyers • Sellers Equilibrium • Goods go to consumers with the highest value. • Goods are produced by the sellers with the lowest opportunity cost. • The well-being of society is maximized. • Profit is the Motivator! • Competition is the Regulator!

9. Equilibrium • Buyers • Sellers

10. Seasonal Variation: Apples

11. Seasonal Variation: Apples

12. Seasonal Variation: Beachfront Cottages

13. Seasonal Variation: Beachfront Cottages

15. Markets In Action • Each team starts with $4, answer three questions. • The 1st two questions are worth $1, the 3rd is worth $2. • If you answer the question correctly, you keep $. • If you answer incorrectly, you give up $. • Answers must be written and complete in time. • Decisions of the judges are final (honor system). • Each team must play every round.

16. The First Three Questions Cranberries, the Ruby Slipper & Your Health

17. 1. What would you expect to happen if a new machine called the Ruby Slipper is introduced that dramatically improves the cranberry harvesting process? $1 • The demand for cranberries would increase because more cranberries will be produced. • The supply of cranberries will increase as the marginal cost of production for farmers falls. • The quantity of cranberries purchased will increase as the price falls. • Both A and B are correct. • Both B and C are correct.

18. 2. Suppose that newly released medical research reveals significant health benefits associated with increased cranberry consumption? $1 • The demand for cranberries will increase as people seek the added health benefits of cranberries. • The supply of cranberries will increase as more people want to eat cranberries. • The quantity of cranberries produced will increase as the price rises. • Both A and B are correct. • Both A and C are correct.

19. 3. Suppose that both the introduction of the new harvesting machine and the announced health benefits happened simultaneously. What would you expect would happen to both the price of cranberries and the quantity of cranberries produced? $2

20. 1. What would you expect to happen if a new machine called the Ruby Slipper is introduced that dramatically improves the cranberry harvesting process? $1 • The demand for cranberries would increase because more cranberries will be produced. • The supply of cranberries will increase as the marginal cost of production for farmers falls. • The quantity of cranberries purchased will increase as the price falls. • Both A and B are correct. • Both B and C are correct.

21. 2. Suppose that newly released medical research reveals significant health benefits associated with increased cranberry consumption? $1 • The demand for cranberries will increase as people seek the added health benefits of cranberries. • The supply of cranberries will increase as more people want to eat cranberries. • The quantity of cranberries produced will increase as the price rises. • Both A and B are correct. • Both A and C are correct.

22. 3. Suppose that both the introduction of the new harvesting machine and the announced health benefits happened simultaneously. What would you expect would happen to both the price of cranberries and the quantity of cranberries produced? $2 ↑ S: P ↓ Q ↑ ↑ D: P ↑ Q ↑ Q ↑ for sure! P ↓ if ↑ S > ↑ D P ↑ if ↑ D > ↑ S

23. The Final Question • When big (flat) screen TVs were first introduced in the 1990s they were very expensive and very few households owned one. • Over time there was increased competition among producers as well as technological advancements in the production process. • Over the same period average household incomes also rose significantly.

24. 4. What effect would these changes have on the supply and/or demand in the market for big (flat) screen TVs? Consumers have more income Competition and advancing technology among sellers

25. 4. What effect would these changes have on the supply and/or demand in the market for big (flat) screen TVs? Consumers have more income Competition and advancing technology among sellers ↑ D: P ↑ Q ↑ ↑ S: P ↓ Q ↑ Q ↑ for sure! P ↓ if ↑ S > ↑ D P ↑ if ↑ D > ↑ S

27. More In The Chips

28. More In The Chips • What would happen if we… • limit the price transactions take place • Not above $3.80 (price ceiling) • Not below $4.80 (price floor) • restricted # of sellers to 1 (same # buyers)

29. Rent Control • Restrict rent below some level • Affordable housing for low income • How will buyers respond? • Law of demand • How will sellers respond? • Law of supply • Short run, Long run

30. Minimum Wage • Restrict wage above some level • Living wage for low skill workers • How will buyers respond? • Law of demand • How will sellers respond? • Law of supply • Short run, Long run

31. How do consumers respond to price changes for the following goods/services? • salt, public transportation, gasoline, healthcare What if you wanted to help poor people afford housing? What if you wanted to help low skilled workers? What if you wanted to reduce congestion on city streets? What if you wanted less pollution?

32. Big Ideas • Scarcity forces us to choose and every choice has an opportunity cost. • Open markets are a key institution for fostering economic growth and improving standards of living. • Markets are characterized by property rights, information, interaction and competition.

33. Big Ideas • Prices reflect relative scarcity. • Prices represent opportunity cost. • Price is a powerful incentive. • Buyers’ and sellers’ decisions about quantity demanded and quantity supplied are influenced by changing opportunity costs. • The law of supply and the law of demand describe producers’ and consumers’ predictable reactions to changes in price.

34. Big Ideas • People do things that make them better off. • Voluntary trade increases well-being. • Markets do a good job of allocating scarce resources to meet society’s many desires. • Government can sometimes help, be careful.