Dr.Ahmed Mandour

Economics is the study of how society mange its scarce resources.

There are three main concepts:

1. ScarcityAll resources are scare to satisfy needs and wantsThere resources are (factors of production) Human Resources Natural resource or land resource Capital resource (real goods, assets to produces goods and services)

2. Choice

3. Opportunity costWhatever must give up to obtain item

MicroeconomicStudy how individual make their choices. They might be consumers or firms and how they interact with market.

MacroeconomicStudy how the economy works and the performance of economic and government policies.

GDPGross Domestic Product

Economic ProblemThe economy is not able to satisfy the human needs and wants because of limited scarce and unlimited need and choices.

Production Possibilities Frontiers (P.P.F) Represent the combination of two goods the economy can produce given the available resource and available production technology

P.P.F could have three shapes according to opportunity cost:Straight line O.C is constantConcave O.C increasingConvex O.C decreasing

Always P.P.F has (ve) slope because of scarcity

Scarcity is the (-ve) slope and the frontier itself Choice is the number of item produced Opportunity Cost is the move from point to point

Economic growth is increasing of production by increase resources and technology

Question: P.P.F is down sloping because increasing of opportunity cost (False) The true is: because of scarcity

Question: suppose a country goes to war and therefor it is increasing its products of war goods, this will lead to inward shift of P.P.F (False)The true is (outward)

Graphs in economics:Tools to represent relationship between any two economic values. The relationship could be linear and non-linear

What is market?Market is group of buyers and seller of particulars goods or services. In any market there are two sides, demands and supply

Communication is a must for any market. Certain place is not important nowadays.

At any market we should determine price and quantity.

Competitive market (perfect competition market) is a market with given condition:1. Large number of buyers and sellers.2. The products should be homogenous (same product, same quality)3. Free entry and exit4. Perfect knowledge.

Market price will be determined by supply and demand. The price is accepted by buyers and sellers.

Firms are price-taker.

Demand

What is demand?The quantity demanded is the amount of the good that buyers are willing and able to purchase

What is controlling demand? Product price (-ve relation) Money income (+ve relation for normal goods, -ve for inferior goods) Preference and tasters (+ve) Other products price (substitutes, complements) (+ve relation, -ve relation) Expectation about income in the future ( +ve)

Law of demandsOpposite relation between product price and quantity demand assuming other factors are constants.

Demand scheduleIt is a table between quantity demands for each product price

PriceQuantity

10100

8120

6140

Demand curve The graphical between product price and quantity

As the price change, the quantity change and we call this a movementOther factors will create a shift in this curve.

When income increase, demand increase at the same price for normal goods (+ve)

In case of inferior goods, when income increase, demand decrease (-ve)

For products and substitutes, increase of product price will increase demand on substitute (+ve). This will shift demand curve upward.

For product and complement (car and gasoline), increase of product price will decrease demand on complement (-ve relationship). This will shift demand curve downward.

Higher expected income will increase product demand.

Increasing in demand, will change all other factors except product price.

Increasing quantity demand will cause a movement along the curve for the same product price

What cause demand for particular product to decrease Decrease money income Decrease preference Decrease price of substitutes and increase of price of complement Expecting lower income in future Demand cure will be shift down

Market demand is the sum of individual demand for giving product.

PDa DbDm = Da + Db

1010070170

812080200

614090230

Market demand curve can be driven from the horizontal curve of individual curve

Supply

The quantity supply is the amount of good that sellers are willing and able to sell

What determine supply? Product price (+ve relation) Input prices (raw materials) (-ve) Technology (+ve) Number of sellers (competitive) (+ve) Taxes and subsides on production (governmental policies) (-ve)

Law of supply:It is the direct relation between product price and supply assuming other factors are constant

Supply schedule

PQs

10100

12120

14140

16160

Change in price only will create a movement along the same curve

Decease in input price will decrease cost, this mean more profit, supply will increase (curve will shift down)

Better technology will shift supply up, and increase supply (+ve)

Decrease in tax or subsides will increase supply (-ve)

Increase in quantity supply is different from increase in supply1st one is affect by product price only and causes a movement along the curve2nd one is affect by other factor and will cause shift in curve

Market SupplyThe total quantity supply by all firms

PSa SbSm = Sa + Sb

1010080180

1212090210

14140100240

Supply and Demand together

We call the market price as equilibrium price. It is the price at which quantity supply equal quantity demand. It is determined by demand and supply interaction

At higher prices, the quantity supply will exceed quantity demand, this will create excess supply (surplus)

At lower price, the quantity demand will exceed quantity supply, this will create excess demand (shortage)

Factors change equilibrium: Change in demand Change in supply Change in supply and demand

Laws of demand and supply

Increase in demand (shift up) causes increase price and quantity. Decrease in demand (shift down) causes decrease in price and quantity Increase in supply (shift down) causes decrease in price and increase in quantity Decrease in supply (shift up) cause increase in price and decrease in quantity

What will happen in the market of housing when wages of housing workers increases?Price will increase and quantity will decrease

Change in Demand and Supply Increase in Demand and increase in Supply Decrease in Demand and Decrease in Supply Increase in Demand and Decrease in Supply Decrease in Demand and Increase in Supply

For Example:Increase in Demand and Decrease in Supply

Increase in Demand Decrease in Supply

P++Price will increase

Q+-??? might increase, decrease or no change

Check the graph

Statement:Increase in demand and decrease in supply causes always increase in equilibrium price and quantity (false)

Elasticity and its application:

1- What is elasticity in general2- Different type of elasticity (demand and supply elasticity)3- Computing or calculating elasticity4- Price elasticity and demand curve5- Price elasticity and total revenue and expenditure6- What determine price elasticity7- Some application on price elasticity

Elasticity in generalIt is a measure of responsiveness between two variables

Qd = F(Px, I x, Py)

Price elasticity of demand Qd = F(Px)Measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price

Income elasticity Qd = F(I x)

Cross Elasticity Qd = F(Py)

Supply Elasticity

Measure elasticity in generalPercentage change of dependent value divided by percentage change of independentThe sign could be positive or negative according to the relation

Elasticity valueDescription

1Unit

>1Elastic

1% change in Q > % change in PElasticFlatIncrease when P decrease