Specialisation, when one person is better at making one type of good than another.
The first example is comparative advantage. This is simply when the PPFs cross on a graph (refer to this post if you need more information) Take a simple example of carrots and peas produced by 2 people.
Carrots Peas
Pete 5 10
Katy 30 2
Made with one unit of natural resource
It is easy to see that Pete should specialise in peas and Katy should specialise in carrots. So instead of producing 10 peas with 1 unit of natural resource, Pete can produce 20 peas, an increase of 8 peas before specialisation. Similarly, Katy can now produce 60 carrots, an increase of 25 carrots before specialisation.
Since only one person has all the peas and one has all the carrots, an exchange rate must be formed between Pete and Katy. The minimum exchange rate for 1 pea of 0.5 a carrot and the maximum is 3 carrots. The Mutually beneficial rate of exchange is half way between these two value-1.75 carrots for 1 pea.
But when one person is better at producing both goods, it is known as absolute advantage. Katy, this may be useful to you!!
Using the same example as before...
Carrots Peas
Pete 10 5
Katy 15 30
Made with one unit of natural resource
This example shows that Katy is better at producing both goods. But since each has to specialise in one good, Katy should specialise in the good that she is best at, and Pete should specialise in the one he is 'least worst' at. So Katy specialises in peas, and Pete specialises in carrots.
To find out the Mutually benificial rate of exchange (MBEC)...
The maximum value of one carrot is 2 peas and the minimum value is 0.5 peas. So halfway between the two is 1.25 peas, the MBEC.
The gain from specialisation (GFS) is -5 carrots +25 peas. We know that 1 carrot is worth about 1.25 peas, so sub. this value in (time for some algebra...)
-5(1.25) peas +25 peas = +18.75 peas. A GFS is ALWAYS positive!!
Wednesday, 21 November 2012
Thursday, 18 October 2012
Shifts in Demand and Supply
Shifts in Demand and Supply are caused when a factor of Demand or Supply causes the Demand or Supply curve to shift to the left or right.
Shifts in Demand:
A shift in Demand is caused when the price of a goods in Joint demand or competing demand rise or fall, or simply caused by a change in people's current interests.
If the Demand curve was to shift to the right, then this would indicate that the Quantity demanded for a product would increase as price stays the same. Similarly, if the Demand curve shifts to the left, the opposite has happened-Quantity demanded for the good decreases as price stays the same. The graph below shows just that:
-The Demand curve D1 represents the original demand curve.
-A rightward shift causes the Demand curve shift to shift to the right. This is represented by the Demand curve D2. This could be caused by an increase in population.
-A leftward shift in Demand causes the Demand curve to shift to the left. This is represented by the Demand curve D3. This could be caused by a decrease in the price of a good in Joint Demand (goods that go together, like CDs and CD players).
Shifts in supply:
A shift in supply is caused when the firm changes the price at which they will sell a certain quantity of the good at a different price, when the firm has had a tax imposed on them or when the firm has been granted a subsidy by the government. If the supply shifts to the left, then the firm may have had a tax imposed on them. Similarly, if the supply curve shifts to the right, then they may have had a subsidy granted to them. The graph below shows this:
-The Supply curve S1 represents the original supply curve.
-A rightward shift in Supply causes the supply curve to shift to the left. This is represented by the supply curve S2. This could be caused by a subsidy granted to them.
-A leftward shift in supply causes the Supply curve to shift to the left. This is represented by the Supply curve S3. This could be caused by a tax being imposed on the firm.
Shifts in Demand:
A shift in Demand is caused when the price of a goods in Joint demand or competing demand rise or fall, or simply caused by a change in people's current interests.
If the Demand curve was to shift to the right, then this would indicate that the Quantity demanded for a product would increase as price stays the same. Similarly, if the Demand curve shifts to the left, the opposite has happened-Quantity demanded for the good decreases as price stays the same. The graph below shows just that:
 |
| Shifts in demand |
-A rightward shift causes the Demand curve shift to shift to the right. This is represented by the Demand curve D2. This could be caused by an increase in population.
-A leftward shift in Demand causes the Demand curve to shift to the left. This is represented by the Demand curve D3. This could be caused by a decrease in the price of a good in Joint Demand (goods that go together, like CDs and CD players).
Shifts in supply:
A shift in supply is caused when the firm changes the price at which they will sell a certain quantity of the good at a different price, when the firm has had a tax imposed on them or when the firm has been granted a subsidy by the government. If the supply shifts to the left, then the firm may have had a tax imposed on them. Similarly, if the supply curve shifts to the right, then they may have had a subsidy granted to them. The graph below shows this:
 |
| Shifts in Supply |
-The Supply curve S1 represents the original supply curve.
-A rightward shift in Supply causes the supply curve to shift to the left. This is represented by the supply curve S2. This could be caused by a subsidy granted to them.
-A leftward shift in supply causes the Supply curve to shift to the left. This is represented by the Supply curve S3. This could be caused by a tax being imposed on the firm.
Wednesday, 10 October 2012
Economics graphs-a summary
A simple summary of Economics graphs.
The Demand Graph:
This graph shows how many people would be willing to pay for a good at a certain price. As the price for a good increases, then the quantity demanded will decrease.
The Supply Graph:
This graph shows what the company supplying the good will be willing to sell the good for at a certain price. As the price rises, more of the good will be supplied. Why? Because all firms have a profit maximising objective.
The Equilibrium Graph:
This combines both the graphs we have learnt about above-the Demand graph and the Supply graph. The point at which the two lines cross is called the Equilibrium.
As many people will know from they're Maths, that can only occur in one place, and if they are not parallel to each other. Well, considering the lines are not parallel, then there will be a point at which they cross.
The PPF:
PPF, short for Possibility Production Frontier, is when a graph shows the maximum possible
The Demand Graph:
This graph shows how many people would be willing to pay for a good at a certain price. As the price for a good increases, then the quantity demanded will decrease.
 |
| The demand graph, with price on the Y axis and Quantity (demanded) on the X axis |
The Supply Graph:
This graph shows what the company supplying the good will be willing to sell the good for at a certain price. As the price rises, more of the good will be supplied. Why? Because all firms have a profit maximising objective.
 |
| The supply graph, with Quantity (supplied) on the X axis and Price on the Y axis. |
The Equilibrium Graph:
This combines both the graphs we have learnt about above-the Demand graph and the Supply graph. The point at which the two lines cross is called the Equilibrium.
As many people will know from they're Maths, that can only occur in one place, and if they are not parallel to each other. Well, considering the lines are not parallel, then there will be a point at which they cross.
 |
| The Equilibrium graph, with price on the Y-axis and Quantity demanded/supplied on the X axis |
The PPF:
PPF, short for Possibility Production Frontier, is when a graph shows the maximum possible
output of two goods made in the same factory. This, unlike the other three graphs I have covered in this post, is represented as a curve. If we take a farm, for example, a farmer can grow two different types of crop in it, wheat and tobacco. If the farmer grows tobacco, the land in some places would become unsuitable for the wheat to grow in. Therefore, not all of the land can be used.
If the company is operating inside the PPF area, then the resources are not being used as effectively as could be. It is not possible to operate outside this area without an upgrade in technology or more resources available to the company.
 |
| The PPF graph with 2 types of good show: Capital goods on the Y axis, and Consumer goods on the X axis |
Wednesday, 3 October 2012
Supply and demand graphs
Firstly, I should tell you that supply graphs are different for demand graphs. These two types of graph should be (hopefully) easy to explain.
Demand graphs:
These were the first type of graph that I came across [out of the two (so far) that I have learnt about]. Demand is how much a customer/consumer is willing to pay for an item. take for example chocolate bars (because most people will buy them). If the price is low, a lot of people will buy them. If the price increases, then less and less people will buy them (and then no one will probably buy them at a certain price).
To show how this works, I'll show the price per unit and quantity demanded in a table.
Price per unit Quantity
(1 chocolate bar) demanded
5p 70
10p 60
15p 50
20p 40
30p 20
As you can obviously see, as the price per unit increases, the quantity demanded decreases. This is known as an inverse relationship.
Now, as a graph, it looks like this:
.jpg)
It is now easy to work out the quantity demanded for the chocolate bars at any given price. So if you set the price to 25p, the quantity demanded would be 30.
Supply graphs:
This was the second type of graph that I came across. Supply is where a company will only supply a certain quantity of the good at a certain price. So if I show this in a table, as I did with demand, hopefully things will become clearer.
Price for a Quantity
chocolate bar supplied
5p 20
10p 30
15p 40
20p 50
30p 70
As you can see from the table, as the price for 1 chocolate bar increases, the quantity supplied increases. This means there is a direct relationship between price per unit and quantity supplied. As a graph, it looks like this:
.jpg)
Now , you can easily work out the quantity supplied for the good at any price. So, if the price of the chocolate bar was 25p, the company would supply 60 chocolate bars.
Now, the equilibrium-where demand and supply meet.
If we combine both the demand and supply graphs together, we can find out the equilibrium for the product. At the point of equilibrium, there is no shortage of goods and no excess goods. The graph looks like this:
Now, it may not be the clearest graph ever, but the point of intersection (the equilibrium) is when the quantity supplied is 45, and the price they are sold for 17p.
This is without the factors which will affect both demand and supply.
--Factors that affect demand include a change in population and simply a change in people's current interests.
--Factors that affect supply include tax and improvements in technology.
Summary points:
-Demand graphs are different to supply graphs.
-Quantity demand and price per unit are inversely proportional to each other.
-Quantity supplied and price per unit are directly proportional to each other.
-The point on the graph where both lines intersect is called the equilibrium.
-The equilibrium is where there is no shortage of goods and no excess goods.
Demand graphs:
These were the first type of graph that I came across [out of the two (so far) that I have learnt about]. Demand is how much a customer/consumer is willing to pay for an item. take for example chocolate bars (because most people will buy them). If the price is low, a lot of people will buy them. If the price increases, then less and less people will buy them (and then no one will probably buy them at a certain price).
To show how this works, I'll show the price per unit and quantity demanded in a table.
Price per unit Quantity
(1 chocolate bar) demanded
5p 70
10p 60
15p 50
20p 40
30p 20
As you can obviously see, as the price per unit increases, the quantity demanded decreases. This is known as an inverse relationship.
Now, as a graph, it looks like this:
.jpg)
It is now easy to work out the quantity demanded for the chocolate bars at any given price. So if you set the price to 25p, the quantity demanded would be 30.
Supply graphs:
This was the second type of graph that I came across. Supply is where a company will only supply a certain quantity of the good at a certain price. So if I show this in a table, as I did with demand, hopefully things will become clearer.
Price for a Quantity
chocolate bar supplied
5p 20
10p 30
15p 40
20p 50
30p 70
As you can see from the table, as the price for 1 chocolate bar increases, the quantity supplied increases. This means there is a direct relationship between price per unit and quantity supplied. As a graph, it looks like this:
.jpg)
Now , you can easily work out the quantity supplied for the good at any price. So, if the price of the chocolate bar was 25p, the company would supply 60 chocolate bars.
Now, the equilibrium-where demand and supply meet.
If we combine both the demand and supply graphs together, we can find out the equilibrium for the product. At the point of equilibrium, there is no shortage of goods and no excess goods. The graph looks like this:
.jpg) |
| Blue line=Quantity demanded Red line=Quantity supplied |
Now, it may not be the clearest graph ever, but the point of intersection (the equilibrium) is when the quantity supplied is 45, and the price they are sold for 17p.
This is without the factors which will affect both demand and supply.
--Factors that affect demand include a change in population and simply a change in people's current interests.
--Factors that affect supply include tax and improvements in technology.
Summary points:
-Demand graphs are different to supply graphs.
-Quantity demand and price per unit are inversely proportional to each other.
-Quantity supplied and price per unit are directly proportional to each other.
-The point on the graph where both lines intersect is called the equilibrium.
-The equilibrium is where there is no shortage of goods and no excess goods.
Friday, 21 September 2012
Command, free markets and mixed economies-diferences
There is a scale of how much control the govenment takes over the economy, measured in three factors: Command economies, Mixed economies or a Free market.
Command economies:
Put simply, these economies are mostly controlled by the govenment. The govenment will control the allocation of the resources, what is made and so on. An example of a command economy would be North Korea, as the govenment has high control over production. This means that there is not a high amount of variety in there markets. These economies can go into Govenment Failure, as the govenment is controlling the whole market. And when the govenment makes the wrong decision, this is when the market begins to collapse, with the govenment getting the blame.
Free markets:
This is the complete opposite of a command economy, because the people who are in charge of production (managers etc.) control what that certain company makes. This will give a variety of what goes on the market. An example of this is Hong Kong-it's markets are completly different to ones you find in North Korea. These countries are highly unlikly to go into Govenment Failure, as the government does not control as much of the economy as in a command economy (e.g.: North Korea).
Mixed economies:
These are 'in the middle' of a command economy and a free market. They are partly controlled by the govenment, and partly controlled by the managers of the companies controlling production. This has a variety of items on the market, but what goes on can be controlled by the govenment. An example of a mixed economy would be the USA. If the market begins to collapse, then who to blame is questionable (i.e. who controlled that part of the market, the govenment or the the manager of the company).
Put simply, these economies are mostly controlled by the govenment. The govenment will control the allocation of the resources, what is made and so on. An example of a command economy would be North Korea, as the govenment has high control over production. This means that there is not a high amount of variety in there markets. These economies can go into Govenment Failure, as the govenment is controlling the whole market. And when the govenment makes the wrong decision, this is when the market begins to collapse, with the govenment getting the blame.
Free markets:
This is the complete opposite of a command economy, because the people who are in charge of production (managers etc.) control what that certain company makes. This will give a variety of what goes on the market. An example of this is Hong Kong-it's markets are completly different to ones you find in North Korea. These countries are highly unlikly to go into Govenment Failure, as the government does not control as much of the economy as in a command economy (e.g.: North Korea).
Mixed economies:
These are 'in the middle' of a command economy and a free market. They are partly controlled by the govenment, and partly controlled by the managers of the companies controlling production. This has a variety of items on the market, but what goes on can be controlled by the govenment. An example of a mixed economy would be the USA. If the market begins to collapse, then who to blame is questionable (i.e. who controlled that part of the market, the govenment or the the manager of the company).
Wednesday, 19 September 2012
iPhone 5 record orders
As many of you will know, the iPhone 5 was released about a week ago, and has already had 2 million+ orders in 24 hours, meaning some will not arrive until October.
The full article is here: http://news.sky.com/story/986160/iphone-5-delivery-backlog-after-record-orders, but here are my thoughts on why this is:
iPhone 4 (32GB): £189-£239, £23-£26 per month.
iPhone 4S (32GB): £189-£239, £27-£30 per month (64GB: £279-£329, £27-£30 per month).
iPhone 5 (32GB): £89, £37-£39 per month (64GB: £109, £40-£42 per month).
Therefore (using the 32GB model), The iPhone 5 is a lot cheaper when you pay the upfront cost (i.e. what you give to the store), but has a higher monthly cost (i.e. what comes to you as a bill per month).
So why does has the new iPhone sold out so quickly? Well, it seams that it is because it is cheaper and that system that it runs on is a lot faster than previous iPhones, which attracts both current iPhone fans and new ones. The turn-by-turn navigation should make driving a lot easier, and may even start to replace sat navs. The 4G Internet (fastest yet) makings browsing the Internet, downloading videos etc. will make browsing the Internet a much more pleasurable experience (without the horrible loading screens and waiting for videos to buffer can be time consuming).
So can the iPhone 5 reach the top of the smart phone market, once Apple can sell the 2 million+ orders they've received in their first few days of selling? And will the turn-by-turn navigation begin to start replacing the sat nav systems? Well, only time tell.
The full article is here: http://news.sky.com/story/986160/iphone-5-delivery-backlog-after-record-orders, but here are my thoughts on why this is:
- New Operating system coming out with turn-by-turn navigation (Available shortly).
- 4G Internet-faster browsing and shorter download time.
iPhone 4 (32GB): £189-£239, £23-£26 per month.
iPhone 4S (32GB): £189-£239, £27-£30 per month (64GB: £279-£329, £27-£30 per month).
iPhone 5 (32GB): £89, £37-£39 per month (64GB: £109, £40-£42 per month).
Therefore (using the 32GB model), The iPhone 5 is a lot cheaper when you pay the upfront cost (i.e. what you give to the store), but has a higher monthly cost (i.e. what comes to you as a bill per month).
So why does has the new iPhone sold out so quickly? Well, it seams that it is because it is cheaper and that system that it runs on is a lot faster than previous iPhones, which attracts both current iPhone fans and new ones. The turn-by-turn navigation should make driving a lot easier, and may even start to replace sat navs. The 4G Internet (fastest yet) makings browsing the Internet, downloading videos etc. will make browsing the Internet a much more pleasurable experience (without the horrible loading screens and waiting for videos to buffer can be time consuming).
So can the iPhone 5 reach the top of the smart phone market, once Apple can sell the 2 million+ orders they've received in their first few days of selling? And will the turn-by-turn navigation begin to start replacing the sat nav systems? Well, only time tell.
Saturday, 15 September 2012
Facebook shares on the rise
Over the past 8 days (Sept. 4th to 12th), Facebook shares have increased in value by 118%, from $17.73 per share upto $20.93 per share, which is an increase of $3.2 per share. Facebook shares made a large increase since the interview with Mark Zuckerburg on Tuesday (12th Sept.). The interview was to 'calm down' worried investers in the company.
As of September 12th, Facebook shares are worth $20.93, which is 55% of what they were worth when trading first begun, and 46.5% of their peak in value.
The most popular features of Facebook are searches, finding friends and using apps. These features are constantly being updated to gain more popularity and make them easier to use.
Since the release of Twitter and Google Plus, Facebook has had competition to be the best Social Networking media on the Internet. Now can Facebook bring up it's share values and increase the number of people that use it, and still be the dominant socal networking site? Only time will tell. Maybe Zuckerburg's speech has been the turning point of Facebook's history.
Wednesday, 12 September 2012
Murray's win at the US Open
As many people will know, Andy Murray has won his first Grand slam title at the US Open. So what does this mean on the economic side? 'On the economic side' could (in theory) mean anything from Murray's income to an entire country or the world. I'm going to write about Murray's income, and also compare it to another Tennis player, Roger Federer (World Number 1).
Murray was estimated to earn $12 million (£7.5 million) in the last 12 months, which is not much compared to Roger Federer, who earned $54.3 million (£33.37 million), which is about 22.1% of Murray's earnings. The $1.9 million (£1.18 million) that Murray earned for winning the US Open is equivalent to 15.8% of Murray's earnings in the past 12 months, and a small 3.5% of what Federer earned last year.
With this win for Murray, he should be attracting a lot of sponserships, possibly increasing his earnings to nearly $20 million (£12.44 million). This means he could possibly earning three times as much as he is currently earning, 36.8% of Federer's earning last year.
Now with his first major win and an Olympic Gold in the Men's singles, then this will surely give Murray more confidence, which will therefore increase his earnings, so 'Brand Murray' can only increase.
The question that I asked at the start was 'What does this mean on the economic side?'. Well, I can conclude that Murray's earnings as 4th in the World Tennis Rankings are considerably less than the Federer. However, Murray's earnings are set to increase, as of the rise in Sponserships that he should gain. Now this should mean that he should win more Grand Slam titles. But, if his performance drops, then he may loose those sponserships will (possibly) fade away, and Murray will be back to where he started before he won the US Open. So the pressure that was on Murray when he came to the final was high (due to the fact that there had not been a British player to win a Grand Slam in 76 years), but he cannot completely relax- he still needs to keep up his current level of performance to secure these Sponserships by winning more Grand Slams or other titles.
Murray was estimated to earn $12 million (£7.5 million) in the last 12 months, which is not much compared to Roger Federer, who earned $54.3 million (£33.37 million), which is about 22.1% of Murray's earnings. The $1.9 million (£1.18 million) that Murray earned for winning the US Open is equivalent to 15.8% of Murray's earnings in the past 12 months, and a small 3.5% of what Federer earned last year.
With this win for Murray, he should be attracting a lot of sponserships, possibly increasing his earnings to nearly $20 million (£12.44 million). This means he could possibly earning three times as much as he is currently earning, 36.8% of Federer's earning last year.
Now with his first major win and an Olympic Gold in the Men's singles, then this will surely give Murray more confidence, which will therefore increase his earnings, so 'Brand Murray' can only increase.
The question that I asked at the start was 'What does this mean on the economic side?'. Well, I can conclude that Murray's earnings as 4th in the World Tennis Rankings are considerably less than the Federer. However, Murray's earnings are set to increase, as of the rise in Sponserships that he should gain. Now this should mean that he should win more Grand Slam titles. But, if his performance drops, then he may loose those sponserships will (possibly) fade away, and Murray will be back to where he started before he won the US Open. So the pressure that was on Murray when he came to the final was high (due to the fact that there had not been a British player to win a Grand Slam in 76 years), but he cannot completely relax- he still needs to keep up his current level of performance to secure these Sponserships by winning more Grand Slams or other titles.
Monday, 10 September 2012
The first blog
So, this is my first blog. I've created the blog so that I can post economics-related links and anything I've found relevant or interesting. I hope this will help me though the course this year and that it will help everyone else.
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