About Lesson
Key Economic Concepts and Intro to Model of Supply and Demand
Economics is the study of how society manages its scarce resources. All resources are scarce to a certain extent. In market economies these resources are allocated through the interaction of buyers and sellers, households and firms, employers and employees, as well as policies implemented by governments.
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Lecture 2: Demand and Supply (continued)
As promised, here is our first real world application of the theory learned in Lecture 1! The lecture slides show how the demand and supply model can be used to explain quite clearly the effect on world oil prices resulting from OPEC’s cut in oil production between 1979 and 1980. Using actual data from those years, it shows that the production cut caused a contraction in supply of 8 million barrels/day (leftward shift of the supply curve) resulting in an increase in the price of oil from $20/barrel to $30/barrel.
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Lecture 3: Elasticity
The concept of elasticity is extremely useful for both business decisions (by how much revenue will increase/decrease with an increase in price) and government policy (impact of a tax on oil or cigarettes on government revenue).
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Lecture 4: Materials Taxation
The first four slides in Lecture 4 show the impact of a 50-cent tax imposed on buyers and sellers using the previously used demand and supply model in the market for ice cream cones. These slides illustrate how one obtains the new equilibrium as a result of the tax. Surprisingly perhaps, it is not the old equilibrium (without the tax) + the tax but rather a bit less than that. The reason has to do with the relative slopes (steepness of the demand and supply curves and thus their elasticity).
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