Posts tagged microeconomics
Quizzes and an IGCSE Past Paper Question to Assess Your Understanding of Demand, Supply and Market Equilibrium
Nov 11th
Image: Some rights reserved by Valerie Everett
a) Exploring Supply and Demand by Kim Sosin – useful in that you can get feedback on the impacts on the Supply and Demand graph, shown on the right hand side of your browser.
b) True/False Quiz hosted on a http://www.oup.com site.
c) SELF-GRADING PRACTICE QUIZ #3 via http://www.sscnet.ucla.edu
The following four quizzes by Pearson via http://wps.aw.com are good means of testing your understanding of demand, supply,and the market equilibrium. Usefully, at the end of each quiz you can email your results to yourself and your teacher.
d) Quiz 1
e) Quiz 2
f) Quiz 3
g) Quiz 4
Source: CIE Economics Paper 4 Exam, May/June Session 2002
Should Eggs Be Sold At Their Pre-Flood Prices During the Flood Crisis?
Nov 3rd
In 2011, Thailand suffered one of its most destructive floods in history. This link will hopefully update with some accuracy to give this post some context in the future (at the time of writing, the floods are still very much underway): 2011 Thailand Floods on Wikipedia
Due to a combination of reduced supply (as many farms, factories, and transport links in the country were flooded) and an increase in demand (as people stocked up on essentials in case they would not be able to get any later on as the floods worsened), prices of many goods increased considerably.
Some news items and social media
On October 30th, this report from The Nation newspaper online emerged (click on the image to see the original article):
The day before, on the 29th October, the following tweet appeared reporting that the Commerce Minister apparently said consumers should not accept higher (“inflated”) prices for eggs:
Typically eggs, before the floods, would sell at 3 or 4 baht each, so the new price represented an approximate doubling.
On 31st October, the Commerce Ministry announced Price Controls on 9 Essential Goods – although eggs weren’t specifically included in the 9 Essentials, a representative from the ministry said “about 3.2 million eggs from Malaysia will reach Thailand on November 3. It would be sold at no more than Bt4 each”.
On the same day, 31st October, this report emerged (click on the image to see the original article). [Note, to “sell like hot cakes” means to sell very quickly and in large numbers].
In the scenario above, why did they sell like hot cakes? Why did huge queues form? Why did the government have to ration eggs after maintaining a ‘ceiling’ (maximum) price of 3 Thai baht?
On 1st November, this tweet appeared on the topic:
Now we are introduced to the word ‘shortage’ – in Economics that has a specific meaning – what does a shortage mean?
Some graphs
Let’s for simplicity argue that the price of eggs had risen because of a severe reduction in supply (although it is possible that the demand for eggs increased as well, it seems likely that supply would have reduced by more than any increase in demand). Follow the steps on the graphs below:
So the question you should try and answer, as a student of Economics, is in the title …
Should Eggs Have Been Sold At Their Pre-Flood Prices?
- Use diagram(s), fully labelled and explained.
- Refer to the developments in the news and items social media references given above.
- To conclude, try to explain the possible advantages of sticking with pre-flood prices and the possible disadvantages (you might have to think from a mixture of social, political and economic perspectives).
Here are some suggested resources to help you for the economics- side of things:
mjmfoodie on Market Equilibrium
Reffonomics gives interactive diagrams on Shortages and Surpluses.
mjmfoodie on Price Floors and Price Ceilings
A bit more advanced, Biz/Ed on Putting Demand and Supply Together: The Market Mechanism. The interactive diagrams could be used to explore the changes.
Supply Revisited
Oct 25th
This post is to add further resources on the concept of supply, for those who wish to follow up on this absolutely essential concept in Economics. First, however, I recommend you use the resources on this post to learn about supply: http://opengecko.com/economics/supply/
1) Videos
Supply by vaacon1
Creating a supply curve from a supply schedule by FreeEconHelp
Supply Curve and Changes in Supply by jcsballoon
Change in supply / change in quantity supplied by vaacon1
Various factors (short clips) affecting supply by vaacon1:
The diagrams are quite hard to see on the whiteboard, but the explanations and examples are clear.
Supply shifts – Prices of Relevant Resources
Supply Shifts – Expectations of Future price
Supply Shifts – Number of Sellers
Supply Shifts – Technology
Supply shifts – Taxes and Subsidies
You will need to revise what taxes and subsidies are.
Supply shifts – Government Restrictions
2) Interactive Activities
Factors affecting supply (via http://www.mbs.edu)
Supply via http://yknot.terapad.com
Supply – sellers perspective via http://edunirvana.com
Graphing The Supply Curve via http://glencoe.com
The Law of Supply and Supply Curves via http://www.emcp.com
Demand Revisited
Oct 25th
This post is to add further resources on the concept of demand, for those who wish to follow up on this absolutely essential concept in Economics. First, however, I recommend you use the resources on this post to learn about demand:
1) Videos
What is a demand curve? by 
Note – I think part of his second to last sentence should state “… the basic relationship between quantity demanded and changes in price …”
Deriving a demand curve, given a demand schedule by FreeEconHelp
Demand curve video by jessicaweldon22
Note – at one point she claims the market is the whole planet’s population, but we can talk about more specific, smaller markets than that. E.g. the market for cars in Thailand.
The Demand Curve Part 1 by milespritchardecon1
The Demand Curve Part 2: Shifts In Demand by milespritchardecon1
Change in demand / change in quantity demand by vaacon1
Various factors (short clips) affecting demand by vaacon1:
The diagrams are quite hard to see on the whiteboard, but the explanations and examples are clear.
Demand shifts – prices of related goods
Demand shifts – expectations of future prices
Demand shifts – Income
Demand shifts – Number of buyers
Demand shifts – Preferences
As he adds, in text, part way in, he makes a mistake early on and mentions shifts in supply, when he is actually discussing shifts in demand.
2) Interactive Activities
A Demand Curve (imperial.ac.uk)
Animated Economics – Demand Curves
John Wiley Economics – Shift Versus Movement Along The Demand Curve
Demand by yknot.terapad.com
Graphing The Demand Curve (glecnoe.com)
Increase / Decrease in Demand by BlackBoards.com
Price Discrimination
Feb 28th
The first video in this post goes to a student. Komilla (CuteChadz)has produced a very professional looking summary and it is well worth a look:
pajholden does price discrimination
richardmckenzie gives us two videos:
Click here to see a Reffonomics interactive presentation on price discrimination.
For a bit of fun, view the scene from the Monty Python film ‘Life of Brian’ where confusing haggling (first price discrimnation) takes place – click here.
Oligopoly
Feb 21st
IB Syllabus requirements:
• Assumptions of the model
• Collusive and non-collusive oligopoly
• Cartels
• Kinked demand curve as one model to describe interdependent behaviour
• Importance of non-price competition
• Theory of contestable markets
BrynJonesOnline introduces the theory before moving onto Kinked Demand Theory:
Cartels
This helpful video is by richardmckenzie
Non Collusion – Kinked Demand Theory:
An animated slideshow on oligopoly focuses on kinked demand theory (from the excellent Reffonomics ).
The above introduces the ‘kink’ (by ACDCLeadership). The below is by pajholden and goes into more detail:
kinked demand curve theory (click on the link to view)
The kinked demand theory can be extended to show how such a non-collusive oligopolistic firm makes a loss, makes a profit or breaks even (again from the excellent Reffonomics ).
Theory of Contestable Markets
pajholden discusses the theory in his back garden: contestable market theory
economicslessons has produced this video geared towards A Level economics (so the example question at the end is not an IB one):
Extra:
On the interdependency of firms, we should consider John Nash who arrived at the theory of a Nash Equilibrium in which members of a group would serve their own interests by also serving the rest of the group’s interests (as opposed to Adam Smith’s contention that individuals (or firms) will strive to serve their own interests only). This idea was captured in the excellent film A Beautiful Mind and the relevant excerpt can be seen by clicking here.
On the difficulty of drawing a line between monopolistic competition and oligopoly, view this slideshow by Reffonomics.
Finally, for a bit of fun, see how a famous condom manufacturer has approached non-price competition through the power of advertising by clicking here.
Monopolistic Competition
Feb 8th
Here is the IB syllabus requirement for this sub-topic:
Monopolistic competition
• Assumptions of the model
• Short-run and long-run equilibrium
• Product differentiation
• Efficiency in monopolistic competition
From www.reffonomics.com a useful introductory slide on calculating price and quantity under monopolistic competition scenario:
Which then leads to finding profit (from the same site, www.reffonomics.com) :
One that is earning a loss:
And one breaking even:
You can access all the resources here: Microeconomics by Dick Brunelle and Steven Reff – full credit to these industrious authors of the presentations above.
From http://highered.mcgraw-hill.com (McConnell Brue Economics) we have a useful interactive graph to explore with appropriate questions to solve – click on the image or title below
Now some video resources:
econsteve12 has given us three parts:
pajholden provides this video: click here
richardmckenzie offers this video:
And finally here is ACDCLeadership’s 60 seconds’ worth:
Monopoly
Feb 1st
The IB syllabus requirements for this sub-topic are to understand:
- Assumptions of the model
- Sources of monopoly power/barriers to entry
- Natural monopoly
- Demand curve facing the monopolist
- Profit-maximizing level of output
- Advantages and disadvantages of monopoly in comparison with perfect competition
- Efficiency in monopoly
Here are a selection of useful resources to further your understanding of the above.
Two very good presentations on monopolies courtesy of http://www.reffonomics.com:
Above Video Source: mjmfoodie
Perfect Competition
Jan 25th
The IB Economics syllabus requires you to understand the following:
• Assumptions of the model
• Demand curve facing the industry and the firm in perfect competition
• Profit-maximizing level of output and price in the short-run and long-run
• The possibility of abnormal profits/losses in the short-run and normal profits in the long-run
• Shut-down price, break-even price
• Definitions of allocative and productive (technical) efficiency
• Efficiency in perfect competition
This selection of resources is designed to compliment your learning of this topic, with a focus on video clips and interactive resources.
Via: http://www.reffonomics.com
This is a very good interactive diagram to try out different scenarios buy adjusting the D=AR=MR line and/or the quantity produced.
Excellent interactive exploration of the relevant theory with multiple choice quiz questions to test your understanding(click on the image)
Via http://openmultimedia.ie.edu created by Javier Carrillo
mjmfoodie on Perfect Competition:
pajholden on equilibrium in perfect competition (click here to view)
richardmckenzie offers two detailed videos:
ACDCLeadership does his usual 60 seconds take on things:
Profit
Jan 13th
We need to understand this according to the syllabus:
- Distinction between normal (zero) and supernormal (abnormal) profit
- Profit maximization in terms of total revenue and total costs, and in terms of marginal
revenue and marginal cost - Profit maximization assumed to be the main goal of firms but other goals exist (sales volume maximization, revenue maximization, environmental concerns)
First review the difference between normal and supernormal (or abnormal) profit explained in this video by mjmfoodie:
Then, mjmfoodie also introduces us to profit maximisation “in terms of total revenue and total costs, and in terms of marginal revenue and marginal cost” (IB Economics syllabus):
The MC=MR is a golden rule which you really need to understand and remember. See it action in this fast-aced example by ACDCLeadership:
For a light hearted recap, SpongeBob Squarepants and Mr Crab discuss these principles (thanks to EdwardBahaw):
We must remember however, that profit maximisation is assumed to be the number one goal of firms. What about other goals?
Research / Discuss what other goals a firm might have – share them with others in your class.
Now, for each of the additional goals, discuss whether or not they in fact do in some way link to profict maximisation.
pajholden demonstrates that the profit maximising level can be different from output maximising level. Watch the video here:
