INTRODUCTION TO

ECONOMICS
Choices, Choices, Choices, . . .
WHAT IS ECONOMICS?
The Study of Economics
The Study of Economics
ECONOMICS: 5 Economic Questions
Society (we) must figure out
PRODUCTION
4 Factors and Payments of Production
 Production Process

Land

Goods

Labor
Production/Manufacturing
“Factory” Consumers

Capital

Services
Entre
Preneur
ship
CHANGES IN PRODUCTION

Hardee’s makes
hamburgers, not
shoes!!

Nike makes shoes, not

hamburgers
CHANGES IN PRODUCTION

You do your
job, and I will
do my Job
and we will be
more
EFFICIENT.
CHANGES IN PRODUCTION

The DELL store is

empty because….

Everyone is at the
APPLE STORE!!!
CHANGES IN PRODUCTION

If we INCREASE land, labor, capital we

INCREASE production
– Many entrepreneurs invest profit back into
production

If we DECREASE land, labor, capital we

DECREASE production

BUT WHY would we ever DECREASE

production?
When Production Decreases
PRODUCTION, cont.
Types of Economic System
Types of Economic System
PRINCIPLES OF CAPITALISM
 LABOR
Wages – what companies Salary – the amount of
pay employees for their pay a person gets over a
labor (usually based upon year (especially for
an hourly rate). “professional” jobs).

Blue Collar White Collar

Manufacturing, work with ‘Office’ jobs
hands Usually control production
Usually the ‘labor’ in
production
How does ‘Labor’ protect itself?
How does ‘Labor’ protect itself?
DEMAND
Law of Demand
 Other Influences on Demand
INFLUENCES ON
DEMAND
Tastes and Preferences different likes and dislikes
Income More money/income
means higher demand
The prices of related  Substitute goods
goods  Complementary goods
The number of buyers in More buyers means
the market higher demand
Expectations about the
future
Other Influences on Demand
Other Influences on Demand
Other Influences on Demand
Other Influences on Demand
Other Influences on Demand
Other Influences on Demand
At a price of $4.95, a pulp fiction novel is
expected to sell 9,000 copies. If the novel is
offered for sale at a price of $3.95, then the
publisher can expect to sell
A.less than 9,000 copies.
B.9,000 copies.
C.more than 9,000 copies.
D.It is impossible to predict the effect of a
lower price on sales.
Supply
The Law of Supply
 Other Influences on Supply
INFLUENCES ON
SUPPLY
Costs of production
The prices of related  Substitute goods
goods  Complementary goods
The number of suppliers More suppliers means
(firms) in the market more supply
Expectations about the
future
Technology
Other Influences on Supply
Other Influences on Supply
Other Influences on Supply
Other Influences on Supply
Other Influences on Supply
At a price of $299.95, the manufacturer of a
portable gas-powered generator is willing to
produce 19,000 units per quarter. At a price of
$349.95, it is likely that the manufacturer will be
willing to produce
A.more than 19,000 units per quarter.
B.19,000 units per quarter.
C.less than 19,000 units per quarter.
D.It is impossible to predict the effect of a
higher price on the number of units of a product
that a firm will be willing to produce.
 Elasticity
Is a measure of how much buyers
and sellers respond to changes in
market conditions.
THE ELASTICITY OF DEMAND
Degree of Price Elasticity of Demand
Degree of Price Elasticity of Demand
Degree of Price Elasticity of Demand
THE ELASTICITY OF SUPPLY
Degree of Price Elasticity of Supply
1. Elastic supply
A change in price results to a greater
change in quantity supplied (e.g. 20%
increase in price = 20% change in
quantity supplied)
Producers are very sensitive to price
change
Products which can be produced
immediately (e.g. industrial products)
Degree of Price Elasticity of Supply
2. Inelastic supply
A change in price results to a lesser
change in quantity supplied (e.g. 50%
change in price = 5% change in quantity
demanded)
Producers have a very weak response to
price change
Products cannot be produced immediately
(e.g. agricultural products)
Degree of Price Elasticity of Supply
3. Unitary demand
A change in price results to an equal
change in quantity supplied
Products are semi-industrial or semi-
agricultural
The law of supply and demand
Generally, a low supply and high
demand increases price, and in contrast,
the greater the supply and the lower the
demand, the lower the price tends to fall.
 Law of Supply and Demand
When supply is higher than demand, price
decreases; S > D, P
When demand is higher than the supply,
price increases; S < D, P
When supply is equal to demand, price
remains constant
1. If automobile manufacturers are
producing cars faster than people want to
A.there is an excess supply and price can be
expected to decrease.
B.there is an excess supply and price can be
expected to increase.
C.there is an excess demand and price can
be expected to decrease.
D.there is an excess demand and price can
be expected to increase.
2. If a computer software company introduces a
new program and finds that orders from
wholesalers far exceed the number of units that
are being produced,
A.there is an excess supply and price can be
expected to decrease.
B.there is an excess supply and price can be
expected to increase.
C.there is an excess demand and price can be
expected to decrease.
D.there is an excess demand and price can be
expected to increase.
3. If a rise in supply exceeds a rise in
demand, then we should expect
A.the equilibrium price and quantity levels
will rise.
B.the equilibrium price will rise while the
equilibrium quantity will decline.
C.The equilibrium price will fall while the
equilibrium quantity will rise.
D.the equilibrium price and quantity levels
will decline.
 Agrarian Reform Program
founded on the right of farmers
and regular farmworkers, who are
landless, to own directly or
collectively the lands they till or, in
the case of other farmworkers, to
receive a just share of the fruits
thereof.
Agrarian Reform
Land Reform
Agricultural Tenancy
Two tenancy systems
1. A demand curve can shift
because of changing
A.incomes
B.prices of related goods
C.tastes
D.all the above
2. When we know the quantity of a
product that buyers wish to purchase at
each possible price, we know
A.Demand
B.Supply
C.Excess demand
D.Excess supply
3. If a price increase of good A
increases the quantity demanded of
good B, then good B is a
A.Substitute good
B.Complementary good
C.Normal good
D.Inferior good
4. The law of demand states that
A. demand increases with increase in
income
B. when income and prices rise, the
demand also rises
C. when price falls, demand increases
D. when price increases, demand
increases
5. Economic problem arises mainly
due to
A.Overpopulation
B.Unemployment
C.Scarcity of resources
D.Lack of small industries
6. Other things being equal, what
causes a decrease in demand?
A.rise in the price of the substitute
B.fall in the price of the commodity
C.rise in the income of the consumer
D.rise in the price of the commodity
7. Demand for a good will tend to be more
elastic if it exhibits which of the following
characteristics
A.It represents a small part of the
consumer’s income.
B.The good has many substitutes available.
C.It is a necessity (as opposed to a luxury).
D.There is little time for the consumer to
adjust to the price change.
8. Demand for a good will tend to be more
inelastic if it exhibits which of the following
characteristics
A.The good has many substitutes.
B.The good is a luxury (as opposed to a
necessity).
C.The good is a small part of the consumer’s
income.
D.The good is a necessity.
9. Which of the following would cause a
supply shift?
A.A change in consumer tastes or
preferences
B.New technology
C.Consumer taxes
D.Employment figures
10. The central problem in economics is that of
A.comparing the success of command versus
market economies.
B.guaranteeing that production occurs in the
most efficient manner.
C.guaranteeing a minimum level of income for
every citizen.
D.allocating scarce resources in such a manner
that society’s unlimited needs or wants are
satisfied in the best possible manner.
11. All the following shift the demand curve
for automobiles to the right except:
A.the local factory gives a big raise to its
employees.
B.a brand-new automobile dealership opens
in town.
C.the price of gasoline falls.
D.None of the Above
12 If the cost of computer components falls,
then
A.the demand curve for computers shifts to
the right.
B.the demand curve for computers shifts to
the left.
C.the supply curve for computers shifts to
the right.
D.the supply curve for computers shifts to
the left.
13. What happens in the market for
airline travel when the price of
traveling by rail decreases?
A.The demand curve shifts left.
B.The demand curve shifts right.
C.The supply curve shifts left.
D.We move along the supply curve.
14. If a sin tax is placed on sales of
alcohol,
A.the demand curve shifts to the left.
B.the demand curve shifts to the right.
C.the supply curve shifts to the left.
D.the supply curve shifts to the right.
15. Which of the following will move
the demand curve for pork to the
right?
A.A reduction in the cost of corn
that is used to feed pigs
B.A reduction in the price of pork
C.An increase in the price of beef
D.All the above
16. Which of the following provides an
example of complementary goods?
A.Pepsi and Coca-Cola
B.French fries and catsup
C.Milk and orange juice
D.Beef and pork
17. Which of the following will not
cause the demand for product K to
change?
A.a change in the price of close-
substitute product J
B.an increase in consumer incomes
C.a change in the price of K
D.a change in consumer tastes
18. Which of the following would not shift the
demand curve for beef?
A.a widely publicized study which indicates
beef increases one's cholesterol
B.a reduction in the price of cattle feed
C.an effective advertising campaign by pork
producers
D.a change in the incomes of beef
consumers
19. If the price of K declines, the
demand curve for the complementary
product J will:
A.shift to the left.
B.decrease.
C.shift to the right.
D.remain unchanged.
20. Scarcity requires that we
A.learn to limit our wants.
B.have unlimited resources.
C.have the most rapid economic
growth possible.
D.make choices about what goods
and services to produce.
21. Which of the following does NOT
increase the supply of personal computers,
that is, does NOT shift the supply curve of
personal computers?
an increase in the number of firms
producing personal computer
a fall in the cost of the components used to
produce personal computers
a rise in the price of a personal computer
a change in the expected future price of a
personal computer
22. Plywood is used in the construction of
houses. If the price of plywood rises, what
happens to the supply of houses?
A.The supply decreases so that the supply
curve shifts leftward.
B.The quantity supplied increases but there
is no shift in the supply curve.
C.The supply increases so that the supply
curve shifts rightward.
D.The quantity supplied decreases but there
is no shift in the supply curve.
23. Consider the market for bread. If
the price of wheat rises, then the
A.demand curve for bread shifts out of
bounds.
B.equilibrium quantity of bread
increases.
C.price of bread falls.
D.supply curve of bread shifts leftward.
24. The price elasticity of demand is a
measure
A.the amount of a product purchased when
income increases.
B.buyers' responsiveness to changes in the
price of a product.
C.how much a change in demand affects the
equilibrium price.
D.the equilibrium price of a product.
25. A local grocery store orders 200 cases
of Pepsi each week and sells them at a price
of $6.00 per case. At the end of the first
week, they have only sold 160 cases. What
economic situation is the grocery store
facing and what will have to happen to price
in order for equilibrium to be attained?
A.surplus; price will rise.
B.surplus; price will fall.
C.shortage; price will rise.
D.shortage; price will fall.
26. Which of the following can lead to an
increase in the supply for good X?
A.a decrease in the number of sellers of
good X.
B.an increase in the price of inputs used to
make good X.
C.an increase in consumers' income,
assuming good X is a normal.
D.an improvement in technology used in
production of good X.
27. An increase in the price of electricity will:
A.increase the demand for kerosene
heaters.
B.increase the demand for light bulbs.
C.increase the demand for stereos.
D.increase the demand for TVs.
28. Which of the following events will cause
an increase in the market demand for
Guinness (a brand of beer)?
A.A decrease in the price of Guinness.
B.An increase in the price of Heineken
(another brand of beer).
C.An increase in the price of Planters
peanuts (a complementary good).
D.An increase in income, if Guinness is an
inferior good.
30. During a recession, economies
experience increased unemployment and a
reduced level of activity. How would a
recession be likely to affect the market
demand for new cars?
A.Demand will shift to the right.
B.Demand will shift to the left.
C.Demand will not shift, but the quantity of
cars sold per month will decrease.
D.Demand will not shift, but the quantity of
cars sold per month will increase.