Organizational behavior is a developing field of study. Changes in the environment constantly challenge the ability of organizations and their owners, managers, employees to adapt to change work behaviors and procedures to increase the effectiveness with which they operate.
Organizations exist to provide goods and services that people want, and the amount and quality of these goods and services are products of the behaviors and performance of an organization's employees.
Organizational behavior is a study of the many factors that have an impact on how people and groups act, think, feel, and respond to work in organizations and how organizations respond to their environments. Organizational behavior provides a set of tools -- theories and concepts -- to understand, analyze, describe, and manage attitudes and behavior in organizations.
The study of organizational behavior can improve and change individual, group, and organizational behavior to attain individual, group, in organizational goals.
Organizational behavior can be analyzed at three levels; the individual, the group, and the organization as a whole.A full understanding is impossible without an examination of the factors that affect behavior at each level.
A significant task for organizations managers and employees is to use the tools of organizational behavior to increase organizational effectiveness, that is, an organization's ability to achieve its goals.
The activities of most organizations can be modeled as an open system in which an organization takes and resources from its external environment and converts or transforms them into good and services that are sent back to that environment, where customers buy them.
Changing pressures or forces in the social and cultural, global, technological, and employment or work environment posed many challenges for organizational behavior, and organizations must respond effectively to those challenges if they are to survive and prosper.
Two major challenges of importance to organizational behavior today from the social and cultural environment are those that derive from a breakdown in ethical values and from the increasing diversity of the workforce.
Two important challenges facing organizations from the global environment are to appreciate the differences that exist between countries and then to benefit from this new global knowledge to improve organizational behaviors and procedures.
Changes in the technological environment, and particularly advances in information technology, are also having important effects of organizational behavior and procedures. IT has improved effectiveness by helping an organization improve the quality of its products, lower their costs, and by promoting creativity and organizational learning and innovation.
Many changes have also been taking place in the employment or work environment and important developments that have affected organizational behavior include a shortening employment relationship because of downsizing, the growth in the number of contingent or temporary employees, and outsourcing.
Monday, August 28, 2006
Sunday, August 27, 2006
Organizational behavior -- Chapter 1
Organization -- a collection of people who work together to achieve individual and organizational goals
organizational behavior -- the study of factors that affect how individuals and groups act in organizations and how organizations respond to their environments
Organizational behavior provides a set of tools that allow;
team -- a group in which members worked together intensively to achieve a common group goal
Understanding and managing organizational behavior requires studying:
individuals in organizations
manager -- a person who supervises the activities of one or more employees
top management team -- high-ranking executives who plan a company strategy so that the company can achieve its goals
organizational effectiveness -- the ability of an organization to achieve its goals
Management -- the process of planning, organizing, leading, and controlling and organizations human, financial, material, and other resources to increase its effectiveness
planning -- deciding how best to allocate and use resources to achieve organizational goals
organizing -- establishing a structure of relationships that dictates how members of an organization work together to achieve organizational goals
leading -- encouraging and coordinating individuals and groups that all organizational members are working to achieve organizational goals
self managed teams -- groups of employees who are given the authority and responsibility to manage many different aspects of their own organizational behavior
controlling -- monitoring and evaluating individual, group, and organizational performance to see whether organizational goals are being achieved
role -- a set of behaviors or tasks a person is expected to perform because of the position he or she holds in the group or organization
skill -- an ability to act in a way that allows a person to perform well in his or her role
conceptual skills -- the ability to analyze and diagnose a situation into distinguish between cause and effect
human skills -- the ability to understand, work with, lead, and control the behavior of other people in groups
technical skills -- job specific knowledge and techniques
open system -- organizations that taken resources from their external environment and convert or transform them into goods and services that are sent back to their environments where customers buy them
organizational procedure -- a rule or routine an employee follows to perform some task and the most effective way
national culture -- the set of values or beliefs that a society considers important in the norms of behavior that are approved or sanctioned in that society
ethics -- the values, beliefs, and moral rules that managers and employees should use to analyze or inter per a situation and then decide what is the right or appropriate way to behave
well-being -- the condition of being happy, healthy, and prosperous
social responsibility -- an organization's obligations toward people or groups that are directly affected by its actions
diverse city -- differences resulting from age, gender, race, ethnicity, religion, sexual orientation, and socioeconomic background
global organizations -- companies that produce or sell their products and countries and regions throughout the world
global learning -- the process of acquiring and learning the skills, knowledge, and organizational behaviors and procedures and countries overseas
expatriate employees -- the people who work for company overseas and are responsible for developing relationships with organizations and countries around the globe
information -- a set of data, facts, numbers, and words that has been organized in such a way that it provides its users with knowledge
knowledge -- what a person perceives, recognizes, identifies, or discovers from analyzing data and information
information technology -- the many different kinds of computer and communications hardware and software, and the skills of their designers, programmers, managers, and technicians
organizational learning -- the process of managing information and knowledge to achieve a better fit between the organization and its environment
intranets -- a network of information technology linkages inside an organization that connects all of its members
downsizing -- the process by which organizations laid-off managers and workers to reduce costs
empowerment -- the process of giving employees throughout organization the authority to make important decisions and to be responsible for their outcomes
contingent workers -- people employed for temporary periods by an organization and he receive no benefits such as health insurance or pensions
outsourcing -- the process of employing people in groups outside the organization or other organizations, to perform specific jobs or types of work activities that used to be performed by the organization itself
freelancer -- a person who contracts with the organization to perform specific services
organizational behavior -- the study of factors that affect how individuals and groups act in organizations and how organizations respond to their environments
Organizational behavior provides a set of tools that allow;
- people to understand, analyze, and describe behavior in organizations
- managers to improve, enhance, or change work behaviors so that individuals, groups, and the whole organization can achieve their goals
team -- a group in which members worked together intensively to achieve a common group goal
Understanding and managing organizational behavior requires studying:
individuals in organizations
- individual differences: personality and ability
- work values, attitudes, moods, and emotions
- perception, attribution, and the management of diversity
- learning and creativity
- the nature of work motivation
- creating a motivating work setting
- pay, careers, and changing employment relationships
- managing stress and work life balance
- the nature of work groups and teams
- effective workgroups and teams
- leaders and leadership
- power, politics, conflict, and negotiation
- communication in organizations
- decision making and organizational learning
- organizational design and structure
- organizational culture and ethical behavior
- organizational change and development
manager -- a person who supervises the activities of one or more employees
top management team -- high-ranking executives who plan a company strategy so that the company can achieve its goals
organizational effectiveness -- the ability of an organization to achieve its goals
Management -- the process of planning, organizing, leading, and controlling and organizations human, financial, material, and other resources to increase its effectiveness
planning -- deciding how best to allocate and use resources to achieve organizational goals
organizing -- establishing a structure of relationships that dictates how members of an organization work together to achieve organizational goals
leading -- encouraging and coordinating individuals and groups that all organizational members are working to achieve organizational goals
self managed teams -- groups of employees who are given the authority and responsibility to manage many different aspects of their own organizational behavior
controlling -- monitoring and evaluating individual, group, and organizational performance to see whether organizational goals are being achieved
role -- a set of behaviors or tasks a person is expected to perform because of the position he or she holds in the group or organization
skill -- an ability to act in a way that allows a person to perform well in his or her role
conceptual skills -- the ability to analyze and diagnose a situation into distinguish between cause and effect
human skills -- the ability to understand, work with, lead, and control the behavior of other people in groups
technical skills -- job specific knowledge and techniques
open system -- organizations that taken resources from their external environment and convert or transform them into goods and services that are sent back to their environments where customers buy them
organizational procedure -- a rule or routine an employee follows to perform some task and the most effective way
national culture -- the set of values or beliefs that a society considers important in the norms of behavior that are approved or sanctioned in that society
ethics -- the values, beliefs, and moral rules that managers and employees should use to analyze or inter per a situation and then decide what is the right or appropriate way to behave
well-being -- the condition of being happy, healthy, and prosperous
social responsibility -- an organization's obligations toward people or groups that are directly affected by its actions
diverse city -- differences resulting from age, gender, race, ethnicity, religion, sexual orientation, and socioeconomic background
global organizations -- companies that produce or sell their products and countries and regions throughout the world
global learning -- the process of acquiring and learning the skills, knowledge, and organizational behaviors and procedures and countries overseas
expatriate employees -- the people who work for company overseas and are responsible for developing relationships with organizations and countries around the globe
information -- a set of data, facts, numbers, and words that has been organized in such a way that it provides its users with knowledge
knowledge -- what a person perceives, recognizes, identifies, or discovers from analyzing data and information
information technology -- the many different kinds of computer and communications hardware and software, and the skills of their designers, programmers, managers, and technicians
organizational learning -- the process of managing information and knowledge to achieve a better fit between the organization and its environment
intranets -- a network of information technology linkages inside an organization that connects all of its members
downsizing -- the process by which organizations laid-off managers and workers to reduce costs
empowerment -- the process of giving employees throughout organization the authority to make important decisions and to be responsible for their outcomes
contingent workers -- people employed for temporary periods by an organization and he receive no benefits such as health insurance or pensions
outsourcing -- the process of employing people in groups outside the organization or other organizations, to perform specific jobs or types of work activities that used to be performed by the organization itself
freelancer -- a person who contracts with the organization to perform specific services
Thursday, July 06, 2006
Session 4 Economics Summary
Intro to Macroeconomics, National Output and National Income, and Macroeconomic Concerns Introduction
Macroeconomics is a part of our everyday lives. If the macroeconomy is doing well, few people do not have jobs who want one, people’s incomes are generally rising, and profits of corporations are generally high.
Macroeconomics focuses on the determinants of total national output, whereas microeconomics focuses on the factors that influence the production of particular products and the behavior of individual industries. Macroeconomics is concerned with the sum or aggregate of industries’ performance, including the consumption of all households in the economy, the amount of labor supplied and demanded by all individuals and firms, and the total amount of all goods and services produced.
Introduction to Macroeconomics
Macroeconomics was born out of the effort to explain the Great Depression of the 1930’s. Since that time, the discipline has evolved, concerning itself with new issues as the problems facing the economy have changed. Through the late 1960’s, it was believed that government could “fine-tune” the economy to keep it running on an even keel at all times. The poor economic performance of the 1970’s however, showed that fine-tuning does not always work.
There are three very important macroeconomic concerns. These include:
Inflation, an increase in the overall price level
Output growth, the short-term ups and downs in the economy
Unemployment, which is the percent of the labor force that is unemployed
Macroeconomics is concerned with both long-run trends and with short-run fluctuations in economic performance. Since 1970, the U.S. has seen three recessions and large fluctuations in the rate of inflation.
National Output and National IncomeGross Domestic Product (GDP) is the key concept in the national income and product accounts. It is the total market value of a country’s output, the market value of all final goods and services produced within a given period of time by factors of production located within a country.
Calculating GDP can be achieved in two ways:
by adding up the amount spent on all final goods during a given period (the expenditure approach), or
by adding up all the income received by all factors of production in producing final goods (the income approach). Either way, we should obtain the same total output.
There are other useful concepts besides GDP. They are:
Serious problems arise when we try to use GDP as a measure of happiness or well-being. For example:
An ideal economy is one in which there is rapid growth of output per worker, low unemployment, and low inflation. There can be times of slow growth, however—high unemployment and high inflation.
Several macroeconomic concerns include:
A recession, which is a period where real GDP declines for at least two consecutive quarters
A depression, which is a prolonged and deep recession
Unemployment, which is the ratio of the number of unemployed people to the number of people in the labor force
One final macroeconomic concern is inflation. Inflation is an increase in the overall price level. It happens when many prices increase simultaneously. A deflation is a decrease in the overall price level. Whether a person gains or loses during a period of inflation depends on whether his or her income rises faster or slower than the prices of the things he or she buys.
Macroeconomics is a part of our everyday lives. If the macroeconomy is doing well, few people do not have jobs who want one, people’s incomes are generally rising, and profits of corporations are generally high.
Macroeconomics focuses on the determinants of total national output, whereas microeconomics focuses on the factors that influence the production of particular products and the behavior of individual industries. Macroeconomics is concerned with the sum or aggregate of industries’ performance, including the consumption of all households in the economy, the amount of labor supplied and demanded by all individuals and firms, and the total amount of all goods and services produced.
Introduction to Macroeconomics
Macroeconomics was born out of the effort to explain the Great Depression of the 1930’s. Since that time, the discipline has evolved, concerning itself with new issues as the problems facing the economy have changed. Through the late 1960’s, it was believed that government could “fine-tune” the economy to keep it running on an even keel at all times. The poor economic performance of the 1970’s however, showed that fine-tuning does not always work.
There are three very important macroeconomic concerns. These include:
Inflation, an increase in the overall price level
Output growth, the short-term ups and downs in the economy
Unemployment, which is the percent of the labor force that is unemployed
Macroeconomics is concerned with both long-run trends and with short-run fluctuations in economic performance. Since 1970, the U.S. has seen three recessions and large fluctuations in the rate of inflation.
National Output and National IncomeGross Domestic Product (GDP) is the key concept in the national income and product accounts. It is the total market value of a country’s output, the market value of all final goods and services produced within a given period of time by factors of production located within a country.
Calculating GDP can be achieved in two ways:
by adding up the amount spent on all final goods during a given period (the expenditure approach), or
by adding up all the income received by all factors of production in producing final goods (the income approach). Either way, we should obtain the same total output.
There are other useful concepts besides GDP. They are:
- Gross National Product (GNP), GDP plus factor income earned by U.S. citizens from the rest of the world and subtracting factor income earned in the U.S. by foreigners
- NNP or Net National Product , which is GNP less depreciation
- National Income (NI), which is NNP less indirect business taxes plus subsidies
- Personal Income (PI), which is the total income of households, and is found by taking NI and subtracting corporate profits minus dividends and social insurance payments, and then adding personal interest income from the government and consumers and transfer payments made to persons
- Disposable Personal Income, which is PI after personal income taxes are paid
- Nominal GDP is GDP measured in current dollars, or the current prices we pay for things. This is not a desirable measure of production, because production could seem to increase when in fact only the price has increased. Calculating real GDP means using a geometric average over two base years and changing the base years used as the calculations move through time.
Serious problems arise when we try to use GDP as a measure of happiness or well-being. For example:
- Some changes in social welfare are not measured by GDP
- There is an underground economy that should be counted in GDP but is not, due to the fact that they are considered illegal activities or a result of tax evasion
- Per Capita GDP or GNP, which is divided by a country’s population, is a better measure of well-being for the average person than is total GDP or GNP
An ideal economy is one in which there is rapid growth of output per worker, low unemployment, and low inflation. There can be times of slow growth, however—high unemployment and high inflation.
Several macroeconomic concerns include:
A recession, which is a period where real GDP declines for at least two consecutive quarters
A depression, which is a prolonged and deep recession
Unemployment, which is the ratio of the number of unemployed people to the number of people in the labor force
One final macroeconomic concern is inflation. Inflation is an increase in the overall price level. It happens when many prices increase simultaneously. A deflation is a decrease in the overall price level. Whether a person gains or loses during a period of inflation depends on whether his or her income rises faster or slower than the prices of the things he or she buys.
Economics Chapter 22
why do economies grow?
Capital deepening -- increases in the stock of capital per worker
technological progress -- an increase in output without increasing imports
human capital -- the knowledge and skills acquired by a worker through education and experience and used to produce goods and services
real GDP per capita -- gross domestic product per person adjusted for changes in prices. It is the usual measure of living standards across time and between countries
growth rate -- the percentage rate of change of a variable
rule of 70 -- a rule of thumb that says the output will double in 70/x years where x is the percentage rate of growth
convergence -- the process by which poor countries "catch up" with richer countries in terms of real GDP per capita
saving -- total income minus consumption
growth accounting -- a method to determine the contribution to economic growth from increased capital, labor, and technological progress
labor productivity -- output produced per hour of work
creative destruction -- the process by which competition for monopoly profits lead to technological progress
new growth theory -- modern periods of growth that try to explain the origins of technological progress
Notes
Economic do not have a complete understanding of what leads to growth, they regard increases in capital per worker, technological progress, human capital, and governmental institutions as key factors.
There are vast differences in per capita GDP throughout the world. There is debate about whether poorer countries in the world are converging in per capita incomes to richer countries.
Economy's growth through two basic mechanisms:
capital deepening and technology all processes.
Capital deepening is an increase in capital per worker. Technological progress is an increase in output with no additional increases in inputs.
Ongoing technological progress will lead to sustained economic growth.
A variety of theories try to explain the origins of technological progress and determine how we can promote it.
They include
spending on research and development,
creative destruction,
the scale of the market,
induced inventions,
education, and
the accumulation of knowledge.
Governments can play a key role in designing institutions that promote economic growth.
Investments in human capital are a key component of economic growth.
Capital deepening -- increases in the stock of capital per worker
technological progress -- an increase in output without increasing imports
human capital -- the knowledge and skills acquired by a worker through education and experience and used to produce goods and services
real GDP per capita -- gross domestic product per person adjusted for changes in prices. It is the usual measure of living standards across time and between countries
growth rate -- the percentage rate of change of a variable
rule of 70 -- a rule of thumb that says the output will double in 70/x years where x is the percentage rate of growth
convergence -- the process by which poor countries "catch up" with richer countries in terms of real GDP per capita
saving -- total income minus consumption
growth accounting -- a method to determine the contribution to economic growth from increased capital, labor, and technological progress
labor productivity -- output produced per hour of work
creative destruction -- the process by which competition for monopoly profits lead to technological progress
new growth theory -- modern periods of growth that try to explain the origins of technological progress
Notes
Economic do not have a complete understanding of what leads to growth, they regard increases in capital per worker, technological progress, human capital, and governmental institutions as key factors.
There are vast differences in per capita GDP throughout the world. There is debate about whether poorer countries in the world are converging in per capita incomes to richer countries.
Economy's growth through two basic mechanisms:
capital deepening and technology all processes.
Capital deepening is an increase in capital per worker. Technological progress is an increase in output with no additional increases in inputs.
Ongoing technological progress will lead to sustained economic growth.
A variety of theories try to explain the origins of technological progress and determine how we can promote it.
They include
spending on research and development,
creative destruction,
the scale of the market,
induced inventions,
education, and
the accumulation of knowledge.
Governments can play a key role in designing institutions that promote economic growth.
Investments in human capital are a key component of economic growth.
Economics Chapter 21
the economy at full employment
Classical model -- models assume wages and prices adjust freely to changes in demand and supply
production function -- the relationship between the level of output and the factors of production
stock and capital -- a total of all the machines, equipment, and buildings in the entire economy
labor -- human effort, including both physical and mental effort, used to produce goods and services.
Real wage -- the wage paid to workers adjusted for changes in prices
substitution effect -- an increase in the wage will raise the opportunity cost of leisure and lead to an increase in hours worked
income effect -- as income rises, a worker may choose to work fewer hours in enjoyed more leisure
full employment output -- the level of output that results when the economy is producing at full employment
real business cycle theory -- the economic theory that emphasizes how shocks to technology can cause fluctuations in economic activity
crowding out -- the reduction in investment in the long run caused by an increase in government spending
closed economy -- an economy without international trade
open economy -- an economy with international trade
crowding in -- the increase of investment in the long run caused by decrease in government spending
Notes
Full employment or potential output is the level of GDP produced from a given supply of capital when the labor market is in equilibrium. Potential output is fully determined by the supply of factors of production in the economy.
Increases in the stock of capital raise the level of full employment output and real wages.
Increases in the supply of labor will raise the level of full employment output but lower the level of real wages.
The full employment model has many applications. Many economists use it to study the effects of taxes on potential output. Others have found it useful in understanding economic fluctuations.
At full employment, increases in government spending less come at the expense of other components of GDP. In a closed economy, either consumption or investment must be crowded out. In an open economy, net exports can be crowded out as well. Decreases in government spending will crowd and other types of spending.
Classical model -- models assume wages and prices adjust freely to changes in demand and supply
production function -- the relationship between the level of output and the factors of production
stock and capital -- a total of all the machines, equipment, and buildings in the entire economy
labor -- human effort, including both physical and mental effort, used to produce goods and services.
Real wage -- the wage paid to workers adjusted for changes in prices
substitution effect -- an increase in the wage will raise the opportunity cost of leisure and lead to an increase in hours worked
income effect -- as income rises, a worker may choose to work fewer hours in enjoyed more leisure
full employment output -- the level of output that results when the economy is producing at full employment
real business cycle theory -- the economic theory that emphasizes how shocks to technology can cause fluctuations in economic activity
crowding out -- the reduction in investment in the long run caused by an increase in government spending
closed economy -- an economy without international trade
open economy -- an economy with international trade
crowding in -- the increase of investment in the long run caused by decrease in government spending
Notes
Full employment or potential output is the level of GDP produced from a given supply of capital when the labor market is in equilibrium. Potential output is fully determined by the supply of factors of production in the economy.
Increases in the stock of capital raise the level of full employment output and real wages.
Increases in the supply of labor will raise the level of full employment output but lower the level of real wages.
The full employment model has many applications. Many economists use it to study the effects of taxes on potential output. Others have found it useful in understanding economic fluctuations.
At full employment, increases in government spending less come at the expense of other components of GDP. In a closed economy, either consumption or investment must be crowded out. In an open economy, net exports can be crowded out as well. Decreases in government spending will crowd and other types of spending.
Economics Chapter 20
unemployment and inflation
Unemployed -- people who are looking for work but do not have jobs
employed -- people with jobs
labor force -- the employed plus the unemployed that are looking
unemployment rate -- a fraction of the labor force that is unemployed
labor force participation rate -- the fraction of the population over 16 years of age that is in the labor force
discouraged workers -- workers who left the labor force because they could not find jobs
marginally attached workers -- individuals who have worked in the past to stop working for a variety of reasons
seasonal unemployment -- the component of unemployment attributed to seasonal factors
cyclical unemployment -- the component of unemployment that accompanies fluctuations in real GDP
fractional unemployment -- the part of unemployment associated with the normal workings of the economy, such as searching for jobs
structural unemployment -- a component of unemployment reflecting a mismatch of skills and jobs
full employment -- the level of employment that occurs when the unemployment rate is that the natural rate
unemployment insurance -- payments received from the government upon becoming unemployed
consumer Price Index (CPI) -- a price index that measures the cost of a fixed basket of goods chosen to represent the consumption pattern of individuals
cost-of-living adjustment (COLAs) -- automatic increases in wages or other payments that are tied to a price index
inflation rate -- the percentage rate of change in the price level
deflation -- negative inflation or falling prices
menu costs -- costs of inflation that arise from actually changing prices
shoe-leather costs -- costs of inflation that arise from trying to reduce holdings of cash
hyperinflation -- an inflation rate exceeding 50% per month
Notes
The unemployed are individuals who did not have jobs or actively seeking employment.
Seasonal, cyclical, fractional, and structural are all different types of our employment.
Unemployment rates vary across groups. Alternative measures of unemployment take into account individuals who would like to work full-time, but wore no longer in the labor force or are holding part-time jobs.
Economists measure change in the cost of living through the Consumer Price Index, which is based on the cost of purchasing a standard basket of goods and services.
We measure inflation as the percentage change in the price level.
Economists believe that most price indices overstate true inflation because they failed to capture quality improvements.
Unemployment imposes both financial and psychological costs on workers.
Both anticipated an unanticipated inflation impose costs on society.
Unemployed -- people who are looking for work but do not have jobs
employed -- people with jobs
labor force -- the employed plus the unemployed that are looking
unemployment rate -- a fraction of the labor force that is unemployed
labor force participation rate -- the fraction of the population over 16 years of age that is in the labor force
discouraged workers -- workers who left the labor force because they could not find jobs
marginally attached workers -- individuals who have worked in the past to stop working for a variety of reasons
seasonal unemployment -- the component of unemployment attributed to seasonal factors
cyclical unemployment -- the component of unemployment that accompanies fluctuations in real GDP
fractional unemployment -- the part of unemployment associated with the normal workings of the economy, such as searching for jobs
structural unemployment -- a component of unemployment reflecting a mismatch of skills and jobs
full employment -- the level of employment that occurs when the unemployment rate is that the natural rate
unemployment insurance -- payments received from the government upon becoming unemployed
consumer Price Index (CPI) -- a price index that measures the cost of a fixed basket of goods chosen to represent the consumption pattern of individuals
cost-of-living adjustment (COLAs) -- automatic increases in wages or other payments that are tied to a price index
inflation rate -- the percentage rate of change in the price level
deflation -- negative inflation or falling prices
menu costs -- costs of inflation that arise from actually changing prices
shoe-leather costs -- costs of inflation that arise from trying to reduce holdings of cash
hyperinflation -- an inflation rate exceeding 50% per month
Notes
The unemployed are individuals who did not have jobs or actively seeking employment.
Seasonal, cyclical, fractional, and structural are all different types of our employment.
Unemployment rates vary across groups. Alternative measures of unemployment take into account individuals who would like to work full-time, but wore no longer in the labor force or are holding part-time jobs.
Economists measure change in the cost of living through the Consumer Price Index, which is based on the cost of purchasing a standard basket of goods and services.
We measure inflation as the percentage change in the price level.
Economists believe that most price indices overstate true inflation because they failed to capture quality improvements.
Unemployment imposes both financial and psychological costs on workers.
Both anticipated an unanticipated inflation impose costs on society.
Economics Chapter 19
measuring a nation's production and income
Macroeconomics -- the branch of economics that looks at a nation's economy as a whole
recession -- commonly defined as six consecutive months of negative economic growth
inflation -- sustained increases in prices
factor markets -- the markets in which labor and capital are traded
product markets -- the markets in which goods and services are traded
Gross domestic product (GDP) -- the total market value of all the final goods and services produced within an economy in a given year
intermediate goods -- goods used in the production process that are not final goods or services
real GDP -- a measure of GDP that controls the changes in prices
nominal GDP -- the value of GDP in current dollars
economic growth -- sustained increases in the real production of an economy over a period of time
consumption expenditures -- purchases of newly produced goods and services by households
durable goods -- goods that last for a long period of time, such as household appliances
nondurable goods -- good to last for short periods of time, such as food
services -- reflect work done in which people play a prominent role in delivery, ranging from here cutting to health care
private investment expenditures -- purchases of newly produced goods and services by firms
Gross investment -- actual investment purchases
depreciation -- the wear and tear of capital as it is used in production
net investment -- Gross investment minus depreciation
government purchases -- purchases of newly produced goods and services by all levels of government
transfer payments -- payments to individuals from governments that do not correspond to the production of goods and services
imports -- a good produced in a foreign country and purchased by residents of the home country
exports -- it's produced in the home country and sold in another country
net exports -- exports minus imports
trade deficit -- the excess of imports over exports
trade surplus -- the excess of exports over imports
national income -- net national product less indirect taxes
Gross national product (GNP) -- GDP plus net income earned abroad
net national product (NNP) -- GNP less depreciation
indirect taxes -- sales and excise taxes
personal income -- income received by households
personal disposable income -- personal income after taxes
value added -- the sum of all the income generated by an organization
GDP deflator -- an index that measures how the price of goods included in the GDP changes over time
chain index -- a method for calculating changes in prices that uses base years from neighboring years
Peak -- the time at which a recession begins
trough -- the time at which I'll put stops falling in a recession
expansion -- the period after a trough in the business cycle during which the economy recovers
Depression -- the common name for a severe recession
Notes
Developing meaningful statistics for entire economy is difficult. Statistics can convey useful information if they are used with care.
The circular flow shows how the production of goods and services generate income for households and how households purchased goods and services by firms.
GDP is the market value of all final goods and services produced in a given year.
GDP consists of four components:
consumption
investment
government purchases
net exports.
National income is obtained from GDP by adding net income US individuals and firms are earned from abroad, then subtracting depreciation and indirect taxes.
Real GDP is calculated by using constant prices. The Commerce Department now uses methods that take an average using base years from neighboring years.
A recession is commonly defined as a six-month consecutive period of negative growth. However, in the United States, the National Bureau of Economic Research uses a broader definition.
GDP does not include nonmarket transactions, leisure time, the underground economy, or changes to the environment.
Macroeconomics -- the branch of economics that looks at a nation's economy as a whole
recession -- commonly defined as six consecutive months of negative economic growth
inflation -- sustained increases in prices
factor markets -- the markets in which labor and capital are traded
product markets -- the markets in which goods and services are traded
Gross domestic product (GDP) -- the total market value of all the final goods and services produced within an economy in a given year
intermediate goods -- goods used in the production process that are not final goods or services
real GDP -- a measure of GDP that controls the changes in prices
nominal GDP -- the value of GDP in current dollars
economic growth -- sustained increases in the real production of an economy over a period of time
consumption expenditures -- purchases of newly produced goods and services by households
durable goods -- goods that last for a long period of time, such as household appliances
nondurable goods -- good to last for short periods of time, such as food
services -- reflect work done in which people play a prominent role in delivery, ranging from here cutting to health care
private investment expenditures -- purchases of newly produced goods and services by firms
Gross investment -- actual investment purchases
depreciation -- the wear and tear of capital as it is used in production
net investment -- Gross investment minus depreciation
government purchases -- purchases of newly produced goods and services by all levels of government
transfer payments -- payments to individuals from governments that do not correspond to the production of goods and services
imports -- a good produced in a foreign country and purchased by residents of the home country
exports -- it's produced in the home country and sold in another country
net exports -- exports minus imports
trade deficit -- the excess of imports over exports
trade surplus -- the excess of exports over imports
national income -- net national product less indirect taxes
Gross national product (GNP) -- GDP plus net income earned abroad
net national product (NNP) -- GNP less depreciation
indirect taxes -- sales and excise taxes
personal income -- income received by households
personal disposable income -- personal income after taxes
value added -- the sum of all the income generated by an organization
GDP deflator -- an index that measures how the price of goods included in the GDP changes over time
chain index -- a method for calculating changes in prices that uses base years from neighboring years
Peak -- the time at which a recession begins
trough -- the time at which I'll put stops falling in a recession
expansion -- the period after a trough in the business cycle during which the economy recovers
Depression -- the common name for a severe recession
Notes
Developing meaningful statistics for entire economy is difficult. Statistics can convey useful information if they are used with care.
The circular flow shows how the production of goods and services generate income for households and how households purchased goods and services by firms.
GDP is the market value of all final goods and services produced in a given year.
GDP consists of four components:
consumption
investment
government purchases
net exports.
National income is obtained from GDP by adding net income US individuals and firms are earned from abroad, then subtracting depreciation and indirect taxes.
Real GDP is calculated by using constant prices. The Commerce Department now uses methods that take an average using base years from neighboring years.
A recession is commonly defined as a six-month consecutive period of negative growth. However, in the United States, the National Bureau of Economic Research uses a broader definition.
GDP does not include nonmarket transactions, leisure time, the underground economy, or changes to the environment.
Tuesday, July 04, 2006
Session 3 Economics Summary
| Monopolistic and Oligopolistic Competition |
| Introduction A number of assumptions underlie the logic of pure competition: The first two imply that firms have no control over input prices or output prices; the third implies that opportunities for positive profit are eliminated in the long run. Monopoly For a monopolist, an increase in output involves not just producing more and selling it, but also reducing the price of its output to sell it. The marginal revenue is not equal to product price, as it is in competition. Instead, marginal revenue is lower than price because to raise output one unit and to be able to sell that one unit, the firm must lower the price it charges to all buyers. Compared with a competitively organized industry, a monopolist restricts output, charges higher prices, and earns positive profits. Monopolists will always charge a price higher than marginal cost (the price that would be set by perfect competition), because marginal revenue always lies below the demand curve for a monopoly. Monopolistic Competition and Oligopoly Relatively good substitutes for a monopolistic competitor’s products are available. Monopolistic competitors try to achieve a degree of market power by differentiating their products. An oligopoly is an industry dominated by a few firms that, by virtue of their individual size |
Economics Chapter 16
market structure and public policy
Average cost pricing policy -- a regulatory policy under which the government picks the point on the demand curve at which price equals average cost
trust -- an arrangement under which the owners of several companies transfer their decision-making powers to a small group of trustees, who then make decisions for all the firms
merger -- a process in which two or more firms combine operations
tie-in sales -- a business practice under which a consumer of one product is required to purchase another product
predatory pricing -- a pricing scheme under which a firm decreases its price to drive a rival outs of business and increase the price when the other firm disappears
Notes
In the case of natural monopoly, the government can regulate prices. In other industries, the government uses antitrust policies to affect the number of firms in the market, encouraging competition that leads to lower prices.
A natural monopoly occurs when they are our large scale a common use in production, said the market can support only one firm.
Under an average cost pricing policy, the regulated price for a natural monopoly is equal to the average cost of production.
The government uses antitrust policy to break up some dominant firms, prevent some corporate mergers, and regulate business practices that reduce competition.
The modern approach to merger policy uses price data to predict the effects of a merger.
In most circumstances, predatory pricing is on profitable because the monopoly power is costly to acquire and hard to maintain.
The deregulation of the airline industry led to more competition and lower prices on average, the higher prices in some markets.
Average cost pricing policy -- a regulatory policy under which the government picks the point on the demand curve at which price equals average cost
trust -- an arrangement under which the owners of several companies transfer their decision-making powers to a small group of trustees, who then make decisions for all the firms
merger -- a process in which two or more firms combine operations
tie-in sales -- a business practice under which a consumer of one product is required to purchase another product
predatory pricing -- a pricing scheme under which a firm decreases its price to drive a rival outs of business and increase the price when the other firm disappears
Notes
In the case of natural monopoly, the government can regulate prices. In other industries, the government uses antitrust policies to affect the number of firms in the market, encouraging competition that leads to lower prices.
A natural monopoly occurs when they are our large scale a common use in production, said the market can support only one firm.
Under an average cost pricing policy, the regulated price for a natural monopoly is equal to the average cost of production.
The government uses antitrust policy to break up some dominant firms, prevent some corporate mergers, and regulate business practices that reduce competition.
The modern approach to merger policy uses price data to predict the effects of a merger.
In most circumstances, predatory pricing is on profitable because the monopoly power is costly to acquire and hard to maintain.
The deregulation of the airline industry led to more competition and lower prices on average, the higher prices in some markets.
Economics Chapter 15
oligopoly and strategic behavior
Oligopoly -- a market served by a few firms
game theory -- a framework to explore the actions and reactions of interdependent decision-makers
concentration ratio -- a measure of the degree of concentration in a market; the four firm concentration ratio is the percentage of the market output produced by the four largest firms
duopoly -- a market with two firms
cartel -- a group of firms that collude explicity, coordinating their pricing decisions
price-fixing -- under arrangement in which two firms coordinate their pricing decisions
game tree -- a geographical representation of the consequences of different strategies
dominant strategy -- an action that is the best choice for a player, no matter what the opponent does
duopolosts' dilemma -- a situation in which both firms in a market would be better off if both shows the high price but each chooses the low-price
simultaneous decision-making game -- a game in which each player makes a choice without the other person knowing what that choice is
sequential decision making game -- a game in which one player makes the choice before the other
guaranteed price matching strategy -- a strategy where a firm guarantees it will match a lower price by a competitor; also known as the meet the competition policy
grim-trigger strategy -- a strategy where a firm response to underpricing by choosing a price so low that each firm makes zero economic profit
tit-for-tat -- a strategy where one firm chooses whatever price the other for chose in the proceeding.
Price leadership -- implicit agreement under which firms and a market chose a price leader, observed that firms price, and match it
kinked demand curve model -- a model under which firms and an oligopoly match price reductions by other firms but do not match price increases by other firms
limit pricing -- a scheme under which a monopolist accepts a price below the normal monopoly price to detour other firms from entering the market
contestable market -- a market in which the costs of entering and leaving are low, so firms that are already in the market are constantly threatened by the entry of new firms
Nash equilibrium -- an outcome of a game in which each player is doing the best here she can, given the action of the other players
Notes
Firms may use cartel pricing or price-fixing to avoid competition and keep prices high. If another firm threatens to enter a monopolist's market, the monopolist may cut its price to discourage other firms from entering a market.
Each firm in an oligopoly pass under incentive to underpriced the other firms, so price-fixing (also known as cartel pricing) will be on successful unless firms have some way of enforcing a fixed pricing agreement.
One way to maintain price-fixing is a guaranteed price matching scheme: one firm chooses the high price and promises to match a lower price offered by its competitor.
Price-fixing is more likely to occur if firms choose prices repeatedly and can punish a firm that chooses a price below the cartel price.
To prevent a second firm from entering the market, an insecure monopolist may commit itself to producing a relatively large quantity and excepting a relatively low price.
Oligopoly -- a market served by a few firms
game theory -- a framework to explore the actions and reactions of interdependent decision-makers
concentration ratio -- a measure of the degree of concentration in a market; the four firm concentration ratio is the percentage of the market output produced by the four largest firms
duopoly -- a market with two firms
cartel -- a group of firms that collude explicity, coordinating their pricing decisions
price-fixing -- under arrangement in which two firms coordinate their pricing decisions
game tree -- a geographical representation of the consequences of different strategies
dominant strategy -- an action that is the best choice for a player, no matter what the opponent does
duopolosts' dilemma -- a situation in which both firms in a market would be better off if both shows the high price but each chooses the low-price
simultaneous decision-making game -- a game in which each player makes a choice without the other person knowing what that choice is
sequential decision making game -- a game in which one player makes the choice before the other
guaranteed price matching strategy -- a strategy where a firm guarantees it will match a lower price by a competitor; also known as the meet the competition policy
grim-trigger strategy -- a strategy where a firm response to underpricing by choosing a price so low that each firm makes zero economic profit
tit-for-tat -- a strategy where one firm chooses whatever price the other for chose in the proceeding.
Price leadership -- implicit agreement under which firms and a market chose a price leader, observed that firms price, and match it
kinked demand curve model -- a model under which firms and an oligopoly match price reductions by other firms but do not match price increases by other firms
limit pricing -- a scheme under which a monopolist accepts a price below the normal monopoly price to detour other firms from entering the market
contestable market -- a market in which the costs of entering and leaving are low, so firms that are already in the market are constantly threatened by the entry of new firms
Nash equilibrium -- an outcome of a game in which each player is doing the best here she can, given the action of the other players
Notes
Firms may use cartel pricing or price-fixing to avoid competition and keep prices high. If another firm threatens to enter a monopolist's market, the monopolist may cut its price to discourage other firms from entering a market.
Each firm in an oligopoly pass under incentive to underpriced the other firms, so price-fixing (also known as cartel pricing) will be on successful unless firms have some way of enforcing a fixed pricing agreement.
One way to maintain price-fixing is a guaranteed price matching scheme: one firm chooses the high price and promises to match a lower price offered by its competitor.
Price-fixing is more likely to occur if firms choose prices repeatedly and can punish a firm that chooses a price below the cartel price.
To prevent a second firm from entering the market, an insecure monopolist may commit itself to producing a relatively large quantity and excepting a relatively low price.
Economics Chapter 14
market entry and monopolistic petition
Monopolistic competition -- a market served by many firms selling slightly different products
product differentiation -- a strategy monopolistic firms used to distinguish their products from their competitors
In a monopolistically competitive market, entry continues into each firm and the market makes zero economic profit. Firms can differentiate their products by picking a distinct physical design, level of service, location, or product or aura.
As firms enter a market, the market price drops and the average cost of production increases because each firm produces less output over which to spread its fixed costs.
In a monopolistically competitive market, firms compete for customers by producing differentiated products.
And the long-run equilibrium with monopolistic competition, price equals average cost and economic profit is zero.
Monopolistic competition -- a market served by many firms selling slightly different products
product differentiation -- a strategy monopolistic firms used to distinguish their products from their competitors
In a monopolistically competitive market, entry continues into each firm and the market makes zero economic profit. Firms can differentiate their products by picking a distinct physical design, level of service, location, or product or aura.
As firms enter a market, the market price drops and the average cost of production increases because each firm produces less output over which to spread its fixed costs.
In a monopolistically competitive market, firms compete for customers by producing differentiated products.
And the long-run equilibrium with monopolistic competition, price equals average cost and economic profit is zero.
Economics Chapter 13
Monopoly and price discrimination
Monopoly -- a market in which a single firm serves the entire market
market power -- the ability to affect the price of a product
patent -- the exclusive right to sell a particular good for some period of time
natural monopoly -- a market in which the economies of scale are so large that only a single large firm can survive
deadweight loss from monopoly -- a measure of the inefficiency from monopolies; with a constant cost industry, equal to the difference between the consumer surplus lost from monopoly pricing and the monopolies profit
rent seeking -- the process of using governments to obtain economic profit
Price discrimination -- the process under which a firm divides consumers into two or more groups and picks a different price for each group
Notes
Compared to a perfectly competitive market, a monopoly means a higher price, a smaller quantity, and resources wasted when firms seek monopoly power. On the positive side, some of the products we use today might never have been invented without the patent system and the monopoly power it grants. Firms with market power often use prices donation to increase their profits.
Compared to a purposely competitive market, a market served by monopolist will have a higher price, smaller quantity of output, and a deadweight loss to society.
Some firms spend money and use resources to acquire monopoly power, a process known as rent seeking.
Patents protect innovators from competition, leading to higher prices for new products but greater incentives to develop new products.
To engage in price discrimination, the firm divides its customers into two or more groups and charges lower prices two groups with more elastic demand.
Price discrimination is not an act of generosity; it's an act of profit maximization.
Monopoly -- a market in which a single firm serves the entire market
market power -- the ability to affect the price of a product
patent -- the exclusive right to sell a particular good for some period of time
natural monopoly -- a market in which the economies of scale are so large that only a single large firm can survive
deadweight loss from monopoly -- a measure of the inefficiency from monopolies; with a constant cost industry, equal to the difference between the consumer surplus lost from monopoly pricing and the monopolies profit
rent seeking -- the process of using governments to obtain economic profit
Price discrimination -- the process under which a firm divides consumers into two or more groups and picks a different price for each group
Notes
Compared to a perfectly competitive market, a monopoly means a higher price, a smaller quantity, and resources wasted when firms seek monopoly power. On the positive side, some of the products we use today might never have been invented without the patent system and the monopoly power it grants. Firms with market power often use prices donation to increase their profits.
Compared to a purposely competitive market, a market served by monopolist will have a higher price, smaller quantity of output, and a deadweight loss to society.
Some firms spend money and use resources to acquire monopoly power, a process known as rent seeking.
Patents protect innovators from competition, leading to higher prices for new products but greater incentives to develop new products.
To engage in price discrimination, the firm divides its customers into two or more groups and charges lower prices two groups with more elastic demand.
Price discrimination is not an act of generosity; it's an act of profit maximization.
Section 2 Economics Overview
The Price System, Supply and Demand, Household Behavior and Consumer Choice, General Equilibrium
Every society has a system of institutions that determines what is produced, how it is produced, and who gets what produced. In some societies, these decisions are made centrally, through planning agencies or by government directive. In every society, however, many decisions are made in a decentralized way, through the operation of markets.
The Price System, Supply, Demand
The market system or price system performs two important and closely related functions:
There are several types of elastic demand:
Household Behavior and Consumer Choice
Every household must make three basic decisions:
(1) how much of each product to demand;
(2) how much labor to supply; and
(3) how much to spend today and how much to save for the future.
Within the constraints of prices, income, and wealth, household decisions ultimately depend on preferences: likes, dislikes, and tastes.
Whether one item is preferable to another depends on how much utility, or satisfaction, it yields relative to its alternative. The law of diminishing utility states that the more of any good we consume in a given period of time, the less satisfaction, or utility we get out of each additional unit of that good.
In addition to deciding how to allocate its present income among goods and services, a household may also decide to save or borrow. A household is using current income to finance future spending when it decides to save part of its current income. A household finances current purchases with future income when it borrows.
General Equilibrium and Efficiency
A general equilibrium exists when all markets in an economy are in simultaneous equilibrium. An event that disturbs the equilibrium in one market may disturb the equilibrium in many other markets as well. Partial equilibrium analysis can be misleading, because it looks only at adjustments in one isolated market.
An efficient economy is one that produces the goods and services that people want at least possible cost. A change is said to be efficient if it improves some members of society without worsening others. An efficient (or Pareto optimal) system is one in which no such changes are possible.
Perfectly competitive firms will produce as long as the price of their product is greater than the marginal cost of production; therefore, they will continue to produce as long as a gain for society is possible. The market thus guarantees that the right things are produced. In other words, the perfectly competitive system produces what people want.
Market efficiency depends on the assumption that buyers have perfect information about product quality and price, and that firms have perfect information regarding input quality and price. Imperfect information can lead to wrong choices and inefficiency.
Every society has a system of institutions that determines what is produced, how it is produced, and who gets what produced. In some societies, these decisions are made centrally, through planning agencies or by government directive. In every society, however, many decisions are made in a decentralized way, through the operation of markets.
The Price System, Supply, Demand
The market system or price system performs two important and closely related functions:
- it distributes goods and services when the quantity demanded exceeds the quantity supplied (known as price rationing), and
- it determines the allocation of resources among producers, and hence the final mix of outputs.
There are several types of elastic demand:
- Perfectly inelastic, whose quantity demanded does not respond at all to changes in price
- Inelastic demand, whose quantity demanded responds somewhat to changes in price
- Elastic demand, for which the percentage change in quantity demanded is larger in absolute value than the percentage change in price
- Unitary elasticity of demand, for which the percentage change in the quantity of a product demanded is the same as the percentage change in price
- Perfectly elastic demand, for which a small increase in the price of a product causes the quantity demanded for that product to drop to zero
Household Behavior and Consumer Choice
Every household must make three basic decisions:
(1) how much of each product to demand;
(2) how much labor to supply; and
(3) how much to spend today and how much to save for the future.
Within the constraints of prices, income, and wealth, household decisions ultimately depend on preferences: likes, dislikes, and tastes.
Whether one item is preferable to another depends on how much utility, or satisfaction, it yields relative to its alternative. The law of diminishing utility states that the more of any good we consume in a given period of time, the less satisfaction, or utility we get out of each additional unit of that good.
In addition to deciding how to allocate its present income among goods and services, a household may also decide to save or borrow. A household is using current income to finance future spending when it decides to save part of its current income. A household finances current purchases with future income when it borrows.
General Equilibrium and Efficiency
A general equilibrium exists when all markets in an economy are in simultaneous equilibrium. An event that disturbs the equilibrium in one market may disturb the equilibrium in many other markets as well. Partial equilibrium analysis can be misleading, because it looks only at adjustments in one isolated market.
An efficient economy is one that produces the goods and services that people want at least possible cost. A change is said to be efficient if it improves some members of society without worsening others. An efficient (or Pareto optimal) system is one in which no such changes are possible.
Perfectly competitive firms will produce as long as the price of their product is greater than the marginal cost of production; therefore, they will continue to produce as long as a gain for society is possible. The market thus guarantees that the right things are produced. In other words, the perfectly competitive system produces what people want.
Market efficiency depends on the assumption that buyers have perfect information about product quality and price, and that firms have perfect information regarding input quality and price. Imperfect information can lead to wrong choices and inefficiency.
Economics Chapter 12
perfect competition
Perfectly competitive market -- a market with hundreds or thousands of sellers and buyers of a standardized good. Each buyer and seller takes the market price as given. Firms can easily enter or exit the market
firm specific demand curve -- a curve showing the relationship between the price charged of a specific firm and a quantity that can be sold by that firm
economic profit -- total revenue minus total economic cost
total revenue -- the money the firm gets by selling its product; equal to the price times the quantity sold
accounting profit -- total revenue minus explicit costs
marginal revenue -- the change in total revenue that results from selling one more unit of output
breakeven price -- the price at which the economic profit is zero; price equals average total cost
shutdown price -- the price at which the firm is indifferent between operating in shutting down; equal to the minimum average variable cost
sunk cost -- a cost a firm has already paid or has agreed to pay sometime in the future
firms short run supply curve -- a curve showing the relationship between the price of a product and the quantity of output supplied by affirming the short run
short run market supply curve -- a curve showing the relationship between price and quantity supplied in the short run
long run market supply curve -- a curve showing the relationship between the market price and quantity supplied in the long run
increasing cost industry -- an industry in which the average cost of production increases as the total output of the industry increases; the long run supply curve is positively sloped
constant cost industry -- an industry in which the average cost of production is constant; the long run supply curve is horizontal
Notes
In the short run, a firm uses the marginal principle to decide how much output to produce. In the long run, a firm will enter a market if the price exceeds the average cost of production.
A price taking firm should produce the quantity of output at which the marginal revenue (the price) equals the marginal cost of production.
At unprofitable firms should continue to operate if its total revenue exceeds the total durable cost.
The long run supply curve will be positively sloped if the average cost of production increases as the industry grows.
The long run supply curve is flatter than the short run supply curve because there are diminishing returns in the short run, but not in the long run.
An increase in demand causes a large upward jump in price, followed by a downward slide to the new long-run equilibrium price.
Perfectly competitive market -- a market with hundreds or thousands of sellers and buyers of a standardized good. Each buyer and seller takes the market price as given. Firms can easily enter or exit the market
firm specific demand curve -- a curve showing the relationship between the price charged of a specific firm and a quantity that can be sold by that firm
economic profit -- total revenue minus total economic cost
total revenue -- the money the firm gets by selling its product; equal to the price times the quantity sold
accounting profit -- total revenue minus explicit costs
marginal revenue -- the change in total revenue that results from selling one more unit of output
breakeven price -- the price at which the economic profit is zero; price equals average total cost
shutdown price -- the price at which the firm is indifferent between operating in shutting down; equal to the minimum average variable cost
sunk cost -- a cost a firm has already paid or has agreed to pay sometime in the future
firms short run supply curve -- a curve showing the relationship between the price of a product and the quantity of output supplied by affirming the short run
short run market supply curve -- a curve showing the relationship between price and quantity supplied in the short run
long run market supply curve -- a curve showing the relationship between the market price and quantity supplied in the long run
increasing cost industry -- an industry in which the average cost of production increases as the total output of the industry increases; the long run supply curve is positively sloped
constant cost industry -- an industry in which the average cost of production is constant; the long run supply curve is horizontal
Notes
In the short run, a firm uses the marginal principle to decide how much output to produce. In the long run, a firm will enter a market if the price exceeds the average cost of production.
A price taking firm should produce the quantity of output at which the marginal revenue (the price) equals the marginal cost of production.
At unprofitable firms should continue to operate if its total revenue exceeds the total durable cost.
The long run supply curve will be positively sloped if the average cost of production increases as the industry grows.
The long run supply curve is flatter than the short run supply curve because there are diminishing returns in the short run, but not in the long run.
An increase in demand causes a large upward jump in price, followed by a downward slide to the new long-run equilibrium price.
Economics Chapter 11
production technology and cost
Economic cost -- the opportunity cost of production, including both explicit and implicit costs
explicit cost -- the firm's actual cash payments for its imports
implicit cost -- the opportunity cost of nonpurchased inputs
marginal product of labor -- the change in input from one additional unit of labor
diminishing returns -- as one input increases while the other inputs are held fixed, output increases at a decreasing rate
total product curve -- a curve showing the relationship between the quantity of labor of the quantity of output produced
fixed cost (FC) -- costs that does not depend on the quantity produced
variable cost (VC) -- cost that varies as the firm changes its output
short run total cost (TC) -- the total cost of production in the short run, when one of more inputs (for example, the production facility) is fixed; equal to fixed cost plus variable cost
average fixed cost (AFC) -- fixed cost divided by the quantity produced
average variable cost (AVC) -- total variable cost divided by the quantity produced
short run average total cost (ATC) -- short run total cost divided by the quantity of output; equal to AFC plus AVC
short run marginal cost (MC) -- the change in short run total cost resulting from producing one or more unit of the good
long run total cost (LTC) -- the total cost of production in the long run when a firm is perfectly flexible in its choice of all inputs and can choose a production facility of any size
long-run average cost of production (LAC) -- long-run total cost divided by the quantity of output produced
long run marginal cost (LMC) -- the change in long-run cost from producing one or more unit of output
invisible input -- an input that cannot be scaled down to produce a smaller quantity of output
economies of scale -- a situation in which an increase in the quantity produced decreases the long-run average cost of production
minimum efficient scale -- the output at which the long-run average cost curve becomes horizontal
diseconomies of scale -- a situation in which an increase in the quantity produced increases the long-run average cost of production
Main points
The positively slow portion of the short run marginal cost curve (MC) results from diminishing returns.
The short run average total cost curve (ATC) is U-shaped because of the conflicting effects of:
The long-run average cost curve (LAC) is negatively slipped for small quantities of output because there are invisible input that cannot be scaled down and a smaller operation has limited opportunities for labor specialization.
Diseconomies of scale are rise if there are problems in coordinating a large operation or higher input costs in a larger organization.
Economic cost -- the opportunity cost of production, including both explicit and implicit costs
explicit cost -- the firm's actual cash payments for its imports
implicit cost -- the opportunity cost of nonpurchased inputs
marginal product of labor -- the change in input from one additional unit of labor
diminishing returns -- as one input increases while the other inputs are held fixed, output increases at a decreasing rate
total product curve -- a curve showing the relationship between the quantity of labor of the quantity of output produced
fixed cost (FC) -- costs that does not depend on the quantity produced
variable cost (VC) -- cost that varies as the firm changes its output
short run total cost (TC) -- the total cost of production in the short run, when one of more inputs (for example, the production facility) is fixed; equal to fixed cost plus variable cost
average fixed cost (AFC) -- fixed cost divided by the quantity produced
average variable cost (AVC) -- total variable cost divided by the quantity produced
short run average total cost (ATC) -- short run total cost divided by the quantity of output; equal to AFC plus AVC
short run marginal cost (MC) -- the change in short run total cost resulting from producing one or more unit of the good
long run total cost (LTC) -- the total cost of production in the long run when a firm is perfectly flexible in its choice of all inputs and can choose a production facility of any size
long-run average cost of production (LAC) -- long-run total cost divided by the quantity of output produced
long run marginal cost (LMC) -- the change in long-run cost from producing one or more unit of output
invisible input -- an input that cannot be scaled down to produce a smaller quantity of output
economies of scale -- a situation in which an increase in the quantity produced decreases the long-run average cost of production
minimum efficient scale -- the output at which the long-run average cost curve becomes horizontal
diseconomies of scale -- a situation in which an increase in the quantity produced increases the long-run average cost of production
Main points
The positively slow portion of the short run marginal cost curve (MC) results from diminishing returns.
The short run average total cost curve (ATC) is U-shaped because of the conflicting effects of:
- fixed costs being spread over a larger quantity of output
- diminishing returns.
The long-run average cost curve (LAC) is negatively slipped for small quantities of output because there are invisible input that cannot be scaled down and a smaller operation has limited opportunities for labor specialization.
Diseconomies of scale are rise if there are problems in coordinating a large operation or higher input costs in a larger organization.
Tuesday, June 20, 2006
Economics Chapter 7
market efficiency and government intervention
Willingness to pay -- the maximum amount a consumer is willing to pay for a product
consumer surplus -- the difference between a consumer's willingness to pay for a product and the price that he or she pays for the product
willingness to accept -- the minimum amount a producer is willing to accept as payment for a product; equal to the marginal cost of production
producer surplus -- the difference between the price a producer receives for a product and the producers willingness to accept the product
total surplus -- the sum of consumer surplus and producer surplus
market failure -- a situation in which a market fails to be efficient because of external benefits, external costs, and perfect information, or in perfect competition
deadweight loss -- the decrease in the total surplus of the market
deadweight loss from taxation -- the difference between the total burden of a tax and the amount of revenue collected by the government
excess burden of a tax -- another name for deadweight loss
Government intervention in a market without externalities prevents consumers and producers from executing beneficial transactions, meaning that intervention reduces the total surplus of the market and causes and efficiency.
The total surplus of a market equals the sum of consumer surplus and producer surplus.
In a market that meets the four efficiency conditions (no external cost, no external benefits, perfect information, perfect competition), a market equilibrium maximizes the total surplus and is therefore efficient.
Price controls reduce the total surplus of a market because they prevent mutually beneficial transactions.
Quantity controls (like licensing and import restrictions) decreased consumer surplus and the total surplus of the market.
A tax on a good will be shifted forward onto consumers and backward onto input suppliers.
Because a tax causes people to change their behavior, the total burden of the tax exceeds the revenue generated by the tax.
Willingness to pay -- the maximum amount a consumer is willing to pay for a product
consumer surplus -- the difference between a consumer's willingness to pay for a product and the price that he or she pays for the product
willingness to accept -- the minimum amount a producer is willing to accept as payment for a product; equal to the marginal cost of production
producer surplus -- the difference between the price a producer receives for a product and the producers willingness to accept the product
total surplus -- the sum of consumer surplus and producer surplus
market failure -- a situation in which a market fails to be efficient because of external benefits, external costs, and perfect information, or in perfect competition
deadweight loss -- the decrease in the total surplus of the market
deadweight loss from taxation -- the difference between the total burden of a tax and the amount of revenue collected by the government
excess burden of a tax -- another name for deadweight loss
Government intervention in a market without externalities prevents consumers and producers from executing beneficial transactions, meaning that intervention reduces the total surplus of the market and causes and efficiency.
The total surplus of a market equals the sum of consumer surplus and producer surplus.
In a market that meets the four efficiency conditions (no external cost, no external benefits, perfect information, perfect competition), a market equilibrium maximizes the total surplus and is therefore efficient.
Price controls reduce the total surplus of a market because they prevent mutually beneficial transactions.
Quantity controls (like licensing and import restrictions) decreased consumer surplus and the total surplus of the market.
A tax on a good will be shifted forward onto consumers and backward onto input suppliers.
Because a tax causes people to change their behavior, the total burden of the tax exceeds the revenue generated by the tax.
Economics chapter 6
Budget line -- the line connecting all the combinations of two goods that exhaust the consumer's budget
budget set -- a set of points that includes all the combinations of goods that a consumer can afford, given the consumer's income and the prices of the goods
price ratio -- the ratio of the price of one good to the price of a second good; the market trade off
indifference curve -- a curve showing the different combinations of two goods that generate the same level of utility or satisfaction
utility -- the satisfaction experienced from consuming a product
marginal rate of substitution (MRS) -- the rate at which a consumer is willing to trade or substitute one good for another
indifference map -- a set of indifference curves, each with a different utility level
utility-maximizing rule -- picks the affordable combination that makes the marginal rate of substitution equal to the price ratio
equimarginal rule -- pick a combination of two things that equalize as the marginal benefit per dollar spent
The consumer's objective is to maximize utility, given their income in the prices of consumer goods.
To maximize utility, the consumer finds the point at which one of her indifference curves is tangent to her budget line.
At the utility- maximizing combination of two goods, the marginal rate of substitution (the consumers and trade off between the two goods) equals the price ratio (the market trade off).
According to the equimarginal rule, you should pick the mix of two things at which the marginal benefit per dollar spent on the first equals the marginal benefit per dollar spent on the second.
budget set -- a set of points that includes all the combinations of goods that a consumer can afford, given the consumer's income and the prices of the goods
price ratio -- the ratio of the price of one good to the price of a second good; the market trade off
indifference curve -- a curve showing the different combinations of two goods that generate the same level of utility or satisfaction
utility -- the satisfaction experienced from consuming a product
marginal rate of substitution (MRS) -- the rate at which a consumer is willing to trade or substitute one good for another
indifference map -- a set of indifference curves, each with a different utility level
utility-maximizing rule -- picks the affordable combination that makes the marginal rate of substitution equal to the price ratio
equimarginal rule -- pick a combination of two things that equalize as the marginal benefit per dollar spent
The consumer's objective is to maximize utility, given their income in the prices of consumer goods.
To maximize utility, the consumer finds the point at which one of her indifference curves is tangent to her budget line.
At the utility- maximizing combination of two goods, the marginal rate of substitution (the consumers and trade off between the two goods) equals the price ratio (the market trade off).
According to the equimarginal rule, you should pick the mix of two things at which the marginal benefit per dollar spent on the first equals the marginal benefit per dollar spent on the second.
Economics Chapter 5
Price elasticity of demand -- a measure of the responsiveness of the quantity demand to changes in price; computed by dividing the percentage change in quantity demand by the percentage change in price
elastic demand -- the price elasticity of demand is greater than 1
inelastic demand -- the price elasticity of demand is less than 1
unitary elastic -- the price elasticity of demand equals 1
perfectly inelastic demand -- the price elasticity of demand equals 0
perfectly elastic demand -- the price of elasticity of demand is infinite
midpoint method -- a method of computing a percentage change by dividing the change in the variable by the average value of the variable, or the midpoint between the old value in the new one
income elasticity of demand -- a measure of the responsiveness of the quantity demanded to changes in consumer income; computed by dividing the percentage change in the quantity demanded by the percentage change in income
Cross elasticity of demand -- a measure of the responsiveness of the quantity demanded to changes in the price of a related good; computed by dividing the percentage change in the quantity demanded of one good (X) by the percentage change in the price of another good (Y)
Price elasticity of supply -- a measure of the responsiveness of the quantity supplied to changes in price; computed by dividing the percentage change in quantity supplied by the percentage change in price
perfectly inelastic supply -- the price elasticity of supply equals 0
perfectly elastic supply -- the price elasticity of supply is infinite
Price change formula -- a formula that shows the percentage change in equilibrium price resulting from a change in demand or supply, given values for the price elasticity of supply and the price elasticity of demand
The law of demand tells us that an increase in the price of a product will decrease the quantity demanded, ceteris paribus. If we know the price elasticity of demand that good, we can determine just how much less will be sold at the higher price. Similarly, if we know the price elasticity of supply for product, we can determine just how much more of it will be supplied at a higher price.
The price elasticity of demand -- defined as the percentage change in quantity demanded divided by the percentage change in price -- measures the responsiveness of consumers to changes in price.
Demand is relatively elastic if there are good substitutes.
If demand is elastic, there is a negative relationship between price and total revenue. If demand is inelastic, there is a positive relationship between the price and total revenue.
The price elasticity of supply -- defined as the percentage change in quantity supplied divided by the percentage change in price -- measures the responsiveness of producers to changes in price.
If we know the elasticity is of supply and demand, we can predict the percentage change in price resulting from a change in demand or supply.
elastic demand -- the price elasticity of demand is greater than 1
inelastic demand -- the price elasticity of demand is less than 1
unitary elastic -- the price elasticity of demand equals 1
perfectly inelastic demand -- the price elasticity of demand equals 0
perfectly elastic demand -- the price of elasticity of demand is infinite
midpoint method -- a method of computing a percentage change by dividing the change in the variable by the average value of the variable, or the midpoint between the old value in the new one
income elasticity of demand -- a measure of the responsiveness of the quantity demanded to changes in consumer income; computed by dividing the percentage change in the quantity demanded by the percentage change in income
Cross elasticity of demand -- a measure of the responsiveness of the quantity demanded to changes in the price of a related good; computed by dividing the percentage change in the quantity demanded of one good (X) by the percentage change in the price of another good (Y)
Price elasticity of supply -- a measure of the responsiveness of the quantity supplied to changes in price; computed by dividing the percentage change in quantity supplied by the percentage change in price
perfectly inelastic supply -- the price elasticity of supply equals 0
perfectly elastic supply -- the price elasticity of supply is infinite
Price change formula -- a formula that shows the percentage change in equilibrium price resulting from a change in demand or supply, given values for the price elasticity of supply and the price elasticity of demand
The law of demand tells us that an increase in the price of a product will decrease the quantity demanded, ceteris paribus. If we know the price elasticity of demand that good, we can determine just how much less will be sold at the higher price. Similarly, if we know the price elasticity of supply for product, we can determine just how much more of it will be supplied at a higher price.
The price elasticity of demand -- defined as the percentage change in quantity demanded divided by the percentage change in price -- measures the responsiveness of consumers to changes in price.
Demand is relatively elastic if there are good substitutes.
If demand is elastic, there is a negative relationship between price and total revenue. If demand is inelastic, there is a positive relationship between the price and total revenue.
The price elasticity of supply -- defined as the percentage change in quantity supplied divided by the percentage change in price -- measures the responsiveness of producers to changes in price.
If we know the elasticity is of supply and demand, we can predict the percentage change in price resulting from a change in demand or supply.
Sunday, June 18, 2006
economics first section overview
Economics is the study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided.
There are many reasons to study economics, including
(a) to learn a way of thinking,
(b) to understand society,
(c) to understand global affairs, and
(d) to be an informed voter.
Economics attempts to understand behavior and the operation of economies, without making judgments about whether the outcomes are good or bad. It also looks at the results of economic behavior, and asks whether they are good or bad and whether they can be improved.
The Economic Problem: Scarcity and Choice
Every society has some system or mechanism for transforming into useful form what nature and previous generations have provided. Economics is the study of that process and its outcomes.
All societies must answer three basic questions:
What will be produced?
How will it be produced?
Who will get what is produced?
These three questions make up the economic problem.
Using resources to produce one good or service implies not using them to produce something else, because resources are scarce relative to human wants in all societies. This concept of opportunity cost is central to an understanding of economics.
Economic growth occurs when society produces more, either by acquiring more resources or by learning to produce more with existing resources. Improved productivity may come from additional capital, or from the discovery and application of new, more efficient techniques of production.
In some modern societies, government plays a significant role in answering the three basic questions. In pure command economies, a central authority directly or indirectly sets output targets, incomes, and prices. All economies are mixed. Individual enterprise, independent choice, and relatively free markets exist in centrally planned economies; and there is significant government involvement in market economies such as that of the U.S.
Demand, Supply, and Market Equilibrium
Households and firms interact in two basic kinds of markets: product or output markets and input or factor markets. Goods and services intended for use by households are exchanged in output markets. In output markets, competing firms supply and competing households demand. In input markets, competing firms demand and competing households supply.
Ultimately, firms determine the quantities and character of outputs produced, the types and quantities of inputs demanded, and the technologies used in production. Households determine the types and quantities of products demanded and the types and quantities of inputs supplied.
Market demand is simply the sum of all the quantities of a good or service demanded per period by all the households buying in the market for that good or service. It is the sum of all the individual quantities demanded at each price.
Quantity supplied by a firm depends on
(1) the price of the good or service,
(2) the cost of producing the product, which includes the prices of required inputs and the technologies that can be used to produce the product, and
(3) the prices of related products.
Market supply is the sum of all that is supplied each period by all producers of a single product. It is the sum of all the individual quantities supplied at each price.
Excess demand (or a shortage) exists and the price tends to rise when quantity demanded exceeds quantity supplied at the current price. If prices in a market rise, then quantity demanded falls and quantity supplied rises until equilibrium is reached, at which point quantity supplied and quantity demanded are equal. At equilibrium, there is no further tendency for price to change.
Excess supply (or a surplus) exists and the price tends to fall when quantity supplied exceeds quantity demanded at the current price. Quantity supplied decreases and quantity demanded increases when price falls until an equilibrium price is reached, at which point quantity supplied and quantity demanded are equal.
There are many reasons to study economics, including
(a) to learn a way of thinking,
(b) to understand society,
(c) to understand global affairs, and
(d) to be an informed voter.
Economics attempts to understand behavior and the operation of economies, without making judgments about whether the outcomes are good or bad. It also looks at the results of economic behavior, and asks whether they are good or bad and whether they can be improved.
The Economic Problem: Scarcity and Choice
Every society has some system or mechanism for transforming into useful form what nature and previous generations have provided. Economics is the study of that process and its outcomes.
All societies must answer three basic questions:
What will be produced?
How will it be produced?
Who will get what is produced?
These three questions make up the economic problem.
Using resources to produce one good or service implies not using them to produce something else, because resources are scarce relative to human wants in all societies. This concept of opportunity cost is central to an understanding of economics.
Economic growth occurs when society produces more, either by acquiring more resources or by learning to produce more with existing resources. Improved productivity may come from additional capital, or from the discovery and application of new, more efficient techniques of production.
In some modern societies, government plays a significant role in answering the three basic questions. In pure command economies, a central authority directly or indirectly sets output targets, incomes, and prices. All economies are mixed. Individual enterprise, independent choice, and relatively free markets exist in centrally planned economies; and there is significant government involvement in market economies such as that of the U.S.
Demand, Supply, and Market Equilibrium
Households and firms interact in two basic kinds of markets: product or output markets and input or factor markets. Goods and services intended for use by households are exchanged in output markets. In output markets, competing firms supply and competing households demand. In input markets, competing firms demand and competing households supply.
Ultimately, firms determine the quantities and character of outputs produced, the types and quantities of inputs demanded, and the technologies used in production. Households determine the types and quantities of products demanded and the types and quantities of inputs supplied.
Market demand is simply the sum of all the quantities of a good or service demanded per period by all the households buying in the market for that good or service. It is the sum of all the individual quantities demanded at each price.
Quantity supplied by a firm depends on
(1) the price of the good or service,
(2) the cost of producing the product, which includes the prices of required inputs and the technologies that can be used to produce the product, and
(3) the prices of related products.
Market supply is the sum of all that is supplied each period by all producers of a single product. It is the sum of all the individual quantities supplied at each price.
Excess demand (or a shortage) exists and the price tends to rise when quantity demanded exceeds quantity supplied at the current price. If prices in a market rise, then quantity demanded falls and quantity supplied rises until equilibrium is reached, at which point quantity supplied and quantity demanded are equal. At equilibrium, there is no further tendency for price to change.
Excess supply (or a surplus) exists and the price tends to fall when quantity supplied exceeds quantity demanded at the current price. Quantity supplied decreases and quantity demanded increases when price falls until an equilibrium price is reached, at which point quantity supplied and quantity demanded are equal.
Tuesday, June 06, 2006
economics ch. 4
Perfectly competitive market -- a market with a very large number of firms, each of which produces the same standardized product and amount so small that no individual firm can affect the market price
quantity demanded -- the amount of a product consumers are willing to buy
demand schedule -- a table of numbers that shows the relationship between price and quantity demanded, ceteris paribus
individual demand curve -- a curve that shows the relationship between price and quantity demanded by an individual consumer
Law of demand -- the higher the price, the smaller the quantity demanded
change in quantity demanded -- a change in the quantity consumers are willing to buy when the price changes; represented graphically by movement along the demand curve
substitution effect -- the change in consumption resulting from a change in the price of one good relative to the price of another good
income effect -- the change in consumption resulting from a change in purchasing power caused by a price change
market demand curve -- a curve showing the relationship between price and quantity demanded
quantity supplied -- the amount of a product firms are willing to sell
supply schedule -- a table of numbers that shows the relationship between price and quantity supplied
individual supply curve -- a curve showing the relationship between price and quantity supplied by a single firm
change in quantity supplied -- a change in the quantity firms are willing to sell when the price changes; represented graphically by movement along the supply curve
market supply curve -- a curve showing the relationship between price and quantity supplied
market equilibrium -- a situation in which the quantity of a product demanded equals the quantity supplied, so there is no pressure to change the price
excess demand -- a situation in which, at the prevailing price, consumers are willing to buy more than producers are willing to sell
excess supply -- a situation in which, at the prevailing price, producers are willing to sell more than the consumers are willing to buy
change in demand -- a change in the amount of a good demanded resulting from a change in something other than the price of the good; represented graphically by a shift on the demand curve
normal good -- a good for which an increase in income increases demand
inferior good -- a good for which an increase in income decreases demand
substitutes -- to goods that are related in such a way that an increase in the price of one good increases the demand for the other good
complements -- to goods related in such a way that a decrease in the price of one good increases the demand for the other good
change in supply -- a change in the amount of a good supplied resulting from a change in something other than the price of the good summer: represented graphically by shift on the supply curve
To drawl a demand curve, he must be certain that the other variables that affect demand:
To drawl in market supply curve, we must be certain the other variables that affect supply:
Equilibrium and a market is shown by the intersection of the demand curve and the supply curve. When a market reaches equilibrium, there is no pressure to change the price.
A change in demand changes price and quantity in the same direction: an increase in demand increases the equilibrium price and quantity; a decrease in demand decreases the equilibrium price and quantity.
A change in supplied changes price and quantity in opposite directions: an increase in the supply decreases price and increases quantity; a decrease in supply increases price and decreases quantity.
quantity demanded -- the amount of a product consumers are willing to buy
demand schedule -- a table of numbers that shows the relationship between price and quantity demanded, ceteris paribus
individual demand curve -- a curve that shows the relationship between price and quantity demanded by an individual consumer
Law of demand -- the higher the price, the smaller the quantity demanded
change in quantity demanded -- a change in the quantity consumers are willing to buy when the price changes; represented graphically by movement along the demand curve
substitution effect -- the change in consumption resulting from a change in the price of one good relative to the price of another good
income effect -- the change in consumption resulting from a change in purchasing power caused by a price change
market demand curve -- a curve showing the relationship between price and quantity demanded
quantity supplied -- the amount of a product firms are willing to sell
supply schedule -- a table of numbers that shows the relationship between price and quantity supplied
individual supply curve -- a curve showing the relationship between price and quantity supplied by a single firm
change in quantity supplied -- a change in the quantity firms are willing to sell when the price changes; represented graphically by movement along the supply curve
market supply curve -- a curve showing the relationship between price and quantity supplied
market equilibrium -- a situation in which the quantity of a product demanded equals the quantity supplied, so there is no pressure to change the price
excess demand -- a situation in which, at the prevailing price, consumers are willing to buy more than producers are willing to sell
excess supply -- a situation in which, at the prevailing price, producers are willing to sell more than the consumers are willing to buy
change in demand -- a change in the amount of a good demanded resulting from a change in something other than the price of the good; represented graphically by a shift on the demand curve
normal good -- a good for which an increase in income increases demand
inferior good -- a good for which an increase in income decreases demand
substitutes -- to goods that are related in such a way that an increase in the price of one good increases the demand for the other good
complements -- to goods related in such a way that a decrease in the price of one good increases the demand for the other good
change in supply -- a change in the amount of a good supplied resulting from a change in something other than the price of the good summer: represented graphically by shift on the supply curve
To drawl a demand curve, he must be certain that the other variables that affect demand:
- consumer income
- the prices of related goods
- tastes
- consumers price expectations
- number of consumers
To drawl in market supply curve, we must be certain the other variables that affect supply:
- input costs
- technology
- the number of producers
- their price expectations
- taxes
- subsidies
Equilibrium and a market is shown by the intersection of the demand curve and the supply curve. When a market reaches equilibrium, there is no pressure to change the price.
A change in demand changes price and quantity in the same direction: an increase in demand increases the equilibrium price and quantity; a decrease in demand decreases the equilibrium price and quantity.
A change in supplied changes price and quantity in opposite directions: an increase in the supply decreases price and increases quantity; a decrease in supply increases price and decreases quantity.
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