Howcostoflivingvariesbywhereyoulive(Ch2).ppt

* * * * * 36 * 30 * * 30 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Graphing supply and demand: In class activity Price Q demanded Q supplied $ 0 19 0 0.50 16 0 1.00 13 1 1.50 10 4 2.00 7 7 2.50 4 10 3.00 1 13 Graph the table and find the equilibrium price and quantity. Supply and Demand Together Demand Schedule Supply Schedule At $2.00, the quantity demanded is equal to the quantity supplied! Supply Demand Price Quantity Equilibrium of Supply and Demand 2 1 3 4 5 6 7 8 9 10 12 11 0 $3.00 2.50 2.00 1.50 1.00 0.50 Equilibrium Supply and demand Not always in equilibrium. Can either have shortage or surplus. Shortage? Q supplied Q demanded, because price is too low. How is it fixed? Price has to rise. Surplus ? Q supplied Q demanded, because price is too high. How is it fixed? Price has to fall. Price Quantity 2 1 3 4 5 6 7 8 9 10 12 11 0 $3.00 2.50 2.00 1.50 1.00 0.50 Supply Demand Surplus Excess Supply Price Quantity 2 1 3 4 5 6 7 8 9 10 12 11 0 $3.00 2.50 2.00 1.50 1.00 0.50 Supply Demand Excess Demand Shortage * * * * * * * * * * * * * * * * * * * * * * * * * * Is it worth it? Essentially the net gain to them financially is roughly half of Jill’s pay. Question: Is it worth it? Depends. What does it depend on? Non measurable costs: family time, child in day care, housework Non measurable benefits: feeling of contribution, time away from home What did we learn? Part of second job pay taxed at higher rate (27% vs 15%). Higher the salary of second job, higher will be net benefits. Why? Many of the costs are fixed, regardless of the salary: child care, commute, food, clothing Some depend on salary: income tax, ss tax Generally speaking maybe better off? TANSTAFL (Ch 5) There Ain’t No Such Thing As a Free Lunch Scenario: Have $7 000 in the bank. See a car for $7 000. How many would use the savings to buy the car? How many would borrow money (and pay interest) to buy the car? Depends on OC. Opportunity cost of savings: interest it could h