“In this world nothing is certain but death and taxes.” . . . Benjamin Franklin 0 20 40 60 80 100 1789 Taxes paid in Ben Franklin’s time accounted for 5 percent of the average American’s income

Types of Imperfectly Competitive Markets Monopolistic Competition – Many firms selling products that are similar but not identical. Oligopoly – Only a few sellers, each offering a similar or identical product to the others

Differences in Earningsin the U.S. Today The typical physician earns about $200,000a year. The typical police officer earns about$50,000 a year. The typical farm worker earns about$20,000 a year

The Theory of Consumer Choice The theory of consumer choice addresses the following questions: – Do all demand curves slope downward? – How do wages affect labor supply? – How do interest rates affect household saving?

Outline The economics of asymmetric information Political economics Behavioral economics

Outline The Economist as Scientist The Economist as Policy Adviser Why Economists disagree

The Market Forces of Supply and Demand Supply and Demand are the two wordsthat economists use most often. Supply and Demand are the forces thatmake market economies work. Modern microeconomics is about supply,demand and equilibrium

Importance of Supply-Demand Analysis A little knowledge goes a long way: Price Control, Taxation and other policies. Market welfare: Normative Analysis International Trade Externality (Market Failure) Market Power (Market Failure) Other markets: Financial Market, Labor Market. Macroeconomics

Revisiting the Market Equilibrium Do the equilibrium price and quantity maximize the total welfare of buyers and sellers? Market equilibrium reflects the way markets allocate scarce resources. Whether the market allocation is desirable is determined by welfare economics

Elasticity… … is a measure of how much buyers and sellers respond to changes in market conditions … allows us to analyze supply and demand with greater precision