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Class3
1. Economics for Journalists
Week 3: Circles & Cycles: How economies work
Jeffrey Timmermans
Monday, 6 February, 12
2. Review: Supply
& Demand
⤠Demand is based on the
Price
value consumers attach to Supply
goods & services as well as
their income & substitute
goods Market
Price
⤠Supply is determined by
suppliersâ costs
Demand
⤠The market price is a Quantity
summary of the supply &
demand in the market
Monday, 6 February, 12
3. Review: Supply
& Demand
⤠Demand is based on the
Price
value consumers attach to Supply
goods & services as well as
their income & substitute New Price
goods
{
Market Addâl
Price Suppliers
⤠Supply is determined by New
Demand
suppliersâ costs
Demand
⤠The market price is a Quantity
summary of the supply &
demand in the market
Monday, 6 February, 12
4. What kind of product is this?
Price
Supply
Market
Price
Demand
Quantity
Monday, 6 February, 12
5. What kind of product is this?
Price
Supply
New Price
Market
Price
Demand
Q1 Quantity
Monday, 6 February, 12
6. What kind of product is this?
Price
Supply
Market
Price
Demand
Q1 Quantity
Monday, 6 February, 12
7. What kind of product is this?
Price
Supply
Market
Price
New Price
Demand
Q1 Quantity
Q2
Monday, 6 February, 12
8. Government Policy: Rent control
Price
Supply
Market
Price
Demand
Quantity
Monday, 6 February, 12
9. Government Policy: Rent control
Price
Supply
Market
Price
Mandated
Price
{ Supply
Gap
Demand
Quantity Quantity Quantity
Supplied Demanded
Monday, 6 February, 12
10. Types of economies
Command Free-market
Economy Economy
Total No govât
intervention intervention
U.S.
Hong Kong
N. Korea
Sweden
Monday, 6 February, 12
20. Whatâs a recession?
⤠Two consecutive quarters of declining economic output
Monday, 6 February, 12
21. Whatâs a recession?
⤠Two consecutive quarters of declining economic output
⤠In the U.S., whatever the National Bureau of Economic Research
(NBER) says it is!
Monday, 6 February, 12
22. The Regulatory Cycle
Crisis in un- or under-
Recession regulated area Deregulation
Politicians respond to Politicians respond to
peopleâs anger companies
Regulation,
followed by quiet
period Lobbyists/companies Growth
seek deregulation
Monday, 6 February, 12
23. Market Cycles:
Dow Theory
⤠Charles Dow (1851-1902)
founded Dow Jones & The Wall
Street Journal
⤠Dow noticed that prices on
markets follow both long-term
and short-term trends
⤠Short-term trends are
reactionary and wonât
necessarily derail long-term
trend Source: Library of Congress
Monday, 6 February, 12
24. Dow Theory: key assumptions
⤠The theory assumes the price of an asset traded on a market reďŹects
all available information
⤠A market price is the sum of all fears and the sum of all hopes
⤠Because a market price reďŹects everything market participants
expect will happen, prices are forward looking
⤠Prices are news!
Monday, 6 February, 12
25. Remember...
⤠Journalists can provide perspective and context:
⤠A recession isnât the end of the world
⤠A growth & recovery phase wonât go on forever
⤠This time isnât different!
⤠Regulatory response isnât always appropriate and is inďŹuenced by
political considerations
Monday, 6 February, 12