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
suppliers’ 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 Add’l
Price Suppliers
✤ Supply is determined by New
Demand
suppliers’ 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 gov’t
intervention intervention
U.S.
Hong Kong
N. Korea
Sweden
Monday, 6 February, 12
20. What’s a recession?
✤ Two consecutive quarters of declining economic output
Monday, 6 February, 12
21. What’s 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
people’s 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 won’t
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 reflects
all available information
✤ A market price is the sum of all fears and the sum of all hopes
✤ Because a market price reflects 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 isn’t the end of the world
✤ A growth & recovery phase won’t go on forever
✤ This time isn’t different!
✤ Regulatory response isn’t always appropriate and is influenced by
political considerations
Monday, 6 February, 12
