question
Chris is moving to a new place. he Spent $60 on renting a van, $15 on boxes, and $300 on new items for the apartment. He took two days off from his job as a pinsetter at Bill's Bowling Alley where he earns $65 a day. Find Chris's opportunity, explicit, and Economic costs.
answer
Explicit: 60+15+300=$375
Opportunity: 65+65=$130
Economic: 375+130=$505
Opportunity: 65+65=$130
Economic: 375+130=$505
question
Find Pe and Qe when Qd = 130 - 3P and Qs = 10 + 5P
answer
Solution: Qs=Qd
130-3P=10+5P
8P=120
Pe=15
Qe+130-3(15)=10+5(15)
85=85 (checks out)
Qe=85 units
130-3P=10+5P
8P=120
Pe=15
Qe+130-3(15)=10+5(15)
85=85 (checks out)
Qe=85 units
question
how would a decrease in the price of cheese(an input) affect the market for pizza? What happens to supply, demand, equilibrium Quantity and Equilibrium Price?
answer
(look up or remember how to draw the graph)
A input = supply
1. Supply increases
2. Demand doesn't change
3. Pe falls
4. Qe rises
A input = supply
1. Supply increases
2. Demand doesn't change
3. Pe falls
4. Qe rises
question
How would a decrease in the price of hamburgers (a substitute) affect the market for Pizza? What happens to Supply, Demand, Equilibrium Quantity and Equilibrium Price?
answer
(again look at the graph)
A substitute = demand
1. Supply does not change
2. demand decreases
3. Pe falls
4. Qe falls
A substitute = demand
1. Supply does not change
2. demand decreases
3. Pe falls
4. Qe falls
question
How would a Decrease in the price of pizza affect the market for pizza? What happens to Supply, Demand, Quantity Supplied, and Quantity Demanded?
answer
TRICK QUESTION PEOPLE
1. Supply does not change
2. demand does not change
3. quantity supplied decreases
4. Quantity demand increases
1. Supply does not change
2. demand does not change
3. quantity supplied decreases
4. Quantity demand increases
question
Grandma's Goodies X and Grandma's other Goodies Y are two related consumption goods (neither is an input (not supply)). If an increase in the price of her goodies X causes the price of her goodies Y to eventually rise as well, how are goodies X and Goodies Y related?
answer
trying to have fun with this... but they would be Substitutes
look at graph or draw your own
also note that price goes up therefore demand must go up
look at graph or draw your own
also note that price goes up therefore demand must go up
question
The following Represents Scooby's demand for Wee....Scooby Snacks:
Willingness- $8/$5.50/$3.50/$2/$1/$.50/$.25
Quantity- 1/ 2 / 3 / 4 / 5/ 6/ 7
A) If the Price of Scoob's Snacks is 2$ Then how many Snacks will Scooby Purchase?
B)If the price of Scooby Snacks is $2 How many consumer Surplus does he derive from his Consumption?
Willingness- $8/$5.50/$3.50/$2/$1/$.50/$.25
Quantity- 1/ 2 / 3 / 4 / 5/ 6/ 7
A) If the Price of Scoob's Snacks is 2$ Then how many Snacks will Scooby Purchase?
B)If the price of Scooby Snacks is $2 How many consumer Surplus does he derive from his Consumption?
answer
Sorry for sloppyness
A) well he is a dog so he can't buy scoob Snacks. If Shaggy had a Job though he would get 4... which we all know is not enough.
B) Total Willing: 8+5.50+3.50+2=$19
Total Paid: $2x4 = $8
Consumer Surplus: 19-8=$11
A) well he is a dog so he can't buy scoob Snacks. If Shaggy had a Job though he would get 4... which we all know is not enough.
B) Total Willing: 8+5.50+3.50+2=$19
Total Paid: $2x4 = $8
Consumer Surplus: 19-8=$11
question
Price of One Good and Demand for the Other
answer
Move Together
question
Complements
answer
Goods that are used together in consumption
question
Price of one good and demand for the other
answer
Move Opposite
Ex. PB and J
Ex. PB and J
question
Expectations of Future Prices
answer
Expected future price changes and Current demand move Together
question
Number of Buyers
answer
# of buyers goes up, price goes up
# of buyers goes up, Demand goes up
ex. Baby Boomers and Viagra
# of buyers goes up, Demand goes up
ex. Baby Boomers and Viagra
question
Tastes and Preferences
answer
ex. Nike Shorts and Leggings - WTF Ladies?
ok ok I can throw one about men also
ex. Man Bun and Tank Tops - Doesn't work as well but hope your legs stay warm.
ok ok I can throw one about men also
ex. Man Bun and Tank Tops - Doesn't work as well but hope your legs stay warm.
question
SUPPLY SCHEDULE
answer
a table that shows how much of a good or service producers will offer for sale at various prices
question
Law of Supply
answer
Price of a good and the quantity supplied are directly (positively) related
question
Supply Curve
answer
a Line that shows the minimum that producers are willing to accept as payment for any quantity
look up graph if you really don't know about this one
look up graph if you really don't know about this one
question
Supply
answer
The relationship between P+Qs for all possible prices
question
Quantity Supplied
answer
the number of units producers are willing to offer for sale at a specific price
question
Change in quantity supplied
answer
Change in Qs; a Change in the amount offered for sale caused by a change in the price: a movement along the curve.
Again, understand the Graph. I ain't about to buy quizlet to put pictures in here. No stop asking. I am just assuming you ask. well sorry I am cheap. look I don't have to do this. ok you can go to the next one.
Again, understand the Graph. I ain't about to buy quizlet to put pictures in here. No stop asking. I am just assuming you ask. well sorry I am cheap. look I don't have to do this. ok you can go to the next one.
question
Change in the Supply
answer
Triangle S; Shift of entire curve to the left or the right
Left = Decrease in Supply
Right = Increase in Supply
Know Graph
Left = Decrease in Supply
Right = Increase in Supply
Know Graph
question
FACTORS THAT SHIFT THE DEMAND CURVE
OMG WHY ARE YOU YELLING
OMG WHY ARE YOU YELLING
answer
1. Input/Resource Prices
2. Technology
3. Taxes
4. Expectations of future prices
5. Number of sellers
2. Technology
3. Taxes
4. Expectations of future prices
5. Number of sellers
question
Input/resource prices
answer
Input prices and Supply move opposite
ex. leather (input) and Supply of Shoes
ex. leather (input) and Supply of Shoes
question
Technology
answer
Production process of changing economic resources into goods and services; when technology improves supply changes.
ex. Nerds and their video games
ex. sorry about that
ex. how is that an example?
ex. you learned this go to next slide
ex. Nerds and their video games
ex. sorry about that
ex. how is that an example?
ex. you learned this go to next slide
question
Taxes
answer
Taxation and supply move opposite
question
Number of sellers
answer
usually the number of sellers in a market changes as profit changes
ex. if you are selling the same thing Bob is selling on the opposite corner, take out Bob. your profit will improve. Don't tell anyone a slide told you to take out bob. they will think you are crazy.
ex. if you are selling the same thing Bob is selling on the opposite corner, take out Bob. your profit will improve. Don't tell anyone a slide told you to take out bob. they will think you are crazy.
question
FACTORS THAT SHIFT THE DEMAND CURVE
answer
1. Income
2. Price of Related goods
3. Expectations of Future Prices
4. Number of Buyers
5. Tastes and preferences
2. Price of Related goods
3. Expectations of Future Prices
4. Number of Buyers
5. Tastes and preferences
question
Income for demand curve
answer
Normal goods: goods for which income and demand move together
Inferior goods: goods for which income and demand move opposite
The only way to determine the classification of the good is by the relationship between income and demand.
Ex. What happens to the demand for Sam's Cola (an inferior good to Coke-Cola) When income Rises?
Decreases
Inferior goods: goods for which income and demand move opposite
The only way to determine the classification of the good is by the relationship between income and demand.
Ex. What happens to the demand for Sam's Cola (an inferior good to Coke-Cola) When income Rises?
Decreases
question
Price of Related goods for demand curve
answer
substitutes: Goods that take the place of each other in consumption.
-Price of one good and the demand for the other move together
Compliments: goods that are used together in consumption
-The price of one good and the demand for the other move opposite
ex. What happens to the demand for peanut butter when the price of jelly(a compliment) falls?
Shift in right for the demand curve bros.
-Price of one good and the demand for the other move together
Compliments: goods that are used together in consumption
-The price of one good and the demand for the other move opposite
ex. What happens to the demand for peanut butter when the price of jelly(a compliment) falls?
Shift in right for the demand curve bros.
question
Expectations of Future Prices for Demand Curve
answer
Apparently we do not need to know this but I put it here anyway
Future Price Changes and Current Demand move together
Future Price Changes and Current Demand move together
question
Number of Buyers for Demand Curve
answer
# of buyers goes up, price goes up, Demand goes up.
Ex. as the "baby boomers" age, demand increases for social security, Viagra, Adult Diapers, you can guess a few more.
Ex. as the "baby boomers" age, demand increases for social security, Viagra, Adult Diapers, you can guess a few more.
question
Economic Principles
answer
- Statements about economic behavior or the economy that enable prediction of the probably effects of certain actions
question
Model
answer
A simplified representation of how something works
question
Market
answer
any institution that brings together buyers and sellers of a particular good or service
question
Product Market
answer
Households demand goods and services which are supplied by firms in exchange for money.
question
Resource Market
answer
Firms demand resources which are supplied by households in exchange for money
question
Circular Flow
answer
We do not need to know this but putting it here anyway
$ -> Product Markets <- Goods or Service
House Holds Firms
Resource -> Resource Markets <- $
Now imagine a Circle that has arrows going up and down from House holds and Firms connection to the Product Market and Resource Market. that or you can look in your notes and find out what i am talking about.
$ -> Product Markets <- Goods or Service
House Holds Firms
Resource -> Resource Markets <- $
Now imagine a Circle that has arrows going up and down from House holds and Firms connection to the Product Market and Resource Market. that or you can look in your notes and find out what i am talking about.
question
Demand Schedule
answer
A Table that shows how much of a good or service consumers will want to buy at.
Price |$100|$80|$60|$40|$20|$0
Q | 0 | 40| 80 | 120|160 | >9000 (sorry about that but it is totally true)
Price |$100|$80|$60|$40|$20|$0
Q | 0 | 40| 80 | 120|160 | >9000 (sorry about that but it is totally true)
question
Law of Demand
answer
A Line that shows the maximum that consumers are willing to pay for a quantity
Look up the graph if you do not know it but
Demand: the relationship between P and Qd for all possible Prices
Quantity demanded: the number of units consumers are willing to buy at a specific Price
I am going off of the notes to make this so if things are repeated don't hate me for it. that must mean they were important. also my notes are out of order so this will be a good Mix.
Look up the graph if you do not know it but
Demand: the relationship between P and Qd for all possible Prices
Quantity demanded: the number of units consumers are willing to buy at a specific Price
I am going off of the notes to make this so if things are repeated don't hate me for it. that must mean they were important. also my notes are out of order so this will be a good Mix.
question
Micro-economics
answer
Study of Choices
question
Scarcity
answer
Resources to produce goods are limited relative to our wants for them
question
Resources
answer
Inputs to produce outputs such as goods or services
question
Scarce Good
answer
Economic good more than Zero cost
question
Free Good
answer
Zero Cost.....for you atleast
question
Price
answer
Paid by consumer; tells producer how much and what to produce(talking about demand graph bros)
question
Cost
answer
Paid by producer; sacrifice of making
question
Types of costs
answer
1. explicit: out of pocket $
2. Implicit/opportunity: what you are willing to give up
3. economic cost: $+# = 1+2..... not sure how to explain from what notes state, don't hate. A keyboard can only do so much.
2. Implicit/opportunity: what you are willing to give up
3. economic cost: $+# = 1+2..... not sure how to explain from what notes state, don't hate. A keyboard can only do so much.
question
Types of Resources
answer
1. Natural: Land, Oil, Lumber, ect.
2. Labor: Work - physical or mental for $ching ching$
3. Capitol: All manufactured goods used in production
2. Labor: Work - physical or mental for $ching ching$
3. Capitol: All manufactured goods used in production
question
Utility
answer
Satisfaction a consumer obtains from the consumption of a good or service
Note: utility maximization by producers and consumers usually maximizes social welfare.
Note: utility maximization by producers and consumers usually maximizes social welfare.
question
Margi(nal)
answer
Additio(nal)
question
Market Model
answer
Look up graph in Notes but to describe it you have Price as the Y and Quantity as the X. Remember Qs=Qd and equilibrium price(Pe)
I tried oh well
I tried oh well
question
Equilibrium Price
answer
Price at which the market clears (Qs=Qd)
question
Equilibrium
answer
No tendency for change
question
Surplus
answer
Remember Graph
at such and such price Pe, Qs>Qd
Qs-Qd units will be your surplus
These put Downward pressure on prices until the surplus is eliminated
ex. Hypothetically we all stop buying everything. I mean EVERYTHING. the price will go down for a bit. so my solution is that you all give up your cars, slash your friends tires that don't give up their cars. Ride bikes and wait a bit, like a month. we may get back down to $1.50 or lower for a gallon for gas. who wouldn't want that?
Disclaimer: in no way am I serious about slashing your friends Tires.
at such and such price Pe, Qs>Qd
Qs-Qd units will be your surplus
These put Downward pressure on prices until the surplus is eliminated
ex. Hypothetically we all stop buying everything. I mean EVERYTHING. the price will go down for a bit. so my solution is that you all give up your cars, slash your friends tires that don't give up their cars. Ride bikes and wait a bit, like a month. we may get back down to $1.50 or lower for a gallon for gas. who wouldn't want that?
Disclaimer: in no way am I serious about slashing your friends Tires.
question
Shortage
answer
Puts an upward pressure on prices until the shortage is eliminated.
Pe, Qd>Qs
Qd-Qs units.
Pe, Qd>Qs
Qd-Qs units.
question
Solving for Pe and Qe
answer
Qs=2 + 2P This was given on a test
Qd = 20 - 4P
find equilibrium price and quanity
Solution: Qs=Qd
2 + 2P = 20-4P
2-20=-2P-4P
6P=18
Pe= $3
Check
Qe= 2+2(3)=20-4(3)
Qe=8 units
Qd = 20 - 4P
find equilibrium price and quanity
Solution: Qs=Qd
2 + 2P = 20-4P
2-20=-2P-4P
6P=18
Pe= $3
Check
Qe= 2+2(3)=20-4(3)
Qe=8 units
question
Price Rationing
answer
-The allocation of goods among consumers
-Economists believe that price rationing is the most efficient method of allocating goods and services
-every consumer willing to pay at least the equilibrium price will get to have the good,
-Economists believe that price rationing is the most efficient method of allocating goods and services
-every consumer willing to pay at least the equilibrium price will get to have the good,
question
Market Analysis - What happens to the market for gas when we expect higher future prices?
answer
1. Demand increases
2. Supply Decreases
3. Pe rises
4. Change in Qe indeterminate
2. Supply Decreases
3. Pe rises
4. Change in Qe indeterminate
question
Price Controls
answer
Legal restrictions on Prices
question
Price Ceiling
answer
A maximum Legal Price
An effective price ceiling is set below the equilibrium price, but what is the effect? you should ask yourself that question from time to time.
Shortage + how many Units (written in notes not sure if i got all of that)
An effective price ceiling is set below the equilibrium price, but what is the effect? you should ask yourself that question from time to time.
Shortage + how many Units (written in notes not sure if i got all of that)
question
Price Floor
answer
A minimum Legal Price
An effective price floor is set above the equilibrium price, but what is the effect?
Surplus = "unemployment" + how many units?
An effective price floor is set above the equilibrium price, but what is the effect?
Surplus = "unemployment" + how many units?
question
CONSEQUENCES OF PRICE CEILINGS
answer
1)Shortages
2) inefficeint allocation among consumers
3)Wasted Resources - Time+Labor by consumers; wasted buildings by producers- future employers in this class....don't waste my time please
4)Low Quality
2) inefficeint allocation among consumers
3)Wasted Resources - Time+Labor by consumers; wasted buildings by producers- future employers in this class....don't waste my time please
4)Low Quality
question
CONSEQUENCES OF A PRICE FLOOR
answer
1) Surpluses
2) Inefficient allocation among producers
3)Wasted Resources (Think like the Indians and use everything! that should take you back to middle school history class)
4)Protection from Imports
2) Inefficient allocation among producers
3)Wasted Resources (Think like the Indians and use everything! that should take you back to middle school history class)
4)Protection from Imports
question
Consumer Surplus
answer
Quantity| 1 | 2 | 3 | 4 | 5 | 6 | 7 |
Willing | $7| $5 |$4.50| $4 | $3.50|$2.50| $2 |
If you made it to class you definitely saw this at one point.
What is consumer surplus if the market price of the good is $3.50?
Cross off 6 and 7
Total Willing = 7+5+4.50+4+3.50= $24
Total Paid = 3.50*5 = $17.50
Consumer Surplus = 24-17.50=$6.50
There is a Graph you need to look at in your notes. Basically Consumer Surplus is the area above the price but below the demand curve
also remember that price and consumer surplus move opposite.
Willing | $7| $5 |$4.50| $4 | $3.50|$2.50| $2 |
If you made it to class you definitely saw this at one point.
What is consumer surplus if the market price of the good is $3.50?
Cross off 6 and 7
Total Willing = 7+5+4.50+4+3.50= $24
Total Paid = 3.50*5 = $17.50
Consumer Surplus = 24-17.50=$6.50
There is a Graph you need to look at in your notes. Basically Consumer Surplus is the area above the price but below the demand curve
also remember that price and consumer surplus move opposite.
question
Producer Surplus
answer
Amount received
Willingness to accept: the minimum price at which a producer will sell a good.
Quantity| 1 | 2 | 3 | 4 | 5 | 6 | 7 |
Willing | $.50| $1 |$1.50|$2.50| $3.50| $4 | $7 |
What is the producer surplus if the market price of the good is $3.50?
Total Recieved: 3.50*5=$17.50
Total Willing: .5+1+1.5+2.5+3.5 = $9
Producer Surplus: 17.50-9=$8.50
on a graph, producer surplus is the area below the price but above the supply curve.
Price and producer surplus move together.
Willingness to accept: the minimum price at which a producer will sell a good.
Quantity| 1 | 2 | 3 | 4 | 5 | 6 | 7 |
Willing | $.50| $1 |$1.50|$2.50| $3.50| $4 | $7 |
What is the producer surplus if the market price of the good is $3.50?
Total Recieved: 3.50*5=$17.50
Total Willing: .5+1+1.5+2.5+3.5 = $9
Producer Surplus: 17.50-9=$8.50
on a graph, producer surplus is the area below the price but above the supply curve.
Price and producer surplus move together.
question
Law of Diminishing (marginal) Returns
answer
As successive units of a variable resource are added to a fixed resource, the marginal product of the variable resource eventually decreases.
-LDMR explains why the start run cost curves eventually increases as Q increases
-Only apllies in SR(Short Run) (no fixed resources in Lr(Long Run))
This is talking about the Spreadsheet with
Q|TFC|TC|MC|AFC|AVC|ATC on it.
enjoy looking at that will you.
-LDMR explains why the start run cost curves eventually increases as Q increases
-Only apllies in SR(Short Run) (no fixed resources in Lr(Long Run))
This is talking about the Spreadsheet with
Q|TFC|TC|MC|AFC|AVC|ATC on it.
enjoy looking at that will you.
question
Formulas for LDMR
answer
Marginal Product of labor - the additional output produced by one more unit of a variable input
- MPl = Change in Q/Change in L
Total Product: Q=EMPl E is epsilon
MC= Wage/MPl
- MPl = Change in Q/Change in L
Total Product: Q=EMPl E is epsilon
MC= Wage/MPl
question
Economies of Scale/Increasing Returns to Scale
answer
Q Rises, Long Run ATC falls
Long Run Graph
Long Run Graph
question
Diseconomies of scale/decreasing Returns of scale
answer
As Q Rises, Long Run ATC Rises
Long Run Graph
Long Run Graph
question
Factors that Shift the LR Cost Curves
answer
1.Input Prices: input prices and cost curves move together
2. Regulation/taxes: Taxes and Costs move together
3. Technology: Technology improves costs fall
2. Regulation/taxes: Taxes and Costs move together
3. Technology: Technology improves costs fall
question
Why do we buy stuff?
answer
Utility
question
Utility
answer
Satisfaction a consumer obtains from the consumption of a good or service.
Ex. I really bet you like your Iphone - good utility
"My apple watch doesn't work because of my wrist tattoo" - bad utility
Ex. I really bet you like your Iphone - good utility
"My apple watch doesn't work because of my wrist tattoo" - bad utility
question
Utility Facts
answer
Utility is measured in Utils
We cannot compare the Utils assigned to a good by multiple people
We CAN compare the Utils assigned to multiple goods by one person
You determine Utils from within, look into your soul. ok maybe, maybe not.
We cannot compare the Utils assigned to a good by multiple people
We CAN compare the Utils assigned to multiple goods by one person
You determine Utils from within, look into your soul. ok maybe, maybe not.
question
Total Vs. Marginal Utility
answer
Total Utility - Total satisfaction a person derives from consuming some specific quantity; TU increases as Qd. increases; TU=EMU
Marginal Utility - additional utility a consumer derives from an additional unit of a good.
Marginal Utility - additional utility a consumer derives from an additional unit of a good.
question
Law of Diminishing Marginal Utility
answer
As Qd Rises > Marginal Utility Fall
Note: as MU falls willingness to pay falls as well
Note: as MU falls willingness to pay falls as well
question
Why do we stop buying stuff?
answer
We run out of money.
that or you are a hipster and you don't go with the social norm of what "money" actually is. Therefore you become homeless, yet you call your home and style of living a type of "art" but this 360 turns around on you to conclude that you still "have run out of money." Sorry, gotta keep myself interested.
that or you are a hipster and you don't go with the social norm of what "money" actually is. Therefore you become homeless, yet you call your home and style of living a type of "art" but this 360 turns around on you to conclude that you still "have run out of money." Sorry, gotta keep myself interested.
question
Budget Line/Constraint
answer
Line that shows the different consumption bundles a consumer can purchase with a specific money income.
Note: the price of a consumption bundle cannot exceed the consumer's total income
Income=(Qx*Px) + (Qy+Py)
Note: the price of a consumption bundle cannot exceed the consumer's total income
Income=(Qx*Px) + (Qy+Py)
question
Consumption Bundle
answer
The combination of goals and services consumed by an individual
question
Assume a consumer with $24 to spend is choosing between $4 hot dogs and $2 chicken fingers. The graph can be found in your notes.
answer
So with $24 buck-a-roos the consumer can buy 6 Hotdogs(obviously more because they come in packs of like 6 or 8, maybe more) and they can buy 12 Chicken fingers(who sells chicken fingers buy the Uno?).
so the Opportunity costs of either or is like
Hotdogs = 2C
Chicken = 1/2 Hot dogs
the consumer can purchase all bundles on or to the left of the line. (talking about the graph)
If the consumer is at a bundle on the budget line, the only way to consumer more of one good is to give up some of the other.
Opp. cost of x = Max Qy/Max Qx = Px/Py
so the Opportunity costs of either or is like
Hotdogs = 2C
Chicken = 1/2 Hot dogs
the consumer can purchase all bundles on or to the left of the line. (talking about the graph)
If the consumer is at a bundle on the budget line, the only way to consumer more of one good is to give up some of the other.
Opp. cost of x = Max Qy/Max Qx = Px/Py
question
What happens to market for SUVs when the price of steel (an input) falls?
answer
1. Supply increases
2. Surplus at the old price
3. Pe falls
4. Qe rises
2. Surplus at the old price
3. Pe falls
4. Qe rises
question
What happens to market for SUVs when the price of gas (a complement) falls?
answer
1. Demand increases
2. shortage at the old price
3. Pe rises
4. Qe rises
2. shortage at the old price
3. Pe rises
4. Qe rises
question
Steel is an input in SUVs. SUVs and gas are complements. what happens to the market for gas when the price of steel falls?
answer
1. Supply of SUVs increases
2. Price of SUVs falls
3. Demand for gas increases
4. Pe rises
5. Qe Rises
2. Price of SUVs falls
3. Demand for gas increases
4. Pe rises
5. Qe Rises
question
Properties of most indifference curves
answer
1. Total costs are downward slopping
2. TC's farther from the origin represent a greater level of TU
3. TC's never cross
4. TC's are bowed inward
2. TC's farther from the origin represent a greater level of TU
3. TC's never cross
4. TC's are bowed inward
question
Calculating Slop of TC's
answer
SLOPE= Change in Qy/ Change in Qx
Along a TC: Change in TUx + Change in TUy = 0
This can be rewritten as: MUxChange in Qx+-MUyChange in Qy
Diving both sides bt Change in Qx and by -MUy
Change in Qy/Change in Qx=-MUx/MUy
Along a TC: Change in TUx + Change in TUy = 0
This can be rewritten as: MUxChange in Qx+-MUyChange in Qy
Diving both sides bt Change in Qx and by -MUy
Change in Qy/Change in Qx=-MUx/MUy
question
Marginal Rate of Substitution
answer
The ratio of the marginal utility of one good to the marginal utility of another; MRS=MUx/MUy
from graph
bundle 1: big MUx/tiny MUy=Big MRS
bundle 2: tiny MUx/Big MUy= Tiny MRS
from graph
bundle 1: big MUx/tiny MUy=Big MRS
bundle 2: tiny MUx/Big MUy= Tiny MRS
question
Principle of Diminishing MRS
answer
The more of good X a person consumes in proportion to good Y, the less Y the consumer is willing to substitute for X; MRS Decreases as Qx increases
The MRS changes along an IC because of Diminishing Marginal Utility
know graph
The MRS changes along an IC because of Diminishing Marginal Utility
know graph
question
Graphing Optimal Consumption
answer
Lets add a budget line to the IC graph
btw if you didn't know, IC means indifference curve
look up graph
btw if you didn't know, IC means indifference curve
look up graph
question
Relative Price
answer
The ratio of the price of one good to the price of the other: RP=Px/Py
Note: slope of the bufget line=-Px/Py
Thus, we can find the optimal bundle by setting MRS=RP or MUx/MUy=Px/Py
Note: slope of the bufget line=-Px/Py
Thus, we can find the optimal bundle by setting MRS=RP or MUx/MUy=Px/Py
question
Oligoply
answer
Characteristics:
1. Few, Mutually Interdependent Firms
2. High Barriers to entry
3. Imperfect Information
Implications
1. Actions of 1 firm will affect the market
2. LRpi can be >0
3. Strategic cheating is possible
1. Few, Mutually Interdependent Firms
2. High Barriers to entry
3. Imperfect Information
Implications
1. Actions of 1 firm will affect the market
2. LRpi can be >0
3. Strategic cheating is possible
question
Collusion
answer
Cooperation among firms to raise each others profits
question
Cartel
answer
Agreement among firms to restrict output to acheive monopoly power
Random facts:
1. Cartels are illegal in the Us
2. Cartels can increase profits to all firms regardless of product type
3. When all members follow the rules, firms split monopoly profit(best group outcome)
Random facts:
1. Cartels are illegal in the Us
2. Cartels can increase profits to all firms regardless of product type
3. When all members follow the rules, firms split monopoly profit(best group outcome)
question
Incentive to Cheat
answer
Lowering the price attracts new consumers plus consumers from other firms; Ed increases
there is a graph in the notes
there is a graph in the notes
question
Game Theory
answer
2 players make 1 decision independently and at the same time; move of other player is unknown.
this is the Collude/cheat graph type deal
this is the Collude/cheat graph type deal
question
Prisoner's Dilemma
answer
Game in which the payoffs are such that the choice set that maximizes total welfare fails to maximize individual welfare
question
Max Total Welfare
answer
Highest sum of profits
question
Max individual Welfare
answer
determine best choice in each scenario
question
Factors that breakdown collusion
answer
1. Large number of sellers
2. differentiated products
3. differences in costs
4. anti-trust policy
2. differentiated products
3. differences in costs
4. anti-trust policy
question
Derived Demand
answer
Demand for a resource that depends on the demand for the products it helps to produce
there is a direct relationship between the demand for the product and the demand for labor
there is a direct relationship between the demand for the product and the demand for labor
question
Labor Market
answer
look at graph
We= Equilibrium wage rate
Le= Equilibrium level of employment
We= Equilibrium wage rate
Le= Equilibrium level of employment
question
Profit maximization
answer
effects of hiring a worker:
1. quantity of output rises
2. total revenue rises
3. total cost rises
profit maximized when Change in TR= change in TC
MRPl=MFC
1. quantity of output rises
2. total revenue rises
3. total cost rises
profit maximized when Change in TR= change in TC
MRPl=MFC
question
Marginal revenue product of labor
answer
The Change in TR from a 1 unit increase in L
When a worker is hired, Q rises by MPl
when those units are sold, the firms earns MR on each
MRPl=MR*MPl
When a worker is hired, Q rises by MPl
when those units are sold, the firms earns MR on each
MRPl=MR*MPl
question
Marginal factor cost
answer
the change in TC from a 1 unit increase in L
if we assume that the labor is the firms only variable cost, then
TVC=labor*wage
MFC=change in TVC
if we assume that the labor is the firms only variable cost, then
TVC=labor*wage
MFC=change in TVC
question
Perfect Competition
answer
Characteristics:
1. Many small employers compete for many workers with identical skills
2. firms are "price" takers - they face a perfectly elastic supply of labor
1. Many small employers compete for many workers with identical skills
2. firms are "price" takers - they face a perfectly elastic supply of labor
question
Find L* for a firm in a perfetcly competitive labor market where W=$9 and MRPl=48-3L
answer
Solution
MRPl=48-3L and MFC=9
9=48-3L
3L=39
L*=13 workers
MRPl=48-3L and MFC=9
9=48-3L
3L=39
L*=13 workers
question
Standarized products
answer
perfect substitutes
question
Price taker
answer
have to keep their price at a lower then conpetitors if they want to sell anything
question
marginal revenue
answer
additional revenue earned from selling 1 additional unit
question
price maker
answer
producer that finds the profit maximing P/Q combo; you set the highest price that your consumers are willing to pay
question
price discrimination
answer
practice of cahrging different groups of buyers different prices based on differences of E sub d
question
market/monopoly power
answer
one firm power, loyalty, brand
on firm to rule them all
on firm to rule them all
question
contrived scarcity
answer
making goods seem more scarce than they are
question
technology advance
answer
if monopolist spends its profit on research and development the monopoly may create faster growth over time
question
advertising
answer
a seller's activities in communicating it messages about its product to potential buyers
question
excess capacity
answer
Q* is below output where ATC is minimized
question
Monopolistic competition
answer
Characteristics:
1. Many small Buyers and Sellers
2. No barriers to entry
3. Differentiated products
Implications:
1. No individual can affect Pe or Qe
2. LRpi = 0
3. Advertising/Price makers
1. Many small Buyers and Sellers
2. No barriers to entry
3. Differentiated products
Implications:
1. No individual can affect Pe or Qe
2. LRpi = 0
3. Advertising/Price makers
question
When pi>0 in SR, then in the LR:
answer
1. firms enter
2. D and MR fall
3. P and Q fall
4. pi = 0
2. D and MR fall
3. P and Q fall
4. pi = 0
question
Advertising
answer
Many sellers=Small demand
close subsitutes=highly elastic demand
advertising - A sellers activities in communicating its message about its product to potential buyers
Goals for advertising
1. increase the D!!! ...... demand.....for the D!!! but seriously just demand
2. Decrease Ed
close subsitutes=highly elastic demand
advertising - A sellers activities in communicating its message about its product to potential buyers
Goals for advertising
1. increase the D!!! ...... demand.....for the D!!! but seriously just demand
2. Decrease Ed
question
Positive effects of Advertising
answer
1. decreases search and information costs
2. facilitates the introduction of new products
2. facilitates the introduction of new products
question
potential negative effects of advertising
answer
1. May be persuasive rather than informative, designed to alter preferences
2. may establish brand-name loyalty, increasing monopoly power
3. competing ads may cancel each other out, resulting in a waste of resources that does not alter demand
2. may establish brand-name loyalty, increasing monopoly power
3. competing ads may cancel each other out, resulting in a waste of resources that does not alter demand
question
Case against/for monopolistic competition
answer
For: expanding consumer options through product variety adds value by more fully matching consumer tastes
Against:
1. P>MC - no allocation efficiency
2. Excess capacity- Q* is below output where ATC is minimized
Against:
1. P>MC - no allocation efficiency
2. Excess capacity- Q* is below output where ATC is minimized
question
Another Quick Slide on Market Structures
answer
Perfect Competition - Many Firms, Perfect Subs
Monopolistic Competition - Many Firms, Close Subs
Oligopoly - New Firms
Monopoly - One Firm
Monopolistic Competition - Many Firms, Close Subs
Oligopoly - New Firms
Monopoly - One Firm
question
Types of Barriers to Entry
answer
Economies to Sale; Alabamer POW-WA
Government: created Barriers; Patents and Licenses
Control of Essential Resource; NFL, FIFA, NHL,
Government: created Barriers; Patents and Licenses
Control of Essential Resource; NFL, FIFA, NHL,
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