Microeconomics 101 Final

1) Labor
2) Capital
3) Land
4)Technology
5) Entrepreneurship

Quantity of a product that must be sacrificed to get an increment in another product

Positive = tells us facts about the economy without any opinions
Normative = tells us how the economy "should" work based on personal views and opinions

PPF = Production Possibilities Frontier
Meaning = graph that shows the various combinations of output that the economy can possibly produce given the available resources and technology

Downward sloping curve that shows the relationship between the price of a product and the quantity of the product demanded

When the price of a product falls, quantity demanded increases. When price of a product rises, quantity demanded falls.

Aggregate demand of all consumers of a given good or service

Demand = Shift of the curve
Quantity Demanded = movement along the curve

REMEMBER TRIBE
1) Tastes and Preferences
ex. baseball caps no longer in fashion, therefore demand for the caps will go down.
2) Related Goods
Complementary Goods
ex. peanut butter and jelly
Substitute Goods
ex. coke and pepsi
3) Income
Normal good - Income goes up, demand goes up, income goes down, demand goes down
Inferior good - Income goes up, demand goes down, income goes down, demand goes up
4) Buyers
ex. More buyers more demand.
5) Expectations
ex. people expect the price of iTunes songs to go up in 2 weeks so they will buy more now.

Price of X goes down, Demand of y goes up
ex. cars and gas, computers and printers, etc

Price of X goes down, Demand of Y goes down
ex. price of coke goes down, demand for pepsi goes down. Since coke is cheaper, people will start purchasing less pepsi and more coke.

When the selling price of a product rises, producers increase the amount they produce of that product. and Vice versa.

Remember ROTTEN
R = Resource prices (input costs)
O = Other goods prices
T = Technology
T = Taxes
E = Expectation
N = Number of sellers

Binding Price Ceiling - a legal maximum at which a good can be sold. ex. Rent in NYC.

PC ANB = above equilibrium = non binding
PC BB = below equilibrium = binding

PF BNB = below equilibrium = non binding
PF AB = above equilibrium = binding

shortages

surpluses

how sensitive quantity demanded is to changes in price

%change in Qd / %change in P

(Qd new - Qd old)/((Qd new + Qd old)/2)
----------------------------------
(P new - P old)/((P new + P old)/2)

e > 1 = elastic
e < 1 = inelastic
e = 1 = unit elastic

--Luxury vs. Necessity
luxury goods = elastic demand (rolex watch)
necessity goods = inelastic demands (bread)
--Substitutes vs. No substitutes
more substitutes = elastic (soft drinks)
no substitutes = inelastic demand (eggs)
--Definition of the markets
broadly defined = inelastic (food)
narrowly defined = elastic (pizza
--Time Horizon
short run = inelastic (because you can't switch to another product in shorter periods of time)
long run = elastic (cause you have more time to change your mind and think about what you want)
--Percentage of Income
small percentage of income = inelastic demand (newspaper)
large percentage of income = elastic demand (car)

Cross price elasticity of demand measures the responsivemness of the quantity demanded for 'good x' if the price of 'good y' changed.

CPED = (% change in quantity demanded of good x) / (% change in price of good y)

For substitutes, CPE > 0
For complements, CPE < 0

Remember CCPE <0 < SCPE

Income elasticity of demand measures the responsiveness of the quantity demanded for 'good x' when your income changes

IED = (% change in quantity demanded) / (% change in income)

how much will supply change with a specific change in price

PES = (% change in quantity supplied) / (% change in price

Money that the government collects from people in order to raise money for public services such as libraries, roads, schools, and national defense.

The price of each unit of a good or service gas up
ex. http://quizlet.com/8721690/edit/Government levies (imposes) tax on gallons of gasoline. In this scenario, the suppliers of gas pay the tax. (tax is a dollar amount per gallon, irrespective of price)

Supply curve shifts left because suppliers are less inclined to produce gasoline because it is now more expensive (dollar per amount of gallon).

equilibrium quantity goes down and equilibrium price goes up.

Consumers are less inclined to buy gasoline and as a result the demand curve shifts to the left.

equilibrium quantity goes down and equilibrium price goes down

NOPE

Pc - P*

P* - Pp

curve that is more inelastic (steeper) bears the greater burden of the tax

happiness, satisfaction, or well-being

the additional utility you get from one additional unit of a good or service

MUx = change in U/change in X

A graph showing different combinations/bundles of goods between which a consumer is indifferent. This is because they all offer the same level of utility to the consumer.

The higher the utility, the higher the indifference curve (indiff curves farther from the origin 0,0 reflect higher levels of satisfaction)

Indifference curves are negatively sloped because you need to give up some of good x to get some of good y, and vice versa to remain indifferent.

No because if two curves intersect at a given point, then we would have two different levels of satisfaction for the same bundle and that is impossible.

measures the amount of good on the y axis you are willing to give up for 1 more unit of a good on the x axis. It diminishes because the more you have of good X, the less you are willing to give up of good Y.

diagonal lines (ex.nickels and dimes)

they look like L's (ex.left and right shoes)

Budget line that shows all bundles of goods that the consumer can affort within a given budget

Budget = Px(Qx) + Py(Qy)
Ex. Rebecca has 1000 dollar budget. Each dress costs 300 dollars and each boot costs 100 dollars, the budget constraint would be:

$1000 = $300Qx + $100Qy

-Px/Py
In the previous example,
slope = -$100/$300 = -1/3

Above budget constraint = not feasible
Below budget constraint = feasible but not using all income

Point at which the budget constraint line is tangent to the indifference curve. It's the point at which highest satisfaction is achieved. Slope of the indiff curve at this point is = to slope of budget constraint (tangent).

the change in quantity demanded due to the substitution from one good to another (real income constant). when the price of a good goes up, consumers substitute that good with a cheaper good. ex. boots go from 50-100 dollars --> Rebecca will be able to substitute more boots with fewer dresses in order to remain at the same level of satisfaction.

change in quantity demanded due to the change in purchasing power (relative prices constant).

IE and SE work in the same direction

IE and SE work in opposite ways

an inferior good for which IE > SE which creates a positively sloped demand curve. *All Giffen goods are inferior but not all inferior goods are Giffen goods.

Costs that don&#039;t change as the level of output changes (machines that you need to produce ****)

Costs that do change as the level of output changes (electricity consumption increases if you decide to produce more ****, so you need to pay more for electricity)

Total Fixed Costs + Total Variable Costs

Total Fixed Cost/Q
Q = total output
TFC/Q

Total Variable Cost/Q
TVC/Q

AC = sum of all costs per unit of output. It is also the sum of all costs per unit of output
= TC/Q
=AFC + AVC

Cost of every additional unit produced
change in TC/ change in Q

MC, AC, AVC, AFC

MC < ATC , ATC decreasing
MC > ATC, ATC increasing
MC is the leader indicator

TR = Price x Quantity
TR = P x Q

AR = TR/Q = (p x q)/q = P
AR = P

Marginal revenue = the additional revenue received from selling the last unit.
MR = change in TR/change in Q

ex. last widget sold for $40; so change in TR = 40, change in Q = 1, so the MR of the 110th unit = 40

1. many firms
2. Buyers have full info
3. many buyers
4. product is homogeneous
5. free entry and exit
6. price taker

the number of firms in the industry and their size are considered fixed in the short run and
variable in the long run

TR - TC
q (P-AC) (remember 2pac)

When MR = MC

You get a profit, firms will increase output to maximize profits

You get a loss, decrease output to maximize profits

firm is not making profit because it's selling the product at a price less than the Average total cost. This is the break even price.

the firm is not even covering its average variable cost. the firm should shut down because it is constantly losing money. This is the shut down price.

price is less than lowest point on average total cost curve

price is less than lowest point on average variable cost curve

part of the MC curve above minimum AVC

not necessarily.

economic profits = 0

if it can cover its variable costs. it should shut down if the price is less than lowest point on average variable cost curve

Accounting profit = TR - Accounting costs
examples of accounting costs: labor, raw materials, equipment

Implicit costs are like opportunity costs. maybe you gave up another job to produce this ****. i.e. foregone salary

Economic costs = Total accounting costs+ Total implicit costs

TR - Total economic costs

when MC > AC

when MC < AC

1) new firms enter
2) S curve shifts to the right
3) equilibrium price goes down and equilibrium quantity goes up
4) this lowers the MR curve because MR = P (mr.darp)
5) profit is reduced from its original size
6) market price is lowered to minimum AC
7) economic profits are lowered to 0 (at which point the difference between MC and AC = 0)
8) entry ceases

1) firms exit
2) number of firms decreases
3) S curve shifts to the left
4) equilibrium price increases
5) equilibrium quantity demanded decreases
6) economic profit = 0

NOPM
1) no substitutes
2) only one firm
3)price setter - monopolist can set the price they want
4) many barriers to entry of firms

it's a diagonal line it looks like a backslash with a negative slope. the PC firm demand curve is a horizontal line with a MR DARP thing. the monopoly's demand curve is the same as an individual's demand curve because it is the only firm in the market. so basically it looks like the regular demand curve from ch.1

for the PC firm it was still the same horizontal line but now with the monopoly it's a diagonal line except MR < D , they meet at the top of the graph and diverge at the bottom. it looks like a weird triangle

directly above the point where MR = MC on the demand curve (because otherwise you're still on the MR curve)

-when: AC curve goes below the Demand curve
-how to find the profit:
find point where MR = MC
go vertically up to AC, draw horizontal line to y axis
go vertically up to D, draw horizontal line to y axis
profit per unit q(P-AC)

-when: AC curve is above the D curve (doesn't touch it). When price is less then AC
- how to find the loss:
go to the point where MR = MC
go vertically up to the demand curve, draw horizontal line to y axis
go vertically up to the ac curve, draw horizontal line to y axis
this time, profit is negative.

Remember FMPM
-free entry and exit of firms
-many buyers
-products are differentiated but are still close substitutes (restaurants, hair dressers , clothing stores)
-many firms

+ each firm faces a downward sloping demand curve due to brand loyalty

D and MR and in the weird triangle thing (D > MR)
draw MC and AC as well
since P0 > AC, economic profit exists
since there is profit, new firms enter
demand curve shifts to the left
goes on until economic profits --> 0
draw D1 tangent to AC curve and MR in the triangle
P1 = AC therefore economic profits = 0

Remember FDS
-Few firms
-Differentiated products but close subs
-Dome barriers to entry and exit of firms
Example = cell phone industry (Verizon, AT&T, Sprint)

Game = a situation where a player has to make decisions with or against other players
ex. coke and pepsi with advertising

When all players reach a sustainable strategy. Both companies have the same dominant strategy (both doms for both companies are in one box)

a players best strategy no matter what the other players do. ex. if coke goes large on advertising, I go large, if coke goes small on advertising, I still go large. My dominant strategy is to go large.

CS = value to buyers - amount paid by buyers

the amount that buyers are willing to pay for a good minus the amount they actually pay for it

PS = amount received by sellers - cost to sellers

the amount sellers receive for a good over and above the minimum for which they are willing to sell the good.

SS = Consumer surplus + Producer Surplus

Use area of triangle = base x height or 1/2 base x height if it's a right triangle.

the property of a resource allocation of maximizing the total surplus received by all members of society

Where goods and services are being sold to people that are willing to pay for them

Total consumer and producer surplus lost, DWL = -change SS (it's the small triangle in the corner)

Opportunity cost of producing to Country A is lower than opportunity cost of producing the same product to country B

Country A uses fewer inputs than Country B to produce a good or service

Cost to produce good domestically - Cost to import

Negative production externality
Positive production externality
Negative consumption externality
Positive consumption externality

It's a not cost or benefit not transmitted through prices

negative:bobby mows lawns and this imposes an additional cost in society of 1$ for every lawn that he mows because people hate the sound of it so there is an additional cost to society.
positive: beekeepers need to spend money to maintain their bee hives but farmers also benefit from the bees because they pollinate the fields, so there is an additional benefit to society.

It's the s curve - it's the private cost for the suppliers (producers) to produce their stuff

When it's a negative production externality,
MSC = Marginal private cost + Additional Cost to Society

When it's a positive production externality,
MSC = Marginal private cost - Additional benefit to society.

It's always pointing to the QEff
QMkt is the quantity at which the demand curve (or MPB) and supply curve (or MPC) intersect.

ex. positive = using public transportation is cheaper for you and it's also good for the environment so there is an additional benefit to society
ex. negative = smokers. It costs you money + it's bad for society because of second hand smoking so there is an additional cost to society.

It's the demand curve because we are now dealing with the consumers .. Marginal private benefit. It's the benefit only to you.

When it's a negative consumption externality, MSB = MPB - Additional cost to society.

When it's a positive consumption externality,
MSB = MPB + Additional benefit to socety

1) Command and Control Policies
2) Market-based policies

policies that forbid or require certain behaviors

taxes and subsidies the government uses to align private incentives with social efficiency

Pigovian taxes - taxes that are enacted to correct the effects of a negative externality. tax equal to the difference between the demand curve and MPC and the MSC is levied on the producers so that Qeff= Qtax, no more DWL in the market

1) Private
2) Natural monopolies
3) Common resources
4) Public goods

1) Rivalry: refers to the extent to which one person's consumption of a good prevents others from consuming it
2) Excludability - refers to the property of a good whereby a person can be prevented from consuming or using it

R
high low

high PG NM
Ex
low CR PUG

PG (private goods)
NM (natural monopoly)
CR (common resources)
PUG (Public goods)

A person who receives the benefit of a good but avoids paying for it

a graph that represents the inequality of income distribution. the hypotneus = perfect equality

Ratio that allows one to see the level of income inequality in a nation

A/ (A+B) where A is above the lorenzo curve and B is below

As gini coeff approaches 0

there is a lot of income inequality in society

incentive for tech innovation
promotes globalization and trade
prevents pool of immigrants from coming to the US

income of richest 10% / income of poorest 10%

the % of the population whose income falls below the poverty line. the poverty rate in the US is highly correlated with race and age.