Microeconomics – Final

The ability to produce good using fewer inputs than another producer.

The ability to produce good at a lower opportunity cost than another producer.

A relationship between the tax rates and tax revenues that illustrates that high tax rates could lead to lower tax revenues if economic activity is severely discouraged.

The uncompensated impact of one person's actions on the well-being of a bystander.

- Regulation (Command-and-control policies)
- Market-based policies
- Private solutions

The property of a good whereby a person can be prevented from using it.

The property of a good whereby one person's use diminishes other people's use.

Excludable and rival in consumption (clothing).

Not excludable and not rival in consumption (national defense)

Not excludable but rival in consumption (fish in the ocean).

Excludable but not rival in consumption (satellite TV).

Person who receives the benefit of a good but avoids paying for it.

Public goods are not excludable.

- Apply regulations
- Internalize the externality by taxing
- Bargain

Involves spending money

Non-monetary opportunity cost

TR-TC

TR - total explicit costs

Relationship between quantity of inputs used to make a good and the quantity of outputs of that good.

production rises

the increase in output that arises from an additional unit of input.

The marginal product of an input declines as the quantity of the input increases.

Costs that do not vary with the quantity of output produced.

Costs that vary with the quantity of output produced.
(In the long run all costs are variable.)

Increase in total cost arising from an extra unit of production.

ATC is falling

ATC is rising

MR=MC

- are much flatter than short-run cost curves
- lie under the short-run cost curves

Long-run ATC falls as the quantity of output increases.
Because higher production increases specialization among workers.

the quantity of output changes

Long-run ATC rises as the quantity of output increases.

A situation in which less and less is achieved despite the use of increasing amounts of effort or money. Often happens in the short run, when capital is fixed.
(vs. diseconomies of scale: capital is not fixed)

Market participants are price takers, free entry and exit, many sellers

P=MR=AR

MR>MC

MR<MC

MC (supply) curve is upward sloping
Price line (demand curve) is horizontal
Market demand is downward sloping

pi=TR-TC=Q.(P-ATC)
(area between price and ATC)

- Produces on the MC curve if P>AVC
- Shuts down if TR<VC (P<AVC). Because in the short run firm can't recover its fixed costs.

- Produces on the MC curve if P>ATC
- Shuts down if TR<TC (P<ATC). Because in the long run firm can recover both fixed costs and variable costs.

A market in which there are many buyers but only one seller.

- Is the sole supplier
- Has market power (price-maker)
- Barriers to entry

- Control over a scarce resource or input (diamonds)
- Natural monopoly (a single firm supply to an entire market at a smaller cost)
- Technological superiority (Intel during 1970-1990)
- Network externality (Facebook's users)
- Government-created barriers (by giving patent/copyrights)

is downward sloping

P>MR (competitive firms: P=MR)

(ATC-P).Q

Selling the same good at different prices to different customers.

- Antitrust law
- Public ownership
- Price regulation
- Do nothing at all

The study of how people make decisions in situations in which attaining their goals depends on their interactions with others.

A game in which it is in the best interest of all players to cooperate, but where each player has an incentive to adopt his or her dominant strategy.

A situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen.

A market structure in which only a few sellers offer similar or identical products.

An oligopoly with only two firms.

Situation in which people acting individually and in their own interest use up commonly available but limited resources, creating disaster for the entire community.

A tax imposed on an activity that creates a negative externality.

the monopoly produces the quantity below the level that maximizes the total surplus.

monopolists are price-maker, not price-takers. Instead, when a firm chooses the quantity to supply, that decision determines the price.

has a constantly declining ATC