ECON STUDY GUIDE TEST 2******PUBLIC GOODS-RIVAL= ONE PERSON AT THE SAME TIME (EX: CANDY BAR OR SUIT)*****-NON-RIVAL= MULTIPLE PEOPLE AT SAME TIME FOR NO ADDITIONAL COST (EX: NATIONAL DEFENSE, HBO, SCIENTIFIC KNOWLEDGE)-PUBLIC GOODS -> NON-RIVAL AND NON-EXCLUDABLENON-RIVAL AND A NON-EXCLUDABLE- NOT ALWAYS A PUBLIC GOOD.-EXCLUDABILITY- CAN WE PREVENT YOU FROM CONSUMING?*****-NON-EXCLUDABILITY- INABILITY TO PREVENT CONSUMPTION TO THOSE WHO DIDN’T PAY (EX: PUBLIC RESTROOM)-FREE RIDER- CONSUMES, BUT DOES NOT PAY. SOMEONE PAYS FOR SOMETHING, BUTYOU USE IT. AFFECTS SOCIETY NEGATIVELY WHEN SOCIETY USES IT FOR PUBLIC GOODS, NOT PRIVATE. PRESENCE GENERATES UNDER PROVISIONS OF PUBLIC GOODS.-POSSIBLE SOLUTIONS:1) CREATE EXCLUDABILITY. IF YOU WANT TO USE IT, SEE IT, ETC., PAY FOR IT. MAKE SOMETHING THAT ALLOWS CONSUMER TO ONLY USE WITH PAY. DON’T PAY= CAN’T USE.2) FORCE YOU TO PAY (EX: GOVERNMENT CAN DO IT), WITH TAX <- PROPER ROLE FOR GOVERNMENT 3) SHAMEEXTERNALITIES (EFFECTS ON 3RD PARTY- NOT SELLER, NOT BUYER) -POSITIVE EXTERNALITY- (EXTERNAL BENEFIT)- WE WANT MORE OF THE BEHAVIOR, BECAUSE CONSUMER LIKES IT AND 3RD PARTY LIKES IT. WHEN THE DECISION OF SOMEONE ELSE BENEFITS YOU. (EX: GETTING AN EDUCATION, FLU SHOT (YOU WON’T GET SICK CAUSE SOMEONE ELSE GOT IT AND THEY’RE NOW SAFE), ALL SHOTS.TO ENCOURAGE MORE OF THIS BEHAVIOR:1) MANDATE IT (AKA HAVE EVERYONE GET IT)2) SUBSIDY (GOVERNMENT, CAN CHIP IN SO PRICE IS LOWER FOR CONSUMERS (1ST LAW OF PRICE, WHEN PRICE IS LOWER, DEMAND GOES UP)-NEGATIVE EXTERNALITIES- BEHAVIOR OF OTHERS IMPOSES BURDENS ON OTHERS OUTSIDE OF THE TRANSACTION. (EX: PRODUCTION). IS A PRIVATE DEAL.SOLUTIONS:1) REGULATE2) TAXMARKET STRUCTURE-COMPETITIVE IF THE MARKET CONTAINS LARGE NUMBER OF SMALL PRODUCERS.-PRICE TAKERS (0 MARKET POWER)-PRICE SEARCHERS (SOME MARKET POWER)-GOOD/SERVICE IS HOMOGENOUS, IDENTICAL TO WHAT OTHERS SELL. (EX: COMMODITIES, AGRICULTURE, UNSKILLED LABOR)CURVED PRICE TAKERS- TAKE PRICE AS DETERMINED BY THE OVERALL MARKET.WON’T PRODUCE UNITS FOR MORE THAN THEY CAN SELL FOR. (PRODUCE UNITS UP TO WHERE LINE OF THE COST UNIT IS= TO MARKET PRICE)-SPECIFIC STRUCTURES:1) PERFECT COMPOSITION- (NO BARRIERS, EX: UNSKILLED LABOR MARKET, STOCKS, COMMODITIES). LARGE # OF SMALL FIRMS. IDENTICAL PRODUCT TO OTHERS.2) MONOPOLISTIC COMPOSITION- (LOW OR NO BARRIERS). LOTS OF SMALL PRODUCERS (EX: LOCAL RESTAURANT). GOOD OR SERVICE IS DIFFERENTIATED, AKA A LITTLE DIFFERENT (EX: LOTS OF ADVERTISING). MR=MC, IF MR GOES DOWN, MC GOES UP. 3) OLIGOPOLY- (FEW LARGE FIRMS). EX: AIRPLANES, INTERNET/CELL PROVIDERS/PHONE COMPANIES, BEVERAGES. COMPETITION REACTS AND RESPONDS TO OTHERS. BARRIERS TO ENTRY. MR=MC 4) CARTEL- GROUP OF FIRMS ATTEMPTING TO EXCLUDE COMPETITOR OR CONTROL PRICES. NEEDS TO MONITOR EACH OTHERS BEHAVIORS, ENFORCE OR PROVISION IF CHEAT ON AN AGREEMENT. ONLY MARKET STRUCTURE WHERE MARGINAL REVENUE 1 UNIT UP IS HIGHER THAN COST TO PRODUCE,. CHEAT POSSIBLE FOR EVERY FIRM. PRISONER DILEMMA.5) MONOPOLY- ONE SELLER, MARGINAL COST CURVE. EACH AND EVERY FIRM WANTS TO BE MONOPOLISTIC. MR=MC-MARGINAL REVENUE- INCREASE IN REVENUE WITH ONE SALE UNIT OF OUTPUT. TR/OUTPUT. TR OF X UNITS SOLD- TR OF X-1 UNITS SOLD= DIFFERENCE IN REVENUE -PRICE SEARCHES- ALL FIRMS MAX PROFIT= TR-TC. PRODUCE WHERE MR=MCEX: UNIT 1= MC=1, UNIT 2= MC=2.10-PX=QDX.P*QD= TR, AND TR-TC= PI. TO GET THE TC, ADD EVERY QD SO FAR.WHEN P IS (P STARTS WITH HIGHEST NUMBER)QD IS (QD STARTS AT 0)TR (P*QD=TR)TC (ALL QD’S SO FAR ADDED UP)PI (TR-TC)10000091918821631373216136424101455251510-BETTER TO HAVE LESS CLIENTS DO SAME HOURS OF WORK FOR MORE PER HOUR. (EX: 400 CLIENTS, 4 HRS FOR $50/HR= $80K, BUT 300 CLIENTS, 4 HRS FOR $100/HR= $120K)PRICE DISCRIMINATION-1ST DEGREE- WALKING DOWN A DEMAND CURVE. HIGHEST PRICE TO PAY PER UNIT? GOAL IS TO GET YOU TO REVEAL THIS.-2ND DEGREE- QUANTITY DISCOUNT (EX: BOGO SALE).-3RD DEGREE-MARKET SEGMENTATION, BREAK CONSUMERS INTO MORE THAN ONE GROUP. CHARGE THEM DIFFERENT PRICES. THROW EVERYONE INTO HIGH PRICE