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Durable good
goods that last, multiple uses
Single sided auction
only the buyers OR the sellers bid, not both
Double sided auction
both sellers and buyers are bidding on prices
Sealed bid
the bidder's amount is kept secret from all the other parties
Open outcry
the bidder declares his bid to all other parties
Monopoly
one seller of one specific good, no competition with other sellers, therefore they can drive the price up to the buyer's reservation price
Collusion
insures that you can get a higher profit (cartel) illegal in the US and many countries
Uniformed price auction
the last bidder is the price setter, so all companies must sell at that price
Competitive market
a market in which there are many buyers and many sellers so that the behavior of an individual buyer or seller has a negligible impact on the market price
Quantity supplied
amount sellers are willing and able to sell
Quantity demanded
amount buyers are willing and able to purchase
Demand shifters
price of related goods, income, number of buyers, and consumer taxes
Shifters of supply
price of inputs, number of sellers, and technology
Normal good
when income increases, demand for good increases
Inferior good
when income increases, demand for good decreases
Positive supply shock and negative demand shock
price goes down, Q can go either way
Positive demand shock and negative supply shock
Price goes up, Q can go either way
Horizontal demand curve
perfectly elastic demand, demand can be anywhere
Vertical demand curve
perfectly inelastic demand, consumers are willing to pay any price to get a specific amount of the good
Vertical supply curve
perfectly inelastic supply, there is a limited amount of the good available to be sold in any market
When e^D > 1
demand is elastic
When e^D < 1
demand is inelastic
Income elasticity of demand > 0
the good is normal
Income elasticity of demand < 0
the good is inferior
Two types of normal goods
Necessity and luxury
Necessity
0<e^income<1, income inelastic, spending share falls as income rises
Luxury
e^income>1, income elastic, spending share rises as income rises
Marginal cost
the additional cost to sellers as a group of producing one additional unit of a good
Marginal reservation price
the additional value to buyers as a group of obtaining one additional unit of a good
Consumer surplus
= reservation price - cost to produce (the gap between what the agent was willing to pay and what he actually paid)
Producer surplus
= price received - cost to produce (gap between the minimum selling price and what he actually receives)
Efficiency is NOT equal to
Equality
Gains from trade
calculate consumer surplus of each buyer and producer surplus of each seller
CS =
triangle between demand curve and price line
PS =
triangle between supply curve and price line
Pareto efficiency
an allocation is pareto efficient if it is feasible and there is no way to make someone better off without making someone worse off
General principle 1
consumers with highest willingness to pay will consume
General principle 2
suppliers with the lowest cost will produce
General principle 3
the quantity is such that the marginal valuation (reservation price) of the last unit consumed equals the marginal cost of the last unit produced
First welfare theorem
market structure is perfectly competitive, no externalities (my action hurts or benefits other, but I don't take into account. Like pollution), the unregulated market allocation is pareto efficient
Taxes
form a wedge between the price the consumer pays and the price the supplier recieves
Efficient quantity
the quantity is where the marginal valuation of the last unit consumed equals the marginal cost of the last unit produced
The more inelastic the side of the market you are on
the more you pay the tax
The more elastic the side of the market you are on
the less amount of tax you pay
Subsidy
set up to supplement a consumer's purchase
Price ceiling
policy in which a price other than the market equilibrium price is implemented
Price floor
stops the price from falling down towards the equilibrium
Uniform rationing
CS depends on which consumers get the item since different consumers have different reservation prices for the item (low and high value customers are equally likely to get the item)
If resales are allowed
there is no deadweight loss
Quotas
a legal right to sell a unit of a good created by the government and limited in supply (more production requires the purchase of more quotas)

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