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ECON 1101: FINAL
Supply Shifters
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Changes in:
Input prices
Price of related goods - substitutes
Technology
# of producers
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Demand Shifters
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1. Price of related gooods: substitutes and complements
2. Income: normal (buy more) or inferior (buy less)
3. tastes and preferences: buy more if taste for product increases
4. expected future prices: buy more to beat increase in price
5. number of potential buyers: bigger quantity demanded
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Price Elasticity of Demand
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change in Qd%/ change in Price%
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income elasticity demand
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percentage change in quantity demanded divided by the percentage change in income
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Pareto Efficiency
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no way to make one person better off without making someone else worse off
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Social Welfare =
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Consumer surplus + producer surplus
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First Welfare Theorum
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If a market has perfect competition and no externalities, than the unregulated market is efficient.
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price ceiling
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legal maximum price that may be charged for a good or service (ex: rent control)
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price floor
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a legal minimum on the price at which a good can be sold
Note: Above equilibrium
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What gets in the way of Pareto Efficiency?
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Supply and Quantity controls
taxes and Subsidies
externalities
Quotas
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subsidies
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government loans, grants, and tax deferments given to domestic companies to protect them from foreign competition
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externalities
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public good or bads generated as a byproduct of private activity; for example, air pollution is an externality (public bad) because it is, in part, the byproduct of the private activity of driving a car
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Quotas
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limits placed on the number or value of goods that can be traded as exports or imports
-->most common form of restriction
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Trade theory
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tries to explain why trade occurs the way it does
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Production possibilities frontier (PPF)
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A curve showing alternative combinations of goods that can be produced when available resources are used efficiently; a boundary line between inefficient and unattainable combinations
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comparative advantage
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in producing a good or service, the situation that occurs if the opportunity cost of producing that good or service is lower for that economy than for any other
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Absolute advantage
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One person has an absolute advantage over another if he or she takes fewer hours to perform a task than the other person.
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Consumer theory
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consumers goal is to buy the most desirable goods and services that their limited budget will permit
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Theory of the firm
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Describes how a firm makes cost-minimizing production decisions and how the firm's resulting cost varies with its output. Firm Goal : Maximize Profit
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If the firm is maximizing profit, then its profit is
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Zero since ATC=P
MC=MR
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Monopolistic Competition
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refers to a market composed of firms with somewhat differentiated products and limited pricing power sufficient to influence the price of their own products to a degree
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Increasing Returns to Scale Production
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The more a group produces one thing, the lower the opportunity cost will become. Promotes Specialization between similar countries for trade
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Game Theory
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The study of how people behave in strategic situations
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nash equillibrium
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point @ which company doesn't want to change to any other strategy given the strategies of other firms
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oligopolies |
when 2 or more companies dominate an entire industry
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Labor Markets
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The price of labor (wages) is determined int he marketplace
Individuals sell (supply) their labor at the market wage to firms who demand it
Market wage is seen at the intersection of labor supply and labor demand
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