Economics 8 Mindmap

Unit 1
Annotations:
- Graphically identify the difference btwn the quantity demanded/supplied and demanded/supply https://www.bing.com/images/search?q=graph+quantity+demanded%2fsupplied+and+demanded%2f+supply&qpvt=graph+quantity+demanded%2fsupplied+and+demanded%2f+supply&FORM=IGRE
1. scarcity
  Annotations:
  - eg money to purchase is scarce time to research cost etc is scarce
  1. opportunity cost
    Annotations:
    - eg high end training shoes vs lower end one. higher end one is $80 more so if you choose this one , opportunity cost is $80(you sacrifice that 80) or what you could have bought had you bought the other one. Opportunity cost is the value of the highest alternative choice that u did not make. when you make a decision based on opportunity cost you are engaging in rational decision. RATIONAL DECISION is the one with the greatest value (perceived value) ie best quality at lowest price
    - khan academy also discussed marginal cost - can be in units or $eg to produce 1 more rabbit need to give 40 say you want to increase by 20 berries you need to give up 1 rabbit. This is opportunity cost. But marginal cost is increase in 1 unti never >1 unit so need to divide both sides by 20 to get values of rabbit given up to increase berries by 1 unit berrieshttps://www.youtube.com/watch?v=pkEiHZAtoro
    1. production possibility frontier
      Annotations:
      - what is production possibility ? https://www.reviewecon.com/production-possibilities-curve.html
      - https://en.wikipedia.org/wiki/Production%E2%80%93possibility_frontier explains the graph and the opportunity costs points on the line are maximal production and efficient points in AUC to left are attainable/possible but not efficient while points to the rt of the curve are not attainable(attainable are on curve and to the left)
      - what is ppf: n economics, a production–possibility frontier (PPF), sometimes called a production–possibility curve, production-possibility boundary or product transformation curve, is a graph representing production tradeoffs of an economy given fixed resources.
      - a)a table is given called the production schedule. B)You need to plot the points on the graph i): every point on the graph is a possibility for production or considered attainable. (n the PPF, all points on the curve are points of maximum productive efficiency) ii)any point falling in AUC is possible but ineffecient but still is attainableiii) any point on the far right is unattainable
      - q 3-5 on precomp packet https://www.coursehero.com/file/p6k1kkj/Consider-the-production-possibilities-curve-PPC-for-a-country-producing-only/
      - khan academy: https://www.khanacademy.org/economics-finance-domain/microeconomics/choices-opp-cost-tutorial/production-possibilities/v/opportunity-cost
      - q 7 on precomp packet: SHIFT in PPF and ECONOMIC GROWTHhttps://www.investopedia.com/university/economics/economics2.aspdiscusses situations that an economy faces when a point is inside the graph and outside the grapheg at a point to the right - production is unattainable but with new tech you may be able to pick berries faster and production increases. A new curve would form to the right of the present curve and the point that was to the right (outside) now falls on that new production line. When a graph pushes outwards it implies ECONOMIC GROWTH (Population increase will cause an increase in demand..production will increase and the PPF will move to the right as well) all these things drive production
      - But PPF will move to the left(inside the curve) Alternatively, when the PPF shifts inwards it indicates that the economy is shrinking due to a failure in its allocation of resources and optimal production capability. A shrinking economy could be a result of a decrease in supplies or a deficiency in technology
      - why is the PPF slope negative: An economy can only be producing on the PPF curve in theory; in reality, economies constantly struggle to reach an optimal production capacity. And because scarcity forces an economy to forgo some choice in favor of others, the slope of the PPF will always be negative; if production of product A increases then production of product B will have to decrease accordingly
      - https://www.bing.com/images/search?q=production+possibility&FORM=HDRSC2
      1. opportunity costs
        Annotations:
        From a starting point on the frontier, if there is no increase in productive resources, increasing production of a first good entails decreasing production of a second, because resources must be transferred to the first and away from the second. Points along the curve describe the tradeoff between the goods. The sacrifice in the production of the second good is called the opportunity cost (because increasing production of the first good entails losing the opportunity to produce some amount of the second). Opportunity cost is measured in the number of units of the second good forgone for one or more units of the first good.[
        n the context of a PPF, opportunity cost is directly related to the shape of the curve (see below). If the shape of the PPF curve is a straight-line, the opportunity cost is constant as production of different goods is changing. But, opportunity cost usually will vary depending on the start and end points. In the diagram on the right, producing 10 more packets of butter, at a low level of butter production, costs the loss of 5 guns (shown as a movement from A to B). At point C, the economy is already close to its maximum potential butter output. To produce 10 more packets of butter, 50 guns must be sacrificed (as with a movement from C to D). The ratio of gains to losses is determined by the marginal rate of transformation.
      2. marginal cost
        Annotations:
        the cost of producing 1 more of a product, How much less do you produce of the rabbits to make 1 more unit of the berries. So if you had ffl vales eg increased by 20 berries but had 10 less rabbits this is oppotunity cost to get it tio marginal cost : divide by 20 both sides to produce 1 more of the berries you need to reduce by 10/20 rabbits= 0.5 rabbit
        Total costs
        Implicit vs explicit cost
        Annotations:
        see OBrien p204 cost is measured as opportunity cost costs are either explicit or implicit
        Explicit cost is when a firm spends money eg wages, utilities Only explicit costs are used in taxes. so they call explicit costs accounting costs
        implicit costs is non monetary spending (Implicit costs include opportunity cost)eg if you had a $30000/y job and had interest of $3000 from a savings account . If you gave up the job and withdrew savings so lost the interest the implicit cost is $33000. It is not a payment she made. It is what she gave up. Depreciation is another implicit cost.
        Production & cost
        Annotations:
        average total cost say hire 2 copiers $30/d hire 4 workers =$200 say you produce 2600 copies average total cost = 230/2600 = 9c why is average cost vs quantity a U shape? as production increases from low levels, average cost falls. Then as production increases to higher levels the average cost rises so first slopes down then slopes up to give a U shape
        Marginal Product of Labor and av product of labor
        Annotations:
        p207 MARGINAL PRODUCT OF LABOR TELLS US HOW MUCH TOTAL OUTPUT CHANGES AS THE NUMBER OF WORKERS INCREASED the additional output of hiring 1 more worker is called marginal product of labor see copier eg p 207
        1 worker using 2 copiers produces 625 copies/day 2 workers produced 1325 copies/day ( increase of 700/day) 3 workers produced 2200 cop/d (increase of 875) 4 workers produced 2600 cop/d (increase of 400/d) ALL THESE OUTPUTS IN BRACKETS ARE WHAT IS CALLED MARGINAL PRODUCT OF LABOR = ADDITIONAL OUTPUT AS A RESULT OF HIRING 1 MORE WORKER
        WHY IS THE 4 TH WORKER PRODUCING LESS : BC OF LAW OF DIMINISHING RETURNS WHICH STATES THAT ADDING 1 MORE OF A VARIABLE INPUT LIKE LABOR, TO A FIXED INPUT LIKE CAPITAL WILL CAUSE THE MARGINAL PRODUCT OF THAT VARIABLE INPUT (LABOR IN THIS CASE) TOP DECREASE
        HOW DOES THE MARGINAL PRODUCT OF LABOUR LOOK SEE P 209 OBRIEN AT FIRST WHEN YOU HAD 1-3 WORKERS THE MARGINAL PRODUCT ACTUALLY HAS A UPWARD SLOPE UPTO WORKER 3 BECAUSE OF DIVISION OF LABOR/SPECIALIZATION BUT AFTER THAT THE WORKERS GET IN EACH OTHERS WAY, COPIERS ARE NOT ENOUGH FOR ALL WORKERS AND WE GET DIMINISHING RETURNS SO PRODUCTION NOW INCREASES AT A DECREASING RATE IE DOWNWARD SLOPE. SO AFTER THE POINT OF DIMINISHING RETURNS(AFTER 3RD WORKER) SLOPE BECOMES NEGATIVE SO MARGINAL PRODUCT OF LABOR CURVE RISES INITIALLY DUE TO DIVISION OF LABOR/SPECIALIZATION THEN FALLS AFTER THAT DUE TO EFFECTS OF DIMNISHING RETURNS
        WE CAN ALSO CALC AVERAGE PRODUCT OF LABOR = TOTAL OUTPUT PRODUCED DIVIDED BY QUANTITY OF WORKERS EG 2600COPIES/4 WORKERS AVERAGE PRODUCT OF LABOR=650 SO BASICALLY BY DIVIDING TOTAL OUTPUT BY # OF WORKERS WE HAVE FOUND THE AVERAGE OF MARGINAL PRODUCTS OF LABOR SO AVERAGE PRODUCT OF LABOR IS THE SAME AS TAKING THE AVERAGE OF THE MARGINAL PRODUCTS OF LABOR AVERAGE PRODUCT OF LABOR = (625 + 700 + 875) / 3 = 733.3
        THE RELATIONSHIP BET MARGINAL AND AV VALUES FOR A VARIABLE CAN BE ILLUSTRATED BY USE OF STUDENT GRADES. we calc GPA in a semester, like a marginal GPA. Next we can calc the cumulative GPA, like the average GPA. If going forward:the semester GPA's increase then the cumulative GPA increases as well. Only if the semester GPA drops, then the cumulative GPA drops.
        so marginal product of labor and average product of labor is determined by technology. Marginal and average products of labor will affect firms costs , This is a short-run relationship ( to short a period for firm to change technology or size)
        ADAM SMITH
        Annotations:
        P208 OBRIEN
    2. https://www.reviewecon.com/opportunity-cost.html
Unit 2
1. Consumer Theory
  Annotations:
  - Assumptions (2) Assumption 1 : Economists assume that people are rational Assumption 2: Consumers need to use their money in order to maximize their total satisfaction from consumption
  - Utility Maximizes As people: Goal is to maximize total utility of our consumption 1.) Are all consumers utility maximizers ? Yes 2.) Do people ALWAYS buy goods and services to maximize their utility? Yes
  - What are Consumers ? People who use the goods and services How do we measure Desire for Consumption? Utility is the measure of satisfaction , happiness, benefit (Consumer expiriences from buying) What is the Unit for Utility? Util
  1. Utility
    Annotations:
    - What is Total and Marginal Utility?
    - Total Utility - total amount of satisfaction received from consumption of a certain of a good Marginal Utility - additional utility received (or lost) from the consumption of the next unit of a good Marginal Analysis is for use of additional units
    - What is the law of Diminiship of Marginal Utility ?
    - Law of Diminiship Utility - (ceretis paribus) the more of a product that a consumer has,the less additional satisfaction they get from one extra unit of a product (too much of something, is a bad thing- too much dilutes the satisfaction)
    - Calculate Consumer Surplus: See Soda Problem (Unit 2 pt 1, pg 2) Eqn Surplus= TU-TP
    1. Budget
      Annotations:
      - Budgets are ways to achieve utility maximization (a budget is needed because people have specific tastes and prefences)
      - A budget will have an estimated plan over a time (eg - one month) Budget plan: Planned sales, Costs and expenses, Assets and liability Cash Flow
      - Anyone or any company can have a monthly budget. Basically all expenses are subtracted from the total income for that month to see what is left over
      - Budget Constraint (Budget Line): The goods and services an individual is able to purchase over a given period of time at his/her current income. - Budget Constraint : Alternative combinations of two different goods that can be purchased with a given income and given prices of the two goods
      1. Actuary vs Math
        Annotations:
        What is an actuary ? They earn 83 K /yr They calculate a company's risk and potential lost They can help form a plan to minimize loss (eg - insurance co needs them
        What is a mathematician ? They earn 100 k/yr They use math to solve problems for buisnesses They make mathematical models to solve biology issues etc
        Net Income
        Annotations:
        What is Net Income ? Net Income is the income a person has left over after paying taxes
        What does the amount of goods and services people can buy depend on ? - How much disposable income they have - The prices of goods and services
        Marginal Propensity Calc
        Annotations:
        What is Marginal Propensity to Consume (MPC) ? - The measure of the proportion of a raise in pay that is spent on consumption of goods and services, as opposed to being saved What is the formula? - MPC= change in C/ Change in Y or change in consumption/ change in income - Lower someone's income, the higher their MPC
        What is Marginal Propensity to Save ? -The proportion of additional income that a person dedicates to saving What is the formula? - MPS=change in S/change in Y or change in saving/change in income - Lower someone's income, lower their MPS
        12.) Suppose you got a raise from $100 to $150 how will that affect your MPC and MPS ?
        MPC
        Annotations:
        What is Marginal Propensity to Consume? It's the measure of the proportion of a raise in pay that is spent ib the consumption of goods and services, as opposed to being saved What's the formula? - MPC= change in C/ change in Y or change in consumption/ change in income - Lower someone's income, the higher their MPC
        MPS
        Annotations:
        What is Marginal Propensity to Save? - It's the proportion of additional income that a person dedicates to saving What's the formula? - MPS=change in S/ change in Y or change in saving/change in income - Lower someone's income, the lower their MPS
        Savings
        Annotations:
        When people don't spend their money, they save it Savings is when a person delays consumption until a later time when they withdraw and spend their savings
        MPC+MPS=1
        Annotations:
        - MPC = 1-MPS - MPS = 1-MPC
        - If your MPC=.7 you are willing to spend 70% of your additional income on consumption
        Questions 9.) Calculate the MPS and MPC for your choices from question 7. 10.) If you made an additional $1000 a month after taxes and saved 200 what is your MPC and MPS ?
        Why Do People Save?
        Annotations:
        - To be able to make purchases later on - To take advantage of savings - To be prepared for the future - To take advantage of different savings opportunities
        Why Do People Borrow Money ?
        Annotations:
        - To buy expensive goods now - To increase their wealth - To start a business - To pay for the borrowed amount in the future - To take advantage of interest rates - to take advantage of different borrowing opportunities
        Where Money Goes
        Income
        Annotations:
        - The higher someone's income, the more they can spend
        Wealth
        Annotations:
        More wealth can generate more income (Stock Market0
        Consumer Confidence
        Annotations:
        - The more confidence people are about their jobs or the future
        Interest Rates
        Annotations:
        - The lower interest rates are,the cheaper it is to spend money, so the more people spend
        11.) If interest rates decrease from 5% to 1% how will that affect MPC and MPS?
        Producers
        Who?
        Annotations:
        Producers are people who create economic value, or produce goods and services - Currently about 60% of consumer spending in the US is on services and the other 40% is on goods
        Factors
        Annotations:
        - Using the FOPs (Land, Physical Capital, Human Capital, and Labor) America is a service driven industry which requires entrepreneurs Entrepreneurs are individuals with the knowledge and vision to start new businesses, introduce new products, processes, and to improve management techniques which usually requires taking on large risks
        Possibilities
        Annotations:
        Production Possibility Frontier or Production Possibilities Curve (PPF or PPC) shows the various combinations of goods that a society can have given its current level of resources, tech, and trade Assumptions - 2 products - Full Employment - Resources are easily transferable - Technology is constant
        Efficiency- using resources in the least costly way Allocative Efficiency - allocating resources among production techniques in such a way as to produce those goods and services that maximize a society's well-being
        Comparative Advantage is the ability to produce one good at a comparatively lower opportunity cost than another good Entrepreneurial Ability is the ability to produce more goods using fewer
        PPF Shifts
        Annotations:
        The ability to produce a larger total output (More of the same).
        - Advances in possibilities essential to production - Increases/decreases in resource outward - Increase/decrease inward - Changes in outward level
      2. Budget Constraint
    2. Total Utility
      Annotations:
      - Although the total amount of utility gained usually increases as more of a good is consumed, the marginal utility usually decreases with each additional increase in the consumption of a good. This decrease demonstrates the law of diminishing marginal utility. Because there is a certain maximum threshold of satisfaction, the consumer will no longer receive the same pleasure from consumption once that threshold is crossed. In other words, total utility will increase at a slower pace as an individual increases the quantity consumed Read more: Economics Basics: Utility https://www.investopedia.com/university/economics/economics5.asp#ixzz54EtcCPcO Follow us: Investopedia on Facebook
      - https://www.investopedia.com/university/economics/economics5.asp explains that the less one consumes the better for MU can bypass diminishing MU law: " This table shows that total utility will increase at a much slower rate as marginal utility diminishes with each additional bar. Notice how the first chocolate bar gives a total utility of 70 but the next three chocolate bars together increase total utility by only 18 additional units." This table shows that total utility will increase at a much slower rate as marginal utility diminishes with each additional bar. Notice how the first chocolate bar gives a total utility of 70 but the next three chocolate bars together increase total utility by only 18 additional units.
      1. Marginal Utility
        Annotations:
        the relationship between total utility (TU) and marginal utility (MU) is deducted as under: MU is the rate of change of TU.When the MU decreases, TU increases at decreasing rate.When MU becomes zero, TU is maximum. It is a saturation point.When MU becomes negative, TU declines
        Eqn for MU: MU= change in TU per unit quantity changed in quantity MU = Change in TU / change in quantity consumedMU = ∆TU / ∆Q
        http://managedstudy.com/micro/relationship_between_total_utility_and_marginal_utility.htm explains the relationship bet MU and TU
        Law of Diminishing Marginal Utility
        Surplus Calc
2. Theory of Demand
  Annotations:
  - Your demand for any good or service is how much you are willing to purchase at various prices during a specified time period
  - Explain the relationship between quantity demanded/quantity supplied : ans : Demand is how much of a product is desired by a buyer at a certain price. The relationship between price and quantity demanded is called demand relationship. Price and quantity are inversely related to the law of demand since you see a downward slowing demand curve https://www.investopedia.com/terms/l/lawofdemand.asp
  1. Demand Graphs
    Annotations:
    - Quantity Demand is the specific quantity consumers are willing to buy at a specific price, represented by a single point on the demand curve - When prices change quantity demanded changes according to the law of demand
    - Explain the differences between demand and quantity demanded Ans : see images of a demand curve. A change in quantity demand shows as mvt along the sae demand curve eg - point a and point b. A change in demand shows as a shift in the entire demand curve to the right or left. Understanding this, allows the producer to respond The difference between demand and quantity demanded is in the definition of them. Demand is the amount of demand at all possible prices; while quantity demanded is the amount of demand at a particular price.What is the Difference between demand and quantity …www.answers.com/Q/What_is_the_Difference_between_demand_and_quantity_of_demand
    1. Markets
      Annotations:
      - Market is an institution or mechanism that brings buyers and sellers of particular goods, services or resources together
      1. Demand Schedule
        Annotations:
        Demand Schedule is a table showing quantity demanded for at each price. These are used to plot the demand curve, which obeys Law of demand. Curve is negative showing inverse relationship bet quantity and price.
        Demand Curve
        Annotations:
        Demand Curves show the quantity of a good demanded at all prices. see p 178 Glencoe Book Basically, graphing law of demand, which says as price goes down people buy more. Given a table of prices and quantities demanded at each $: you plot the graph. Demand curve slopes downward, its an inverse relationship Demand curve shows quantity demanded at each price,
        https://www.bing.com/images/search?q=demand%20curve%20graph&qs=n&form=QBIR&sp=-1&pq=demand%20curve%20graph&sc=8-18&sk=&cvid=3EA5654DD75548DBB2C6EE2B1460E727
        shift
        Annotations:
        http://www.freeeconhelp.com/2011/10/what-happens-to-equilibrium-price-and.html explains in table what happens to change in both demand and supply or changes in either what happens to EP and EQ
        coffee as an example http://www.freeeconhelp.com/2011/09/shifts-in-supply-and-demand-example.html
        http://economicsconcepts.com/movement_vs_shift_of_demand_curve.htm
        Normal Goods
        Annotations:
        Normal Goods are goods for which demand increases with an increase in consumer income Inferior Goods are goods for which demand decreases with an increase in customer income
        Substitutes
        Annotations:
        Substitutes are 2 goods that can be used in the place of one another
        Benefit of Satisfaction
        Annotations:
        Benefit of Satisfaction are two goods that provide more satisfaction when consumed together than when consumed separately
        Determinates of Demand
        Annotations:
        1. Price of good or service 2. Price of related goods or services (these can be complimntary purchased w product or substitiutes purchased instead of product) 3. Income of buyer 4. taste or preferences of consumers 5 Expectations
        Explain how a change in determinants can cause shift in curve Ans: When factors other than price changes, demand curve will shift. These are the determinants of the demand curve. 1. Income: A rise in a person’s income will lead to an increase in demand (shift demand curve to the right), a fall will lead to a decrease in demand for normal goods.DETERMINANTS OF DEMAND - Student Web Server
        Quantity Demanded VS Demand: P180 Glencoe When price changes quantity demanded will change this is a mvt along the same curve this is still QUANTITY DEMANDED(it is on the Demand curve and price determines the demand) however, when other factors (not price) The demand cure will shift to the left or right Eg- shift to the right -this is DEMAND CHANGES(entire curve shifts left or right) People will either buy more or buy less in the year at ALL PRICES. This is caused by DETERMINATS determinants that cause it: a) consumer income b) consumer preferences that are favorable will increase demand c) price of related goods if price of coffee rises, the demand for tea will increase (substituted goods) d) complement goods: if price of ice cream increases, demand for toppings decreases bec people buy less ice cream
        See Glencoe p 182 How different determinants will affect if demand graph shifts left or right. See 2 // lines Shift to right: a)change in population - more people will buy more eg TV's, demand more b) Fad(Popular) items- as it becomes popular- people will demand more c)Complementary goods: eg icecream toppings, camera & film as price of camera drops, people demand more cameras and also more film
        Shift right to left: a) change income as income decreases, demand decreases b) substitutes as price of the substitute increases like margarine price increases, people will demand less of that marg but buy more of item under study like butter and vice versa substitute is on y axis and other one studied item in on x axis p183
        in summary: determinants of demand= 1. Changes in market size2. Changes in buyers income3. Changes in prices of related commodities4. Changes in buyers taste5. Changes in buyers future expectations
        Diff bet Quantity Demanded and Demand
        Annotations:
        http://amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=change+in+quantity+demanded explains diff bet change in demand and change in" quantity demanded" and how the changes show on graph
        factors explaining inverse relation
        Annotations:
        there is an inverse relationship bet price and quantity demanded Several factors affect the inverse relationship: p172 glencoe a) real income effect no one can afford unlimited quantity esp as your income stays the same as price increases b) substitution effect: people sill buy the substitute if the price increases c) diminishing marginal utility: utility is your satisfaction derived from a product. as you buy more product, you have less and less satisfaction and so you stop.This diminishing marginal utility reduces demand
        diminishing marginal utility
        Elasticity along Demand curve
        Annotations:
        89 Osee OBrien p 187, 188 reducing price when demand is elastic reduced total revenue reducing price when demand is elastic increases total revenue P189 Along the linear demand curve, elasticity is not constant at every point
  2. Law of Demand
    Annotations:
    - Law of Demand states ceteris paribus, when the price of a good rises, the quantity demanded of that good falls - REMEMBER only relative prices matter
    - law of demand states:price & quantity demanded move in opposite directions
    1. Law of Supply
      Annotations:
      - Law of Supply is ceteris paribus, when the price of a good rises then the quantity supplied for that good also rises https://www.bing.com/search?q=law%20of%20supply&pc=cosp&ptag=C98A2761E1787A&form=CONBDF&conlogo=CT3210127
      - Economic rule that price and quantity demanded move in same direction( it's a direct relationship) P 186 Glencoe When prices fall, quantity supplied by sellers also falls. So a larger quantity will be supplied at higher prices and a smaller quantity will be supplied at lower prices vs higher prices.
      - Supply is the willingness of producers to provide the goods and services at different prices.
      - Producers will produce more if they can charge a higher price to cover increased production. This is the basis of the law of supply
      - p 201 Glencoe summary
      1. Supply schedule
        Annotations:
        just like demand schedule: this is a special table for supply It has a column of the prices and a column of the quantity supplied at each price. This is used to plot the supply curve
        Supply curve
        Annotations:
        Supply Curve shows the quantity of a good supplied at all prices
        A change in supply and a change in quantity supplied are different things. The first is shown graphically as a movement of a supply curve while the second is shown as a movement along a curve. The first is caused by changes in costs and incentives that change how much a producer can and will produce at a given price. Differentiate between a ‘change in quantity supplied’ and ...www.enotes.com/homework-help/differentiate-between-change-quantity-supplied-474545Quantity supplied = actual numberSupply = actual entire curve
        on the supply curve , any excess is what is above the equilibrium point( for perfect competition markets) the equil point is the intersection of the supply and demand
        how does shortage affect the price? on the supply curve shortage is below the equilibrium point. The demand > supply so equilibrium point needs to move. In a perfectly competitive market, a shortage in supply will ultimately result in a shift in the equilibrium point, transitioning towards a higher price point due to the limited supply availabilit
        Supply Schedule
        Annotations:
        Supply Schedule is a table showing quantity supplied for a good at various prices
        Determinants of Supply
        Annotations:
        The price of other goods that can be produced - Substitutes in production - Compliments in production -Technology - Price of an input - Productivity -Taxes/Subsidies -Producer expectations -Number of suppliers in the industry
        Explain how a change in the determinant can cause a shift in the curve? (precomp pkt) Ans explained well in quizlethttps://quizlet.com/19234353/macroeconomics-chapters-4-and-6-flash-cards/
        Teacher h/o: remember thatFactors that shift the demand curve:Change in a) consumer tasteb)# of buyersc)consumer incomesd)prices of complementary and substitute goodse)change in consumer expectation
        What are factors that shift the supply curve to right or left? a) Price of inputs: inputs : raw materials, wages - if these drop a producer can supply more at a lower price So supply curve shifts to right b) # of firms: as more firms enter and produce, supply of the product is greater. This shifts the curve to the right. eg video rentals c) Technology=new products or new methods of producing/delivering. Any improvement in tech will increase the supply and move the demand curve to the right bec new tech reduces cost of production d) taxes : is government imposes taxes: businesses will NOT be WILLING to supply as much as before, bec they have a higher cost of production now. The supply drops at each and every price. So supply curve shifts to the left.
        Equilibrium
        Annotations:
        Market Clearing Price is the quantity demanded equals quantity supplied
        http://smallbusiness.chron.com/happens-equilibrium-price-quantity-supply-demand-shifts-upward-36644.html
        https://www.khanacademy.org/economics-finance-domain/microeconomics/supply-demand-equilibrium/market-equilibrium-tutorial/a/changes-in-equilibrium-price-and-quantity-the-four-step-process-cnx
        Institutions
        Annotations:
        What brings supply and demand to see how they interact
        Disequilibrium
        Annotations:
        see under supply curve discussed shortages and surplus and their effect on price Terms: Disequilibrium, shortage,surplus Disequilibrium: The loss of equilibrium or stability, especially due to an imbalance of forces. surplus: That which remains when use or need is satisfied, or when a limit is reached. shortage: Not enough or not sufficient for a given demand eg certain high demand toys right before Xmas. Demand > supply at current price
        http://econport.org/content/handbook/Equilibrium/Price-Controls.html
        consumer & producer surplus CS , PS
        Annotations:
        **We can use a chart of supply and demand to show consumer surplus in a market CS is above and PS is below&they are both enclosed triangles Use area of triangle to calc Cs This triangle is enclosed and lies above the equilibrium pt Consumer surplus” Cs: is the value that consumers derive from purchasing a good. For example, if you would be willing to spend $10 on a good, but you are able to purchase it for just $7, your consumer surplus from the transaction is $3. You’re getting $3 more value from the good than it cost you.
        PS: Producer Surplus also calculated from supply demand curve. Again calculate PS as the area of the triangle enclosed but below the equilibrium point Producer surplus” refers to the value that producers derive from transactions. For example, if a producer would be willing to sell a good for $4, but he is able to sell it for $10, he achieves producer surplus of $6.
        https://obliviousinvestor.com/consumer-and-producer-surplus/ he has a good word problem
        law of diminisihing returns
        Annotations:
        say you want to expand production and you get more workers. Production goes up on your machines available. But if you hire more, production may go down if you have a limited # of machines/computers. Workers will also get in each others way. this is law of diminishing returns - which says as units are added, production increases up to a certain point ONLY and extra units hired will cause decreased production(output)
        both demand and supply shift
        Annotations:
        it depends http://www.freeeconhelp.com/2011/08/what-happens-to-price-if-both-demand.html
        shortage
        Annotations:
        shortage exists if he current price is below its equilibrium
        https://www.reference.com/world-view/shortages-surpluses-affect-prices-968c2089eef12841 explains how shortages and surpluses affect price
        supply curve
        Annotations:
        Glencoe p 189 https://www.bing.com/images/search?q=supply%20curve%20graph&qs=NM&form=QBIRMH&sp=3&pq=graph%20of%20supply&sk=IM1NM1&sc=8-15&cvid=680284F571A4480ABDD6AEC058865D08 graph of price vs quantity (take values from supply schedule table) x axis= quantity supplied y axis= price Supply curve is an upward slope from left to right see a direct relationship bet price and quantity supplied(bot move in same direction) p189
        Difference bet Change in Quantity Supplied vs Change in Supply p 189/190 glencoe as you move up or down this slope each price has a change in "quantity supplied" . If the entire curve however moves see // lines left or right movement this is because sometimes producers will supply more goods or fewer goods at every possible price . This is CHANGE IN SUPPLY (not like above, movt along the same line called change in quantity supplied) For this we study 4 major determinants of supply (not quantity supplied): p190 a)price of inputs b) number of firms c)taxes d technology
        What shifts the supply curve to the right? ie increased supply a) price of inputs(wages/raw materials cheaper) b) # of producers increases c) Tech which improves production What shifts the supply curve to the left (supply drops) a) taxes higher so cost of production is higher
        SHIFT
        Annotations:
        A rightward shift in the supply curve may be caused by any of the following except : a) an increase in average consumer income b) a decrease in the price of production equipment c) a decrease in the wage paid to labor d) an improvement in technology
        very good lists reasons for shifts http://www.yourarticlelibrary.com/economics/effect-on-supply-curve-due-to-changes-in-other-factors-economics/9112
        very good table explains what happens to EP and EQ is either demand or supply change or both change http://www.freeeconhelp.com/2011/10/what-happens-to-equilibrium-price-and.html
        coffee as an example http://www.freeeconhelp.com/2011/09/shifts-in-supply-and-demand-example.html
      2. Theory of Supply
        Annotations:
        Explain the difference between price vs quantity supplied Ans: Price changes cause changes in quantity supplied (as seen on supply curve) This movement shows a direct relationship between price and quantity supplied. They move in same direction
        http://classes.maxwell.syr.edu/pai723/lectures/723lct2.html discusses supply and demand
      3. Markets
        Annotations:
        Explain how changes to a market can impact equilibrium prices and quantities
        p 194 Glencoe Putting Supply and Demand together In reality we don't just have seperate supply and demand.Supply and Demand work together .As the price goes down the quantity demanded goes up(law of demand)and the quantity supplied falls. and vice versa. Will the a common price at which quantity demanded equals quantity supplied? This is the EQUILIBRIUM PRICE at this point quantity supplied by sellers = quantity demanded
        To see this price visually: p 195 Plot supply and demand curve on one one graph. The downward slope= demand curve and the upward slope= supply curve. Where they meet/intersect = EQUILIBRIUM PRICE eg AT THE EQUILIBRIUM PRICE: quantity consumers are willing to buy= quantity suppliers are willing to supply at the same quantity.
        Market Equilibrium
        Annotations:
        In many counties with free enterprise: PRICES serve as signals to producers and consumers. Rising prices signal producers to produce more and consumers buy less. Falling prices signal producers to produce less and consumers to buy more. Market equilibrium is if a market has a surplus,the product's price will fall.If a market has a shortage, the product's price will rise. Therefore, equilibrium is self-enforcing
        Explain how changes to a market can impact equilibrium prices and quantities http://philschatz.com/economics-book/contents/m48629.html 1' When market is in equilibrium, the price of good tends to be the same 2. Equilibrium is the price at which the quantity demanded by customers is equal to the quantity that's supplied by suppliers. When either demand or supply changes, however, equilibrium price and quantity will also change
        Shortages: a shortage occurs when at the current price, the quantity demanded >supplied. If govt does not intervene with restrictions/regulations, shortages put pressure on prices to rise. At the new higher price, the consumers buy less while producers supply more now(as they have more money from higher prices, so have capital to produce more)
        Surpluses: at higher prices above equilibrium price: producers produce more - this more than the demand. Suppliers have a surplus of the goods now. This puts pressure on the price to drop to drop to the equilibrium price. If the price drops, the suppliers have less incentive to produce. Consumers buy more tho at these cheaper prices. The decrease in price towards EP, eliminates the surplus.
        These were Market forces that took care of the surpluses and shortages. This happens when GOVT does not intervene. Next look at what happens if GOVT intervenes.
        Price Controls : Govt intervenes to make sure price increases are fair to the consumer. Govt intervenes if the market forces of supply and demand are unfair to consumers. Protects people. Can also protect industries.
        Equilibrium
        Annotations:
        There can also be equilibrium price where at any price the quantity demanded doesn't equal quantity supplied Quantity Demanded is a situation at which, at the going market price,quantity demanded exceeds quantity supplied Scarcity is a situation at which, at going market price, the quantity supplied exceeds quantity demanded
        Explain how changes to the market can impact equilibrium prices and quantities. Ans: When a market is in equilibrium, the price of a good or service tends to stay the same. Equilibrium is the price at which quantity demanded by consumers is equal to the quantity that's supplied by suppliers . When either demand or supply changes, however, the equilibrium price and quantity will also change.
        Explain how a market will correct when a price isn't at the equilibrium prices and quantities. Ans :
        Generate a supply and demand model (precomp )https://www.investopedia.com/university/economics/economics3.asp
        Why do we look at the relationship bet supply and demand? it gives us the ideal equilibrium price https://courses.lumenlearning.com/boundless-economics/chapter/market-equilibrium/
        Price floor
        Annotations:
        Minimum legally allowable price
        basically on a supply-demand curve , have a equilibrium point and price, If the price ceiling is above the equilibrium like the roof ceiling above your head- there is no effect on the market If the price floor is below the equilibrium, like the floor in the house is below your feet -there is no effect on the market but is you switch them: ceiling is below the equilibrium SHORTAGE will result eg hurricane city, When the city rebuilds the retailersells the scarce build material at high prices. Consumers reject this and appeal to Govt to change it and make a ceiling price. They setthe ceiling price. but now retailers hold their produc and want to sell less...so there is a shortage now because govt set the ceiling price below the equilibrium price.
        explain how price controls prevent the market from reaching equilibrium, the shortages / surpluses that result and deadweight loss: A price ceiling—which is below the equilibrium price—will cause the quantity demanded to rise and the quantity supplied to fall. This is why a price ceiling creates a shortage. (like in hurricane example..the sellers holds their product and sells less of the roof materials and so there is a shortage)
        answer.... for price floor: govt intervenes and sets the price floor - the price should not go below this minimum. Govt prevents prices from dropping too low. This may help the consumer or at times the producer. See p 199 eg students applying for a job. More would get employed if the restaurant owner could leave the min pay at $4. But when govt sets it at $5 he cannot afford to employ all of them so land up with a surplus of unemployed studentseg farmer can't go too low in prices when he has a bumper crop(surplus), as he still must pay bills. If the market self corrected prices would drop. As prices drop, supply of wheat would fall and quantity demanded would increase.So Govt sets a price floor for wheat etc. so farmers have enough return to pay bills etc. The farmers know this and instead of reducing their production which would reduce the surplus, they keep producing wheat.How do you land up with a surplus, when you have a price floor?The result is a quantity supplied in excess of the quantity demanded— When quantity supplied exceeds quantity demanded, a surplus exists.
        price ceiling graphs https://www.bing.com/images/search?q=graph+of+price+ceiling&FORM=HDRSC2
        graph of price floors: https://www.bing.com/images/search?q=graph%20of%20price%20floors&qs=n&form=QBIR&sp=-1&pq=undefined&sc=0-21&sk=&cvid=0AB9C1B843A341E69D3B69CCA
        these graphs show shortage , surplus, dead weight also see graphs p 198 Glencoe.
        Price celing
        Annotations:
        is the maximum legally allowable price and is set by Govt. ceiling prevents price from going up higher than set price. When a price ceiling is set below the equilibrium price , a shortage occurs. Effective price ceilings and resulting shortages lead to nonmarket methods to distribute goods like rationing of water . It's expensive for Govt to print ration coupons etc. Shortages may lead to a BLACK MARKET( illegal high prices charged for short supply items)
        Price Floors and Price Ceilings are Price Controls, examples of government intervention in the free market which changes the market equilibrium. They each have reasons for using them, but there are large efficiency losses with both of them. Both are introduced the consumer
        Price Floors are minimum prices set by the government for certain commodities and services that it believes are being sold in an unfair market with too low of a price and thus their producers deserve some assistance. Price floors are only an issue when they are set above the equilibrium price, since they have no effect if they are set below market clearing price.
        type in price ceiling and price floors and go to images see image with man also image with more writing explains that a price ceiling above the equilibrium and price floor below the equilibrium has not effect on the market sometimes ceiling is above floor and sometimes vice versa
        https://www.investopedia.com/terms/p/price-ceiling.asp shows how price ceilings are set disadvantages of them How price ceilings cause shortages
        Graphically interpret the effects of a price ceiling or floor on consumer and producer surplus ype in price ceiling and producer and consumer surpluis go to IMAGES next tyoe in price floor and producer and consumer surplus and go to IMAGES consumer surplus is on top producer surplus is at bottom
        Consequences of a price floor
        Annotations:
        - Persistent surplus - Inefficient allocation of sales mong producers - Wasted resources - Inneficient high qualtity Illegal activities
        consequences of a price ceiling
        dead weight loss
        Annotations:
        https://www.investopedia.com/terms/d/deadweightloss.asp see deadweight loss images also to calculate dead weight loss: it is the triangle to the left of the actual equilibrium point - use area of trianlge (see image with red triangle)
        https://www.bing.com/images/search?q=dead+weight+loss&FORM=HDRSC2
        price ceiling/floor
        Annotations:
        http://econport.org/econport/request?page=web_experiments_modules_pricecontrols_lecture very good
        price controls
        shortage/surplus
        Govt
        Shortage
        Govt
        Surplus
        graph of Equilibrium
        Annotations:
        https://www.bing.com/images/search?q=graph+of+equilibrium+price&FORM=HDRSC2
        Shifts in EP : see under graphs and EP as demand curve shifts to the right, demand is higher and EP is higher and vice versa as supply curve shifts to the right due to technology, EP will decrease and both quantity supplied and demanded will increase p 195 Glencoe
        Googled : graph of EP increase and also decrease https://www.bing.com/images/search?q=graph%20of%20equilibrium%20price%20increase&qs=n&form=QBIR&sp=-1&pq=graph%20of%20equilibrium%20price%20increase&sc=0-35&sk=&cvid=3125D2096D4248229C5D8475A7A64871
  3. Unit 2 part 2
Unit 3
1. Cost of Success
  Annotations:
  - Explicit Cost - Direct, purchased, out of pocket costs paid to resource suppliers outside the firm Implicit Cost - indirect, nonpurchased,or resources provided by entrepreneur
  1. Firms
    Annotations:
    - Firms or organization that employs factors of production a good or services that it hopes to profitably sell - Goal of each firm is to make a profit
    - Economic Profit is difference between total revenue and total explicit cost Accounting Profit is difference between total revenue and total explicit costs
    1. SR v LR
      Annotations:
      - Short run - period of time too short to change size of plant,but many other, more variable resources can be adjusted to meet demand Long Run - period of time long enough to alter the plant size. New firms can enter the industry and exsisting firms can liquidate or sell physical capital and exit the market
      - p 203 SR: at lease one of firms inputs is fixed plant size etc is fixed plant workers are variable in no.
      - LR: the firm is able to vary all it's inputs like adopt new tech, increase/decrease size of plant like add an oven
      1. Short Run Production Cost
        Annotations:
        Total Fixed Cost - costs that don't vary with changes in short run output they must be paid even when output is zero Total Variable Cost- cost that changes with level of output Total Cost sum of total fixed cost
        Cost Added
        Annotations:
        Efficient Capital - more efficient equipment maybe as a small t-shirt company their machine can only print 10 shirts an hour but now they can afford the machine that prints 100 shirts an hour Other factors - synergy, start up costs
        Total Revenue
        Annotations:
        Total Revenue - found by multiplying price times quantity
        Marginal Revenue
        Annotations:
        Marginal Revenue - change in total revenue,or the extra revenue that results from selling 1 more unit of output
        MR=MC?
        Annotations:
        The point at which marginal revenue equals marginal cost tells us three specific things about the producer: - A firm will always maximize its profit where MR=MC - A firm will minimize its loss where MR=MC - A firm will shut down any time the MR=MC point is below the average variable cost curve
        Understanding Profit
        Annotations:
        General rules for businesses: - If MR>MC, produce it - If MR - Profits are maximized where MR=MC
        Marginal Cost
        Annotations:
        The additional cost of producing one more unit of output
        Marginal cost= change in cost divided by change in output also see OBrien p 211
        why are marginal cost and average cost curves U shaped? Marginal Cost: at first marginal cost of producing copies declines then later it increases thus we have a U-shape
        MC=changeTC/changeQ
        MC
        Avg Cost
        Avg fixed cost
        Annotations:
        Total fixed cost divided by output
        AFC=TFC/Q
        Avg Variable Cost
        Annotations:
        Total Variable cost divided by output
        AVC=TVC/Q
        Avg Total Cost
        Annotations:
        total cost divided by the output
        ATC=AFC+AVC=TC/Q
        RW Q pg 3 Unit 3
        Production vs cost
        Annotations:
        see OBrien p 206 Look at copies: Cost per copy in Y axis Quantity (copies per day) on Xaxis
        fixed cost is cost leasing machines $15/machine so $30 for 2 machines variable costs are labor costs eg $50/worker . 4 workers = $200In the short run, she can increase the # of workersHer total fixed cost sum of total fixed cost and total variable costs - 30 + 200=230 If she produces 2600 copies. av total cost is 230/2600=9c per copy
        If you plot quantity (copies per day on x-axis) and cost (dollars per copy) on y axis you get a U shape. as production increases ie quantity per day increases, average cost falls then average cost per day again rises at higher production. To understand why the production vs cost graph is a U shape we must look at the technology
        Technology: as the # no workers increase, we see an increase in # of copies. Owner may have some workers become more specialised. Finally, as we add the last employee the increase in daily copies is less than when the previous work was hired. This is the "law of of diminished returns" because the # of workers > # of available copies and the workers get in each others way.
        SR Cost Create LR Cost Graph
        LR COST
        Economics of Scales
        Annotations:
        Where LRAC falls as the firm increases output.This is the result of spec, lower input costs, or other efficiencies from a larger scale
        Constant Returns to Scale
        Annotations:
        Occurs when LRAC is constant over a variety of plant sizes
        Diseconomics of Scale
        Annotations:
        Where LRAC rises as the firm increases output. This is usually the result of the increased difficulty of managing larger firms, which results in lost efficiency and rising per unit costs
        What is LRAC
        Labor Specialization
        Annotations:
        The more labor and larger space leads to more spec
        Managerial Spec
        Annotations:
        Some managers can probably handle large quantities of workers but when there are only a small number of employees their services are being under utilized
        Efficient Capital
        Annotations:
        More efficient equipment maybe as a small shirt company their machine can only make 10 an hour but now they can afford the machine that prints 100 an hour
        RW Q pg 4 Unit 3
        Understanding Profits
        Total Profit Formula
        Annotations:
        Total Profit = Total Revenue - Total Cost
        Total Revenue
        Annotations:
        Found by multiplying price times quantity
        Marginal Revenue
        Annotations:
        Change in total revenue, or the extra revenue that results from selling one more unit of output
        General Rules for Businesses
        Annotations:
        If MR>MC, produce it If MR Profits are maximized where MR=MC
        MR=MC ?
        Annotations:
        The point at which marginal revenue equals marginal cost tells us 3 specific things about the producer : - firm will always maximize profit where MR=MC - firm will minimize its loss where MR=MC - Firm will shut down
        Total Fixed Cost
        Annotations:
        are the costs that don't vary with changes in short run output they must be paid when output iis zero eg renting the space, payment of fire insurance, advertising costs
        Total Variable Cost
        Annotations:
        are costs that change with level of output.If output is zero, so are the total varaible costs eg raw material costs, labor costs, utilities
        Total Cost
        Annotations:
        sum of the total fixed and total variable costs at each level of output equals total cost
        TC=TVC+TFC
      2. Long Run and Short Run
      3. Fixed and Variable Input
        Fixed input
        Annotations:
        Fixed Input = production inputs that can not be changed in short run
        Variable Input
        Annotations:
        Same as fixed input, but can adjust in short run to meet changes in demand for output
        Law of Diminishing Returns
        Annotations:
        States that as successive units of a variable resource are added to fixed resource, beyond some point the marginal product declines
        Diminishing Marginal Returns Graph
        Annotations:
        go to pg 2, Unit 3
    2. Accounts v Economists
      1. Economic Profit
        Accounting Profit
        Rw Q of Pg 2 unit 3
  2. Explicit Cost
    1. Implicit Cost
2. Characteristics of Monopolistic Competition
  Annotations:
  - Perfect Info - info is freely available to both consumers and producers regarding price of products and competition Differentiated Product - each firm is attempted to stand out from other firms in the marketplace and gives them the power to set price above their competition's level
  - Many Firms Producing Products - there are dozens of firms each with a small percentage of market share Free Entry and Exit within Industry- very few barriers to entry the primary one being the need to market your differentiated product
  1. Forms of Differentiation
    Annotations:
    - Product Attributes (eg- Mpg, safety ratings, color schemes) Customer Service (eg- In n' Out) Location (eg- Fiji Water) Brand Name (eg- Apple, Nike,Lego)
    - Retail Chain (eg- Walmart, Target, Kmart) Restaurant (eg- Chili's, Applebees, Carabas Clothing Lines (eg- Pollo,Ecko, Nike) Convien convenience
    1. MC & Other Markets
      Annotations:
      - Monopolistic competition is something of a hybrid between perfect competition and monopoly Comparable to perfect competition,monopolistic competition contains a large number of competitive firms However,comparable to a monopoly, each firm has a market cannon and faces a negatively sloped demand curve
      1. Characteristics of Oglipolies
        Annotations:
        Small # of large products - the number of producers can range anywhere from 3-6 large firms each holding a significant portion of market share Homogenus or Diff. products these firms make can be either very similar in the case of oil companies or entirely focused on differentiated like soft drink companies
Links to Questions
Annotations:
- https://quizlet.com/94577177/chapter-5-econ-exam-flash-cards/ https://quizlet.com/131200500/surplus-and-shortage-flash-cards/
- https://quizlet.com/6894778/microeconomics-chapter-3-flash-card
- https://quizlet.com/25949965/chapter-4-demand-supply-market.
- market shift: https://www.flashcardmachine.com/chapter-3market-equilibrumandshifts.html
- demand/supply/elasticity https://www.quia.com/jg/2663584list.htm
- https://quizlet.com/74821900/economics-ch-7-flash-cards/
1. ACDCLeadership
  Annotations:
  - https://www.youtube.com/channel/UCCQEbqDL8i40d83Au55lYMQ he covers many topics for AP exam
  1. http://www.reviewecon.com/opportunity-cost.html
    1. https://www.investopedia.com/university/economics/economics3.asp
      1. https://courses.lumenlearning.com/boundless-economics/chapter/market-equilibrium/
        Annotations:
        good question banks with answers SIGN IN LIKE FOR GOCONQRhttps://www.coursehero.com/file/13936534/Chapter-06-Micro/
Unit 2 Part 3
1. Elasticity
  Annotations:
  - what is elasticity: is a measure of the responsiveness of 1 variable to changes in another variable Elasticity measures how much quantity demanded will change due to price change
  - Law of demand was simple as price goes up , quantity demand goes down vice versa. If you want to sell more, how much do you reduce the price? You have to gauge how people respond to the price drop . How they respond to the price is called ELASTICITY. It is people's responsiveness to a increase.decrease in price. PRICE ELASTICITY OF DEMAND is a measure of how much they respond to a change in price (up/down)
  1. Law of demand
    Annotations:
    - Law of demand : consumers will buy more/ demand more with lower prices The amount varies from product to product and price to price ....elasticity
    - the law of demand states as price goes up, quantity demanded goes down and as price goes down, quantity demanded goes up so law of demand : economic rule stating that the quantity demanded and price will move in opposite directions
    - several factors explain the inverse relation bet price and quantity demanded: real income, substitution effect, diminishing marginal utility
    - a)real income effect: your income limits your purchases especially if price goes up and your income is fixed b)substitution effect: say there are 2 products that are similar (fill the same need eg 2 toothbrushes very similar) people will buy the cheaper one as the price of one product goes up or down c)diminishing marginal utility utility means the ability of a good to satisfy wants. this satisfaction =utility. Based on utility, people decide how much they are willing to pay. Now look at successive units you buy of that same product. The additional satisfaction these additional units bring = marginal utility The law of diminishing utility says that each additional unit gives a lesser and lesser satisfaction or utility ie diminished utility and so you don't keep buying more and more eg soft drinks
    - if the price drops: people buy at least 1 additional unit bec of the law of diminishing marg utility they will stop at the point where they are satisfied. They stop buying which the price matched their satisfaction. (Also explains law of demand- people buy at minimum 1 more if price drops)
    1. how elastic is the product?
      Annotations:
      - a product is elastic when a small price changes cause large changes in the quantity this is called elastic eg coffee- different brands about same so will buy a competitor's type
      - When substantial price changes cause small changes in the quantity purchased we call these inelastic ie price change does not result in significant change in quantity demanded...INELASTIC DEMAND eg salt, sugar...people will buy no matter what the price
      1. 3 Types of Demand Elasticity
        Annotations:
        1) Price Elasticity of Demand 2) Cross-price Elasticity of Demand 3.) Income elasticity of demand
        Price Elasticity of Demand
        Annotations:
        Responsiveness of Quantity demanded to changes in price for consumers Ed=%changeQd/%changePx100 If PEoD > 1 then Demand is Price Elastic (Demand is sensitive to price changes If PEoD = 1 then Demand is Unit ElasticIf PEoD < 1 then Demand is Price Inelastic (Demand is not sensitive to price changes)
        what determines price elasticity of demand? Why are some goods elastic and some inelastic? 3 things det': a) existence of substitutes b) how much of the budget (as %)is available to buy that good c) time given to the person to adjust to change in price
        a)substitutes: the more substitutes , the more response eg coffee brands many options so coffee is elastic but insulin is inelastic..can't substitute b) % of budget available to buy the good eg pepper or salt; % of budget for salt is small so even if the price doubles they still buy it- so demand is about the same but for housing that is a large expense so a price change here will affect demand- people will think twice. c) time to adjust to price change: if the price of electricity goes up tomorrow , you still use it as you need it. Electricity is inelastic close to the actual change. But given time to adjust, people will use less electricity and then demand goes down later , so electricity becomes inelastic later on as people have time to adjust use of product.
        Ed (elasticity of demand)= % change in Quantity divided by 1 % change in price https://www.bing.com/images/search?q=if+the+price+elasticity+of+demand+is+equal+to+4+a+1+%25+increase+in+proce+will+cause+the+quantity+demanded+to&FORM=HDRSC2
        https://www.thoughtco.com/price-elasticity-of-demand-overview-1146254
        Sunstitutability
        Annotations:
        larger the number of substitute goods that are available, the greater the price Ed
        Proportion of Income
        Annotations:
        Higher the price of a good relative to consumers' incomes the greater the price Ed
        Factor that affect a product's Ed
        Annotations:
        Luxuries v Necessities The more a good is considered a luxury the greater the price ED Time The product demand is more elastic the longer the time period under consideration
        Elasticity and Revenue
        Annotations:
        Total Revenue=Price x Qd As prices rise in the inelastic range revenues increase As prices rise in the elastic range revenues decline
        Total Revenue is maximized at the unit elastic portion of demand curve
        Cross Price Elasticity
        Annotations:
        The responsiveness of a product's Qd to changes in the price of a different product Ex,y=%changeQdgoodx/%changepriceofgoody
        Income Elasticity of Demand
        Annotations:
        responsiveness of Qd to change in a consumer's income Et=%chanQd/%chanincome
        Elasticity of Supply
        Annotations:
        responsiveness of Qs to changes in product price
        The formula for elasticity of supply is: Elasticity of Supply = (% change in quantity supplied) / (% change in price). As demand for a good or product increases, the price will rise and the quantity supplied will increase in response. How fast it increases depends on the elasticity of supply.
        https://www.bing.com/images/search?q=elasticity+of+supply+equation&FORM=HDRSC2
        shorter periods of time: supply curve applicable to shorter periods of time tend to be more inelastic than supply curves that apply to longer periods of time
        total revenue Px q
  2. graph of elastic demand
    Annotations:
    - see top of p 184 Elastic demand:This is more or a horizontal line than typical downward slope. Here as price dropped- there was a dramatic change in quantity Inelastic demand has a slope like the downward slope of demand curve we see normally. Even if price drops- the demand is unchanged.
    - https://www.bing.com/images/search?q=ELASTICITY+OF+DEMAND+CURVES&FORM=HDRSC2
Unit 4
Product Market Models
Annotations:
- Businesses are categorized by market structure or by the amount of competition they face. Ideal market structure= perfect competition are rare. Most industries in the USA fit in the other 2 forms. see Glencoe P 234 Comparing Market structures: Markets that are either perfectly competitive or pure monopolies. ito competition: perfect monopoly> monopolistic competition> oligopoly> monopoly
1. Perfect Competition
  1. Monopoly
    Annotations:
    - Monopoly is the most extreme form of imperfect competition. Monopoly is where a single seller controls the supply of the good or service and thus det' the price. Eg electricity Co may monopolize.
    - what prevents competition from entering bc there are barriers to entry preventing them like state laws may set the laws and say a competitor cannot enter to avoid wasting and duplications. Another eg is De Beers Diamond C in Kimberly, SA controls diamonds in the world
    - Characteristics of Monopoly: a monopoly is characterized by 4 conditions1) a single seller - only 1 seller exists for a good 2) No substitutes for that good thus a monopoly 3) No entry: others have obstacles so can't enter the market 4)almost complete control of market price- by controlling the supply monopolist controls the market price. He can raise prices without any fear of competition.. But the price cannot be outrageous as the law of demand still applies and buyers will just buy less if the price is too high.
    - Barriers to entry: prevent other sellers from entering = obstacles to entry 1) 1st barrier is legal one eg in some states laws exist to prevent other gas/electrical/water Co from operating in that same area already being serviced with a Co.This is to avoid wasting resources 2) 2ndly : startup costs needs a lot of money/capital 3) Who owns essential raw materials is also a barrier eg De Beers owns diamond mines so they control diamond market in the world
    - Types of monopolies: pure monopolies can be divided in 4 categories : natural, geographic, technologic, govt 1) natural: in the past they thought just 1 Co could naturally provide a good public service to Govt granted exclusive rights to natural monopolies for bus service, utilities etc. The large scale gave them ECONOMIES OF SCALE largest amount for lowest cost. (Nowadays, technology can improve the service so Govt is deregulating to allow more competition.) 2) Geographic monopoly : eg in remote area 1 grocery store monopolizes. (These monopolies are declining bc of mail order, online buying..) 3) Technological monopoly- if you invent something you have a patent for 7 years. Copyright protects art, music...for life of artist + 50 years ( however nowadays, competitior can make slight variations eg microchips and get their own patent) 4) Govt monopoly: similar to natural monopoly except Govt holds monopoly eg road construction
    1. Monopolistic competition
      Annotations:
      - Perfect Info - info is freely available to both consumers and producers regarding price of products and competition Differentiated Products - each firm is attempting to stand out from other firms in market place and gives them power to set above their competition's level
      - most common form of market is the Monopolistic Competition in USA in which a large # of sellers offer similar yet different products eg toothpaste,cosmetics
      - to be a monopolistic competitor: p245 need 5 conditions to be met: a) numerous sellers- no single seller or small group dominates the market b) relatively low entry to market- easy to enter market - is easier than in monopoly or oligopoly c) differentiated products-each supplier sells a slightly different product to attract sales d) non prce competition- businesses compete with product differentiation and advertising (use advertising, product differentiation) e) some control over price bc each Co has a loyal customer base due to their product being differentiated Pretty similar to oligopoly.
      - remember oligopoly is where few Co's dominate the industry and control over price is inter dependent
      - Monopolistic Competition has many firms , no rela interdependence and some slight difference in products
      - Advertising: Competitive advertising is even more important in monopolistic competition than it is in oligopoly. Advertising attempts to prove the product is superior to others and the sales successes from good advertising , allows for the Co to charge more for that product
      1. Oligopoly
        Annotations:
        oligopoly is a monopoly dominated by several suppliers who do control the price in some way
        when do we call it an oligopathy? p243 Glencoe a)domination by a few sellers (several large firms responsible for 80% of market)b) barriers to entry - capital costs high so new Co can't entercapital costs are high and it is difficult for new companies to enter major marketsc)identical or similar products like airline travel are similard) non price competition: advertising emphasizes minor difference e) interdependence - any change on the part of 1 firm will cause a rxn in others in the oligopoly
        prices in a perfectly competitive market are higher than in oligopoly market. Oligopoly markets are more stable and offer a wider range of products
        Oligopoly engage in nonprice competition The price you pay for brand names is not just based on supply and demand but is based on product differntiation.
        interdependent behaviour: With so few firms i an oligopoly all of them know eahc others moves. eg airline tickets If they all secretly decide to increase the price- it is illegal. that is called a collusion.
        Cartels: An important form of Collusion is the CARTEL. A cartel is an arrangement among groups for businesses to reduce international competition by controlling price., production, distribution. They want monopoly.
        industry dominated by few suppliers who have some control over price
        Annotations:
        oligopolies are not considered as harmful as monopolies to the consumer. Consumers may pay more than if in a perfecly competitive market but prices are more stable and in comparison provide a variety of products.
        Oligopolies exist in a number of industries eg cars/ cereals/drinks Oligopolies engage in NONPRICE differentiation. Characterisitics of Oligopathy: 1)Product Differentiation: eg cars: several large auto manufactures have an oligopathy on the car market bc they differentiate their cars to win the buy's money so the price does not only depend on the demand but also on the PRODUCT DIFFERENTIATION. 2) Interdependent Behavior: Few firms in the Oligopoly so they mimic each other. eg if one airline lowers air ticket prices other may do this too but eventually one airline may be forced to leave the market and with even less competition prices go up again. 3) Cartels: sometimes the firms get together to raise the prices which is illegal = COLLUSION. There are fines, prison Eg cartels.: An arrangement in businesses in different countries to reduce international competition by controlling prices, production, and good distribution
  2. Perfect Competition
  3. Imperfect Competition
    Annotations:
    - 3 types of imperfect market structures as monopoly, oligopoly, or monopolistic competition. They differ from one one another on the basis of how much competition and control over price the seller has.
2. Characteristics of Market
  1. what do they detemine
    Annotations:
    - a)how profit max price and quantity are set in short run b)how profits might might be maintained in the long run c) type of product the firm will be producing (vs competitor product)
  2. Perfect Competition
    Annotations:
    - a true perfect competition is rarely seen today bc anyone can find lower prices online eg p 236 Glencoe bookWheat Farming
    - Benefit to society: intense competition forces the prices down so it covers cost of production and still allows a small profit.
    1. characteristics of it?
      Annotations:
      - For PERFECT COMPETITION NEED 5 CONDITIONS TO BE MET: and when this happens supply and demand control the price - no buyer or seller affects price: a) many products + consumers(many independent producers ) many buyers and sellers for that productb)identical product from other producers (homogeneous product from other producers)c) easy entry, and exit. Sellers can't prevent competition into the market. d) easily obtained info for both buyer and seller eg info on supply of sources e) independence: possibility of sellers or buyers working together to control prices do not exist
      - so long as other companies are producing similar products there will always be some competition.
      - eg wheat farming as a PERFECT COMPETITOR a) large market - thousands of wheat farmers to produce and wholesalers to buy it b) a similar product - all wheat similar c) easy entry/exit cost of renting farmland is low d)easily obtainable info: wheat prices on internet e)independence- thousands of wheat farmers getting together to control wheat prices is small
      1. 5 conditions characterizing it?
        Annotations:
        just discussed the 5 conditions . when these 5 conditions are met the workings of supply and demand control the price a) on the supply side, perfect competition needs a large # of suppliers b) on the demand side, perfect competition needs a large # of informed buyers who know the market price.
        in a perfectly competitive market : market price =equilibrium price Total supply and total demand interact to produce and equilibrium price and here at this price supply=demand quantities In a perfect competitive world, each seller would accept that EP. If one person charged a different price, it would not affect the market price bc there are so many buyers and sellers.
        Rules for Perfect Competition
        Annotations:
        6 rules to follow 1) for price taker Price=marginal revenue=demand now compare price to ATC(av total cost) 3 rules here if price > ATC have profit if price = cost no cost/loss if price
        4) When firm has losses it will continue to produce in short term but will exit in long run 5) when firm has losses ie price < cost but also price< av variable cost(AVC) the firm will shut shut down immediately in short and long term
        Review question p 2
        youtube
        Annotations:
        Perfect competiton: Demand curve for individual producer https://www.youtube.com/watch?v=ZhGDce_a5eE
        perfect competition Perfect Competition in the Short Run- Microeconomics https://www.youtube.com/watch?v=Z9e_7j9WzA0
        no control of price
        Annotations:
        only supply and demand affect the price: on SUPPLY side: perfect competition needs a large no. of suppliers of similar product on DEMAND side: perfect competition needs a large no of informed buyers who know the market price for the product
        market price =EQUILIBRIUM price
        Annotations:
        in perfect competition: market price =equilibrium price where quantity demanded =quantity supplied at this price Each seller would accept the price. There are many buyers ans sellers so one person changing the price will not affect the market price
    2. Comparing industry & Single Producer
      Annotations:
      - in perfect competition: supply curve for a single firm is the portion of the marginal cost curve that lies above the AVC curve Demand Curve for a single curve and price are strictly determined by
      - a single producers demand curve and price are strictly det by ? The demand curve for a firm in a perfectly competitive market varies significantly from that of the entire market.The market demand curve slopes downward, while the perfectly competitive firm'sdemand curve is a horizontal line equal to the equilibrium price of the entire mark
      - https://quizlet.com/214626460/chapter-7-quiz-questions-flash-cards/
      1. graphs
        Annotations:
        http://www.economicsdiscussion.net/supply/supply-curve-of-a-firm-and-industry-with-diagram/7106 ttps://www.cliffsnotes.com/study-guides/.../perfect-competition/short-run-supplyThe firm's short‐run supply curve is the portion of its marginal cost curve that lies abov
      2. What happens when Economic profits can be made
        What happens when there are short run losses
        PLR=MR=MC=ATC
        review questions
        Det Profits
        Annotations:
        as in graph a firms ATC curve will determine whether a firm will exit the market in the short run It will also determine the level of _____profit_______, that firm can achieve
        Review question
        maximising profit in perfect market
        Annotations:
        https://www.youtube.com/watch?v=BQvtnjWZ0ig practice with table for using the calc :you tube video trying to see how many units are needed to be sold to reach max profit
        why is breaking even okay?
        Annotations:
        you are making a ____________
        you would like to earn more than zero economic profit BUT perfect competition rule characteristics rule it out
        How Efficient is Perfect Competition
        Allocative efficiency
        summary
        review question
        Market comparisons see p7 monopolistic competiition pkt
        Govt policies toward Competition
        Annotations:
        Historically Govt tries to encourage competition
        Antitrust Legislation
        Annotations:
        a) Expansion after war fueled rise of Oil Co owned by Rockefeller and he drove out competition b) He placed directors of his Oil Co onto the board of a competing Co. Because the same people thus controlled 2 companies they would not be inclines to compete. This is an eg of interlocking directorates(serve on 2 or more boards)
        Sherman Antitrust Act
        Annotations:
        The Govt passed this law bc public was upset that Rockefeller had a monopoly over the oil business. This law was an impt antitrust law to prevent new monopolies r trusts from forming and to break up those existing already.
        Clayton Law
        Annotations:
        was to explain the language of Sherman Law more. But govt still intervened to prevent substantial decrease in competition would result with 3 companies merging.
Monopoly Markets
Annotations:
- today monopolies are not as important
1. Monopoly characteristics
  Annotations:
  - a)single producer: only one seller monopolizes market
  - b)no close substitutes eg electricity
  - c)no entry of others barriers exist for other Co to enter the market, so they remain monopolizers of the market
  - d) almost complete control of market they can raise prices without fear of losing business to a competitor. However, they cannot raise the price to high bc there is this the law of demand. As price goes up, consumers buy less.
  1. diff bet mompolies and oerfectly competitive markets
    1. ypes of monopolies
      Annotations:
      - 4 monopolies: natural,geographic, technological and govt a) natural in past they thought it was good to grant exclusive rights to 1 Co to provide public services eg bus service,utilities . This allowed " economies of scale" - they could produce large amounts at low cost but now Govt realizes improvements with technology can allow competitors to enter the market.
      - b) geographic monopoly: eg 1 pharmacy in remote town can monopolize the market. With mail order and internet purchases, provides competition and so these geographic monopolies are declining c)technological monopoly: you have a technological monopoly if you have a Govt patent to exclusively manufacture or rent or sell for about 17 years. Copyright protects art , literature, songs, for life of author or 50 years. But today , competitors make generics with slight variations and have patents for these because they differ slightly. d)GOVT monopoly like a natural monopoly but govt holds the monopoly eg for road maintenance
      1. technological monopoly
        govet monopoly
      2. natural monopoly
        review question
        how to deal with natural monopolies
      3. monopoly supply
        Annotations:
        a monopoly has no supply curve: bec they will always attempt to supply the market where MC=MR so that they can maximize their own profit
        Monopoly demand
        Annotations:
        a monpoly firm operates in an ELASTIC or upper range od=f demand
        the demand curve of the monpoly ffirm is the demand for an entire industry
        Profit Maximizing
        Price discrimination
        Monopoly summary
        review question
        draw a graph
        Thiis ia 1 of 4 market types
        Types of price discrimination
        review question
2. single producer
  1. no close sub
    1. non price compet
      1. barriers to entry
        market power
        types of barriers
        legal restriction
        control of scarce resources
        economics of scale
        review question on how economics of scale can offset monopoly
Unit 3 Part 2 Monopolistic competition
1. characteristics of Monopolistic Competition
  1. Forms of differentiation
    1. product attributes
      Annotations:
      - eg safer product has better safety rating eg Tessler car sells for more eg color schemes
      1. Customer service
        Annotations:
        better customer service means you offer more , so can charge more eg delivery/ 24 hour pharmacy can charge more than Costco (set 9-5 hours in pharmacy)
        Location
        Annotations:
        eg Idaho potatoes
        Brand name/ Packaging
        Annotations:
        people pay more for brand like Nike
    2. Types of Monopolistic Comp Markets
      1. Retail Chain
        Annotations:
        CVS
        Restuarant
        Annotations:
        CoCo's
        Clothing lines
        Annotations:
        Nike
        Convenience store
        Annotations:
        Circle K etc
      2. Comparing this to Perfect Comp & Monopoly
        Annotations:
        Monopolistic competition is a hybrid of monopoly and perfect competition
        CF to Perfect Comp
        Annotations:
        Monopolistic competition contains a large # of competitive firms
        CF to a monopoly
        Annotations:
        each firm has a market control and faces negative slope demand curve
        Short-run Profit Maximization
        Annotations:
        like all other market structures, producers here will produce where MR=MV and they set the price from the demand curve
        disseminating and advertising
        Annotations:
        in the short run these monopolistically competitive firms will make profits by a)disseminating b)advertising their own product
        draw deand curve
        Annotations:
        review question
        Long run profit maximization
        Annotations:
        in the long run, as the # of firms increase each firm will lose market share, eventually the demand curve will shift to the left for each firm/producer
        demand curve shift
        P=ATC
        Annotations:
        P=ATC and economic profits are zero
        Can an Individual firm maintain profit?
        Annotations:
        In reality there is no way to do so long term but short term yes you can with advertising Advets influence a consumers demand for thier product and can maintain that firms profits but for short term ONLY
        Properties of MC
        P>MI(not alloc efficient)
        P> min ATC(not productively efficient)
        TT=0 in long run
        dead wt
        Annotations:
        dead wt exists
        MC=MR
        Annotations:
        difference bet quantity 1 and 2 is called_____________?quantity 1 is at MC=MRquantity 2 at minimum ATC
        Excess capacity
        Annotations:
        what is excess capacity?
        at excess capacity____________ equipment produces at an output < output which minimizes ATC
        review question
        Oligopolies
        Eg Exxon
        Characteristics
        small no. of large products
        Annotations:
        no. of producers can range from 3-6 larger firms but each firm holds a significant share of the market
        homogeneous or differentiated products
        Annotations:
        a) these firms can make very similar products like oil firms b) or they can differentiate eg soda firms
        mutual independence
        Annotations:
        each firm knows that its own products profit depends also on competitor behavior(pricing and strategy)
        barriers to entry
        Annotations:
        same barriers to entry that help create monopolies are seen here too
        Review Q
        Annotations:
        what is a key characteristic which differentiates oligopoly from monopoly/perfect competition/monopolisitc competition
        Classifying olig.
        use concentration ratio
        Annotations:
        concentration ratio reveals % of total output that firm produced, that got sold by the largest firms
        most common way
        Annotations:
        most common way is _____ which combines the 4 largest firms to gauge the industry
        another way
        Annotations:
        another way is __________ which is the sum of squared % market shares of all firms
        Other classifications
        Annotations:
        ____ is an oligopoly with a high 2 firm concentration ratio 100% contentration ratio means its oligopathy which is a monopoly 0% concentration ratio means its perfect competition see https://www.youtube.com/channel/UCCQEbqDL8i40d83Au55lYMQ
        when is this an oligopathy?
        Annotations:
        if concentration ratio for top 4 firms is >/= ___ it is an oligopoly
        the larger the ___ the top 4 firms have, the greater control they will have over price/profit
        Working solo
        Annotations:
        firms have 2 options to work solo or to work together
        when they work by competing against each other, the outcome can be summed up by what's called_____
        Game Theory
        Annotations:
        is a means of analyzing the pricing behaviour of oligopolies that use strategies like in chess/bridge games
        Payoff matrix
        Annotations:
        is a matrix where each cell shows the profit to each firm had they used each combination of strategies
        Prisoner's dilemma
        Annotations:
        it is a game based on : a) each player has an incentive to choose an action that benefits itself only ( other firm will be disadvantaged) b) When both act this way(greedily) they are both worse off than if they worked together
        Working together
        cartels
        Annotations:
        illegal in US under sherman anti trust act
        challenges of forming cartels
        collusion
        types of Strategies
  2. Perfect monopoly
    Annotations:
    - basically info freely available to both consumers and producers re price, competition
    1. Differentiated products
      Annotations:
      - each firm wants to stand out in the market place differentiating their product gives them the edge to stand out and raise prices above competitors (eg if their product is one better) eg doll that move arms or toy cars with doors that open may sell for more
production possibility curve
Annotations:
- a production possibilities frontier is a curve showing the maximum attainable combinations of 2 products that may be produced with available resources.
- Graphing a Production Possibility Frontier: see Essentials of Econ text. p 34 given a table plot points for good A on eg Y-axis and other good on X-axisAll combinations on the line or under the curve are attainable with available resources. Combinations on the frontier are efficient bc all resources are fully utilized and fewest resources are being used to produce the output. A point under the curve :is inefficient bc max output is not being obtained from avail.resources(maybe bc plant is not at full capacity) A point to far right( not on line or in AUC is unattainable with current resources)
- Notice that if BMW is producing efficiently, and is on the production possibility frontier - the only way to produce more of 1 vehicle is to produce less of the other.
- Remember, opportunity cost of any activity is the highest valued alternative that must be given up to engage in that activity. See p35 graph For example, in moving from point B to point C , the opportunity cost of producing 200 more SUV's per day is the the 200 fewer roadsters that can be produced.
- Which point is best on the Production Possibility curve/line? Depends on whether demand for SUV's or demand for roadsters is greater: If demand for SUV is more than demand for roadsters - the company is more likely to choose a point closer to axis where that vehicle is eg SUV on x axis, so point E If demand for roadsters is greater than demand for SUV: the company is likely to choose point A
- https://www.coursehero.com/file/p6k1kkj/Consider-the-production-possibilities-curve-PPC-for-a-country-producing-only/
- https://quizlet.com/28086559/ecn-202-ch-1-5-test-flash-cards/ https://quizlet.com/209599110/comp-economics-flash-cards/
GRAPHS of Economics
1. https://www.bing.com/videos/search?q=essential+graphs+of+economics&&view=detail&mid=67C2BC25EE5C5A39DE5567C2BC25EE5C5A39DE55&FORM=VRDGAR
  1. https://www.bing.com/videos/search?q=all+graphs+of+economics&&view=detail&mid=DA36F4F49EAF20DEE51FDA36F4F49EAF20DEE51F&FORM=VRDGAR
    1. https://www.bing.com/videos/search?q=all+graphs+of+economics&&view=detail&mid=DA36F4F49EAF20DEE51FDA36F4F49EAF20DEE51F&FORM=VRDGAR
      1. https://www.youtube.com/watch?v=_3IngsS9NVE&list=PLA46DB4506062B62B&index=3
        https://www.youtube.com/watch?v=gdXoDkCfcM8
        https://www.youtube.com/watch?v=JbJgYpCW4gw
        https://www.youtube.com/watch?v=OwDJ5MCMVvY
2. demand curve
  Annotations:
  - p178 Glencoe book straight line slope is down , showing inverse realtionship bet demand and price
  - https://www.bing.com/images/search?q=demand+curve+&FORM=HDRSC2
  1. shifts
    Annotations:
    - discussed under determinants of demand see P 182, 183 Glencoe
    - as the price of item decreases demand will increase so demand curve shifts outwards opposite happens if price increases : demand will decrease and the demand curve shifts inwards or to Rt
  2. Supply curve
    Annotations:
    - have price on y axis have quantity supplied on x axis it's a straight upward sloping graph (direct relation bet price and quantity supplied) as price goes up, producers are willing to supply more as prices drop, they hold off
    1. shifts
      Annotations:
      - p 191 only one will cause the supply straight line upward slope to move to left: Taxes from govt 3 cause slope to move to right supply increases: a) price of inputs eg when memory chips were cheaper this made computer production increase 80's b) # of firms eg movie rental stores increased , so supplied more movies c) Tech eg production line improvements- so more product supplied
    2. Equilibrium Price graph
      1. shifts
        Annotations:
        changes in supply: eg if new tech allows production to increase so see supply curve shifts to the right like on p 195 This causes the equilibrium price to change =EP falls and both quantity supplied and quantity demanded will increase (if Supply curve moves to the left, the EP will increase)searched graph of EP decreasing:https://www.bing.com/images/search?q=graph%20of%20equilibrium%20price%20decrease&qs=n&form=QBIR&sp=-1&pq=graph%20of%20equilibrium%20price%20decrease&sc=0-35&sk=&cvid=145B1AAB9A9D4CC4BE628FE7266ADACF
        Increase in EP: If demand curve moves to the right eg increase demand for CD, like if that CD helps with sleep. Demand will increase and demand curve will shift to the right see an increase in EP (IF the demand curve moves to the left, EP will drop)search: graph of EP increase https://www.bing.com/images/search?q=graph%20of%20equilibrium%20price%20increase&qs=n&form=QBIR&sp=-1&pq=graph%20of%20equilibrium%20price%20increase&sc=0-35&sk=&cvid=3125D2096D4248229C5D8475A7A64871
        3RD GRAPH EXPLAINED IF BOTH SUPPLY AND DEMAND CHANGED (SEE BOX IN MIDDLE) https://www.khanacademy.org/economics-finance-domain/microeconomics/supply-demand-equilibrium/market-equilibrium-tutorial/a/changes-in-equilibrium-price-and-quantity-the-four-step-process-cnx
      2. Production vs Quantity
        Annotations:
        see OBrien notes p 206 notes under short run section green
        https://www.bing.com/images/search?q=production+vs+quantity&FORM=HDRSC2
        Marginal vs Average
        Annotations:
        OBrien p 208 Marginal product of Labor tells how much output changes as # or workers changes Av product of Labor is total output divided by # of workers eg if total copies= 2600 total workers= 4
        this is a U shaped graph (see above under unit 1)
        Perfect Competition
        Annotations:
        https://www.youtube.com/watch?v=UpamrD82Ny0
        a)eg market for organic grown food. This is an eg of Perfectly competitive industry b) Firms in perfectly comp industries are unable to control,the prices of products and are unable to earn an economic profit in long run. c)Why? a) they sell identical products b) easy for new competitors to enter market In reality, today non are perfect competitive as products differ slightly, not always easy to enter market
        Conditions making a perfectly competitive market: eg organic apples a) must be many buyers and firms b) products must be identical c) must have no barriers to new firms entering market *** a perfectly competitive firm cannot affect the market price because they are det" by supply-demand interaction. If they raise the price, buyer looks elsewhere. They are just 1 firm among many 100's do they are too small to impact price.Same goes for buyer- you cannot ask for a cheaper price because you are 1 of millions - too small.,
        Demand Curve for Perfectly Competitive MArket: ITS a HORIZONTAL LINE a)first look at normal market demand and supply curve. Demand curve for market is a downward slope as usual. Where the supply and demand curve meet is the EQUILIBRIUM POINT where you get the EQUILIBRIUM PRICE like $4. So markets set the price . . b) Now a farmer in a perfectly competitive market has to obey the price of $4. They cannot change the price but can sell as much as they want .c) because the price is set at $4 so DEMAND CURVE is a horizontal line https://www.bing.com/images/search?q=demand+curve++horizontal+line+of+perfect+competitive+market&qs=n&form=QBIR&sp=-1&pq=demand+curve+horizontal+line+of+perfect+competitive+market&sc=0-58&sk=&cvid=F21411187FF04278A29F45EC40475ABC
        How a Firm Maximizes Profit in a Perfectly Competitive MArket: a) Profit= TR- TC profit is the difference bet total revenue and total cost b) To maximise the profit , the farmer can only adjust his quantity of wheat so that the diff bet TR and TC is maximum so profit is max. C) TO UNDERSTAND HOW FARMER MAXIMIZES PROFITS- WE MUST LOOK AT HIS REVENUE
        REVENUE FOR A FIRM IN PERFECT COMPETITION: b) Total revenuerises by $4 for every bushel he sells bc he can sell as many bushels at $4 as he wants(he just can't increase the market set price as they won't buy his product) c) Total Revenue TR= Price P x Qunatity Q TR= PxQ d)average revenue AR = total revenue divided by Quantity Q AR= TR/Q eg on p 236 OBrien shows TR=20 Q=5 so 20/5=4 so AR= $4 = market set price AR will always equal market price in a PERFECT Competitive market. e)MARGINAL REVENUE is the change in revenue from selling 1 more bushel MR= change in revenue divided by change in quantity MR= change in TR/ change in Q Since he will always add just $4 for each additional unit he sells MR= $4 ot market price P in a PERFECT market f) In SUMMARY, in a PERFECT COMPETiTITVE MARKET where price = set market price MR=AR= P = $4 SO FOR A FIRM IN A PERFECT COMPETITIVE MARKET: PRICE IS EQUAL TO BOTH AVERAGE REVENUE, AR AND MARGINAL REVENUE, MR
        p 236-238 HOW CAN THE FARMER DET" THE MAXIMUM OUTPUT WILL GIVE THE MAXIMUM PROFIT 1) table 8-3 p 237 O Brien shows columns of numbers 1st is # of bushels he sells 2nd is TR then 3rd TC 4th column is a calculation of Profit Profit =TR- TC The last 2 columns show marginal : marginal revenue from selling 1 more bushel and marginal cost of selling 1 more bushel 2) on 4th column see that 6 bushels the maximum profit of $9 is reached. (at the 7th bushel, the Profit drops to $8.50) 3) next can determine this same info on the graphs on p 238 FIRST GRAPH IS TR AND TC AND SHOWS MAX PROFIT: PROFIT IS MAXIMUM WHEN THE VERTICAL DISTANCE BET TR LINE AND TC CURVE IS MAXIMAL...AGAIN WE SEE THIS AT 6 BUSHELS SOLD SEE P 238 NEXT GRAPH SHOWS MR AS A STRAIGHT HORIZONTAL LINE (LIKE DEMAND CURVE) AND MC AS A U SHAPE: SO HAVE MR AND MC ON THIS GRAPH : SO LONG AS MR> MC , HE SEES A PROFIT AND AGAIN THIS IS MAX AT 6 BUSHELS. SO LONG AS MR>MC, HE WILL NOT STOP PRODUCTION AND HE WILL WANT TO EXPAND PRODUCTION. HE WILL NOT STOP AT 5 BUSHELS BEC ADDING 1 MORE BUSHEL AS HE ADDS $4 TO HIS REVENUE WHILE HIS COST IS $3 SO HIS PROFIT IS $1. INFACT HE WILL WANT TO CONTINUE SELLING UNTIL MR=MC THEN HE MUST STOP AS THERE WILL BE NO ADDITIONAL PROFIT. THEREAFTER MC>MR AND SEE A LOSS. hOWEVER ON TABLE- DON'T SEE ANY MR=MC SO FARMER CHOSES TO STOP AT 6TH BUSHEL DIFFERENCE BET MR AND MC IS THE ADDITIONAL PROFIT FROM SELLING 1 MORE BUSHEL. 4) since MR= $4 it is a horizontal line in perfect market just like demand curve. So MR curve is same as the demand curve (HORIZONTAL LINE) IN PERFECTLY COMPETITIVE MARKET. 5)SUMMARY IN TR AND TC GRAPHS , MAX PROFIT IS WHERE THERE IS MAX DIFFERENCE BET THE 2 CURVES . HERE TR WAS A STRAIGHT LINE BUT IN MR AND MC CURVES WHERE MR=MC IS THE CUTOFF FOR PROFIT SO THIS IS HOW WE DETERMINE MAX QUANTITY FOR MAX PROFITS.
        SHOW PROFIT ON GRAPH: SEE P239 A) HAVE PRICE VS QUANTITY GRAPH AND GRAPH MC AND ATC. IN PERFECT MARKET: DEMAND= MR STRAIGHT HORIZONTAL LINE SO LOOK AT RELATIONSHIP BET FIRMS AVERAGE COST AND MARGINAL COST B) LOOK AT GREEN RECTANGLE. IT REPRESENTS TOTAL PROFIT. CALC ITS AREA : Q (MAX QUANTITY WHICH PRODUCES A PROFIT) = LENGTH OF RECTANGLE HEIGTH= DIFF BET MARKET PRICE (DEMAND=MR) LINE AND ATC. PROFIT= AREA OF RECTANGLE=( P- ATC) X Q HERE ATC IS BELOW MR/DEMAND LINE C) WHEN ATC IS ABOVE MR/DEMAND : RECTANGLE IS ABOVE DEMAND LINE AND IT IS A LOSS   SEE EG P 241
        FIRM BREAKING EVEN OR OPERATING AT A LOSS: p 241 OBrien a) to maximize profits : a firm produces at a level of output or quantity where MR=MC but will the firm make a profit? It depends on relationship bet P and ATC 3 possible relationships: i) P> ATC which means firms makes a profit ATC curve lies under the demand or MR or set price_ ii) P=ATC which means firm breaks even TC=TR ATC curve actually sits on the MR or Demand or PRice line iii)P ATC curve lies above the Demand/MR or Price line
        SUPPLY CURVE OF A FIRM IN SHORT RUN: p 245 OBrien ALSO LOOK AT SHUT DOWN POINTthis is actually the MC curve in a perfectly competitive market1) Supply curve tells how much a firm will willingly sell at a given pricein perfectly competitive market, the MC curve tells us this same thing.The form produces where MR=MC and we saw MR is a straight line equal to price set by market here in Perfect markets. So P=MCOn this curve for MC , at any given price we can det"how much (Q) the firm will sell at that given price , so MC curve= SUPPLY CURVE in PErfect MArketsbut remember in situations where TR < VC the firm will have a loss and will shut down if P< AVC2) so firms MC curve is the SUPPLY CURVE only for prices at or above AVC3)MC line will intersect AVC at the minimum point. Firm's SUPPLY CURVE is MC curve above this minimum point (on the AVC curve).Prices below the minimum cost , the firm shuts down.The minimum point on the AVC is also called the SHUT DOWN
        mARKET SUPPLY CURVE IN PERFECT COMPETITIVE MARKET P 246
        ECONOMIC PROFIT AND ENTRY OR EXIT DECISION LOOK AT EFFECT OF ENTRY FIRST P247 THEN LOOK AT EFFECT OF EXIT P 247
        ECONOMIC PROFIT LEADS TO NEW FIRMS ENTERING: 1)S shifts to Right p 247a) an organic farmer may not earn a profit for long as other farmers enter the organic farming market the SUPPLY CURVE SHIFTS TO RIGHT and on graph fig 8-8 p 248 S1 moves to S2 on the right. At this point: price will drop from $15 to $10 Then Demand curve drops from D1 to D2 and farmer has no profit . Farmer is just breaking even and new farmers stop entering the market. Farmer continues farming tho because accounting profit differs from economic profit
        ECONOMIC LOSSES LEAD TO EXIT OF FIRMS: 1) A)SUPPOSE SOME CONSUMERS DECIDE THERE ARE NO BENEFITS FROM ORGANIC APPLES AND SWITCH TO REGULAR APPLES THE DEMAND WILL DROP FROM D1 TO D2 AND DEMAND CURVE SHIFTS TO LEFT B) MARKET PRICE WILL FALL FROM $10 TO $7, P249. DOWN THE MARGINAL COST CURVE TO A LOWER OUTPUT(LOWER QUANTITY PRODUCED)   C) FARMER WILL SUFFER AN ECONOMIC LOSS BC CANNOT COVER ALL COSTS BUT EVEN WITH LOSSES FARMER WILL CONTINUE IN SHORT RUN, SO LONG AS P> AVC. D)IN LONG RUN FIRMS TRY TO EXIT ORGANIC APPLE FARMING..MAY SWITCH TO REGULAR APPLES AS THEY EXIT, THE SUPPLY CURVE SHIFTS TO THE LEFT UNTIL THE PRICE GOES BACK TO $10 AND S CURVE IS AT S2
        LONG RUN EQUILIBRIUM IN PERFECT MARKET: 1) we saw economic profit attracted firms to enter but this forces down the price until the firm is just breaking even 2) Economic losses cause firms to exit the market. The exit of firms forces the market price at equilibrium to go up and now the firm is breaking even 3) This process of entry and exit results in Long Run Competitive Equilibrium where a typical firm will break even as a result. 4) long run equilibrium price is at minimum point price on the firms TC curve
        Long run Supply curve in PERFECT market 1) if the farmer typically breaks even at $10 per box the market price will always return to this price. 2) if demand increases and new price > $10 the farmer makes a profit. 3)This attracts more farmers to enter nd the S curve shifts to the right until the price drops down again to $10 4) figure 8-10 p 251 shows the long run effect of the increase in demand: an increased demand temporarily causes the price to go up from $10 to $15. Farmers are making economic profits now but such profits attract others to enter the market and the result is an increase in supply from S1 to S2 which forces the price back down to $10 per box. and eliminated economic profits.
        p 250 similarly , is decrease in demand will cause the market price to fall below $10. 1) this will cause some farmers to exit the market and the supply curve will shift to the left. and the price will go back up to $10. 2)fig 8-10 shows the effect of a decrease in demand. 3) a decrease in demand from D1 to D2 causes the market price to fall temporarily from $10 to $7 and causes economic losses for farmers so some will exit the market and this causes a decrease in supply which forces the price back up. to $10 and eliminates losses.
        Long run Supply curve shows the relationship bet market price and quantity supplied. In the long run the market price will be $10 no matter how many apples are produced. so in the Long run supply curve S(lr) is a straight line set at $10. 1) The reason the price returns to $10 is bc this is when the farmer breaks even at $10.2)why does the firm break even at $10 ? it is at the minimum point on the ATC curve.3) conclude that in the long run, in a perfectly competitive market the farmer will supply whatever quantity is demanded at a price determined by the minimum point on ATC
        https://opentextbc.ca/principlesofeconomics/chapter/8-2-how-perfectly-competitive-firms-make-output-decisions/
        TC, AVC,
        Annotations:
        https://www.thoughtco.com/relationship-between-average-and-marginal-cost-1147863
        Marginal cost is the cost of producing 1 more uNit EACH FIRMS MC CURVE TELLS US HOW MUCH THE FIRM WILL SUPPLY AT EACH PRICE
        SEE THEM ALL ONE ONE GRAPH
        tHESE ARE RELATIONSHIPS NET SHORT RUN PRODUCTION AND SHORT RUN COSTS TECHNOLOGY DET MARGINAL PRODUCT OR LABOR AND AV PROD OF LABOR . IN TURN: THE MARGINAL AND AV PRODUCTS OF LABOR WILL AFFECT THE FIRM'S COST. THIS IS SHORT TERM BEC WE CAN ASSUME IT IT TO SHORT A PERIOD TO GET NEW MACHINES OR BUY A LARGER PLACE ...
        WHAT IS MC MARGINAL COST? 1) he we talk about 1 more unit of production 2) as Jill decides to hire more labor , she considers how much she will add to her total cost? These are marginal decisions we make 3) MC is the change in firms total cost from producing 1 more unit MC= change in cost divided by change in output MC= change in TC/ change in Q
        WHY DO WE SEE U SHAPED GRAPHS FOR MC AND AC? 1) For Jill's 1st 3 workers: marginal cost of producing copies declines and then increases so have a downward slope then and upward slope= U shape 2) p 212 see graph of marginal cost of producing and marginal product of labor 3) for 1st 3 workers: marginal product of labor is rising but marginal cost of producing the copies falls. (opposite) For last 3 workers : its vice versa . Marginal product of labor falls and marginal cost of producing the copies is rising 4)In summary: as marginal product of labor is rising, the marginal cost ot output falls and vice versa 5) why ? p 212 a) as Jills adds more workers she pays additional wages. They get the same $50/day. b)So the marginal cost of additional copies really depends on the workers additional output.(or marginal product) c)So long as the additional output of each worker is rising, the marginal cost will fall. 6. conclude that as the marginal cost of production falls and then rises a U shape arises because the marginal product of labor rises then falls
        Also, see MC and average total cost ATC are the usual marginal-average relation. a)Like school grades: when semester average > GPA then GPA will go up and vice versa b)as long as marginal cost is below ATC MC < ATC, the ATC will fall and when MC> ATC , ATC will rise c)at the lowest point MC=ATC d) this explains the U shape: ATC will have a U shape because MC has a U shape
        p 213 have a problem shows how to actually cal MC and ATC given values a) ATC= TC/ Q b)MC = change in TC/ change in Q
        Graphing COST CURVES: All these average eqns are basically divided by quantity just like in math a) ATC= total cost / total output = TC/Q b) AFC= FC/Q (Average fixed cost)c)AVC= VC/Q (Average variable cost)d) Finally,ATC= AFC + AVCe) fixed cost in operations = $30for renting 2 copiersvariable costs = wages f) MC, ATC , AVC are all U shapedhttps://www.bing.com/images/search?q=marrginal+cost%2c+ATC%2c+AFC%2c+AVC+graph&FORM=HDRSC2
        Graph: 1) U shaped graphs are :MC, ATC,, AVC 2) MC intersects the ATC and AVC at the lowest point or minimum points a) when MC b) when MC> AVC or MC> ATC it causes them to increase c) thus, When MC= AVC and MC-=ATC they must be at their minimum points 3) spreading the overhead costs by selling more units: a) as output increases , average fixed cost gets smaller. AFC is calculated by dividing output by fixed cost output can be a huge # and fixed cost is constant, so increasing output helps lower fixed costs 4) as output increases , diff bet ATC and AVC decreases
        TC, MC, AFC, AVC, ATC
        Marginal and Average cost curves
        Annotations:
        Marginal cost is the change in a firms total cost by producing 1 more unit How can we calculate marginal cost? for a particular increase in output by dividing the change in cost by change in output. MC= change in TC/ change in Q
        in copier problem: For this problem: as Jill added more workers., the marginal product will increase for the first 3 workers but the marginal cost of the copies for this first 3 is falling after that, for the last 3 workers assded its vice versa P212 Why is this true? as Jill gets more workers the only additional cost is additional wages for more workers. She pays each one $50/day. So marginal cost of additional copies each worker makes depends on each workers additional output (marginal product). So long as additional output is rising, the marginal cost will be falling. Once the additional output is falling, the marginal cost of the output will be rising. So marginal cost first falls then rises making a U shaped graph bc the product of labor rises then falls(opposite)
        Box
        Annotations:
        same problem as in precomp https://www.coursehero.com/file/p6ov8bc/Figure-35-NARREND-59-Based-on-Figure-35-which-of-the-following-conditions-would/
        MONOPOLY
        Annotations:
        http://www.economicsonline.co.uk/Business_economics/Monopoly.html
        MARKET FAILURE
        Annotations:
        https://www.bing.com/images/search?q=MARKET+FAILURE&FORM=HDRSC2
        SR, LR
        Annotations:
        Short run: a)in short run fixed cost and variable cost are 2 distinct values b) In short run Average cost curves show the firms costs when som input( like # of copiers) is fixed In long run:a) this distinction bet FC and VC does not exist. There are no FC.eg renting 2 copiers. After say 6 mo the lease expires and by deciding whether to renew or not that fixed cost is now a variable cost.b) in Long Run all costs are variablec) In long run:TC= VCATC= AVCd) while SR cost curves showed costs when something was fixed, LR cost curves show the lowest cost at which the firm is able to produce a given level of output(nothing is fixed).
        Economies of scale
        Annotations:
        in long run: a)many companies have something called economies of scale ie lower average costs as output increases b) managers can use LR average cost curves for planning bc they show how the cost of output may change if they eg expand/ buy a bigger place etc
        p 216 see graph compares book stores a)a smaller store sells books at min price of $22 b)a larger store like B&N can sell at $18 min because they have lower average costs . This decrease in av cost is the Economies of Scale. Why can a larger store have lower av cost? bc they sell 20x more books per month but might still only need 6x workers....compared to smaller store c) why do they experience economies of scale? bc i)they may have higher tech to increase production ii)specialization of workers iii)Large Co like B&N , Walmart can purchase inputs at lower prices iv) As Firms expand they can borrow money more cheaply
        Constant Returns of Scale: p 216 OBRIEN a)Economies of Scale do not last forever b)The LR cost curve has a flat part over a large range eg B&N selling 20000 books has the same av cost as another larger Co selling 40000 books Over this 20000 to 40000 range we have the constant returns of scale
        Minimum Efficient Scale a) as the Co increases output it must match with increased inputs like larger store, more workers b) When the economies are exhausted this is the Minimum Efficient Scale
        Diseconomies of scale: a) Very large bookstores (like >40000 books sold/mo) will have increasing av costs as managers begin to have difficulties co-ordinating the store operations. b)Sales>40000 usually means they will experience DISECONOMIES of SCALE. p 217 OBrien c)They have difficulty keeping cost down. Toyota had this in 2004. Toyota president said "Demand for higher volumes saps your energy" d)Paradox is " getting larger does not always mean getting better"
        problem p 217 a)Motorola and Siemens decided to trade certain functions. b)Motorola gave Siems its wireless business and Siemens would give Morrola its mobile handsets c).Why? becuase they wanted to take advantage of the "ECONOMIES OFSCALE" d)USing LR total cost curves- you can see it makes sense e) Both are not at "MINIMUM EFFICIENT SCALE (Qm on graph)which is at bottom of the curve) f) After the trade: Mototrolla got the handsets part so handsets production would increase moving it more right on x axis which moves cost down the curve at the same time- taking advantage of economies of scale G) Siemens got wireless business so that production (quantity)increases along x axis at the same time cost will move further down along this curve reducing costs again taking advantage of economies of scale.
        In reality, most companies build a large company so as to have the cost at the minimum efficient scale at the bottom of the av total cost curve (ATC) but of course they must get too large like Toyota so as to experience a dsieconomy.
        Shut Down
        Annotations:
        https://www.youtube.com/watch?v=_-OWuxR0-V8 when should a firm shutdown?
3. all graphs video
  Annotations:
  - https://www.bing.com/videos/search?q=all%20graphs%20of%20economics&qs=n&form=QBVDMH&sp=-1&pq=all%20graphs%20of%20economics&sc=1-23&sk=&cvid=7100D8ACFC0C4CB0BAB399F51FAF3BB6
  1. all graphs for AP exam
    Annotations:
    - https://www.bing.com/videos/search?q=all+graphs+of+economics+made+easy&&view=detail&mid=67C2BC25EE5C5A39DE5567C2BC25EE5C5A39DE55&FORM=VRDGAR
    1. economics graphs for dummies
      Annotations:
      - https://www.bing.com/images/search?q=economic%20graphs%20for%20dummies&qs=RI&form=QBIR&sp=1&pq=graphs%20for%20economi&sc=7-18&cvid=0F1EE8900F95419FBE6D3466A48CA1A7
      1. ** essential graphs of econ
        Annotations:
        http://ungerecon.weebly.com/uploads/2/0/8/8/2088048/essentialgraphsformicroeconomics.pdf
        ACDA review of Economics 19 min
        Annotations:
        https://www.youtube.com/watch?v=JRlREpsr348
Long Run Consequences of Fiscal Policy
Annotations:
- Savers are the suppliers in the loanable funds market. Savers can can be domestic and foreign households,businesses, and govt - Borrowers are the demanders in the loanable funds market. Borrowers can be foreign and domestic households, businesses, and govts
1. Budget Deficits/Nation Debt
  1. CPI AND PPI
    Annotations:
    - CPI (consumer product index)- measures the price of a good that a consumer buys PPI (producer price index) - measures the price of a good/service a producer buys
    - Change in CPI/CPI yr 1 x 100%
    1. AS/AD Ficsical Policy
      Annotations:
      - Savers are suppliers, borrowers are demanders (anyone can be either or) - The market here is loanable funds market- Government is an example of a borrower because of taxes- Businesses, foreign and domestic house holds
      1. National Debt
        Annotations:
        National debt is deficits from the start - surplus

Next up

Economics 8 Mindmap

Description

Resource summary

Similar

	Created by Kul Mood over 6 years ago