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  • ECN 104 Concepts

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    - assume use all resources in economy to produce 2 goods - shows tradeoffs between producing one good over another - outside the PPC not possible given current economic resources -decrease in PPC curve - natural disasters - inefficient given economic resources MARKET EQUILIBRIUM 3 Steps to Analyzing Market Equilibrium: 1) decide whether event shifts supply or demand curve or both 2) decide which direction the curve shifts 3) use the new supply and demand curves to see how the shift changes

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    - assume use all resources in economy to produce 2 goods - shows tradeoffs between producing one good over another - outside the PPC not possible given current economic resources -decrease in PPC curve - natural disasters - inefficient given economic resources MARKET EQUILIBRIUM 3 Steps to Analyzing Market Equilibrium: 1) decide whether event shifts supply or demand curve or both 2) decide which direction the curve shifts 3) use the new supply and demand curves to see how the shift changes

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    Attribution Non-Commercial (BY-NC)
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    Отметить как неприемлемый контент
    85 просмотров3 страницы

    ECN 104 Concepts

    Загружено:

    jobro12345
    - assume use all resources in economy to produce 2 goods - shows tradeoffs between producing one good over another - outside the PPC not possible given current economic resources -decrease in PPC curve - natural disasters - inefficient given economic resources MARKET EQUILIBRIUM 3 Steps to Analyzing Market Equilibrium: 1) decide whether event shifts supply or demand curve or both 2) decide which direction the curve shifts 3) use the new supply and demand curves to see how the shift changes

    Авторское право:

    Attribution Non-Commercial (BY-NC)
    Скачайте в формате PDF, TXT или читайте онлайн в Scribd
    Отметить как неприемлемый контент
    из 3

    ECN104CONCEPTS

    assumeuseallresourcesineconomytoproduce2goods
    showstradeoffsbetweenproducingonegoodoveranother
    outsidethePPCnotpossiblegivencurrenteconomicresourcesunlessthere
    isashiftinPPCoutwardduetoproductivityimprovement
    decreaseinPPCcurvenaturaldisasters

    inefficientgiveneconomicresources
    Opportunitycost=whatevermustbegivenuptoobtainsomeitem
    OCofGood1=(unitslostofGood2)/(unitsgainedofgood1)

    DETERMINANTSOFDEMANDshiftinthedemandcurve
    PPreferencesandTastes
    IIncome
    PPurchasers
    EExpectationsoftheFuture
    RRelatedGoods

    DETERMINANTSOFSUPPLYshiftinthesupplycurve

    IInputprices
    NNumberofSuppliers
    EExpectationsoftheFuture
    RRelatedGoods
    TTechnology
    TTaxesandSubsidies

    NOTE:shiftinpricerepresentsonlyamovementalongthedemand/supplycurveanddoesnotshifttheentirecurve

    MARKETEQUILIBRIUM

    3StepstoAnalyzingMarket
    Equilibrium:

    1)decidewhethereventshifts
    supplyordemandcurveor
    both

    2)decidewhichdirectionthe
    curveshifts

    3)usethenewsupplyand
    demandcurvestoseehowthe
    shiftchangestheequilibrium
    priceandquantity

    PriceElasticityofDemand(Supply)=%changeinQd(Qs)

    %changeinprice

    =measureshowQd(Qs)ofagoodrespondstoachangeinpriceofthatgood
    PointElasticity=(P/Q)*(1/slope)

    Midpointmethod(Arcelasticity):(Q2Q1)/[(Q2+Q1)/2]

    (P2P1)/[(P2+P1)/2]

    Perfectinelasticdemand:elasticity=0
    Inelasticdemand:elasticity<than1
    Elasticdemand:elasticity>than1
    Perfectlyelasticdemand:elasticity=x(infinity)

    Shortrun:supplyanddemandmoreinelastic
    Longrun:supplyanddemandbecomeselastic(moretimetoadapttochanges)

    CrossPriceElasticityofDemand=%changeinQdofgood1

    ifansweris+substitutegoods

    %changeinPriceofgood2
    ifansweriscomplimentgoods
    COSTSOFPRODUCTION
    averagetotalcost(ATC)=Totalcost=(VC+FC)_

    Quantity

    =Ushaped:bottomofUshapeatqtythatminimizesATCisefficientscale
    averagevariablecost(AVC)=Variablecostaveragefixedcost(AFC)=Totalfixedcost(alwaysdeclinesasoutputrises

    QuantityQuantityb/cFCspreadovermoreunits)
    Marginalcost(MC)=changeintotalcost

    changeinQuantity
    =increaseintotalcostfromproducinganadditionalunit
    PERFECTCOMPETITION

    MONOPOLY

    Demandhorizontallineb/ccompetitivefirmcansellasmuch
    orlittleasitwantsatthisprice

    Tofindprofit(loss):findwherePrice(DorARorMR)intersects
    MCandmovedown(up)toATC
    Profit=0whereMCcurveintersectsATCcurve

    Pointthatmeetsmin.pointonAVCcurveisSHUTDOWNPRICE
    ShutdownoperationsifPriceisbelowtheshutdownprice(Ps)
    ShutdownifP<AVC
    ShutdownifTR<VC:revenuethatitwouldgetfrom
    producingatthiscostislessthanitsVCofproduction

    InaMonopolyonly1 producer=demandcurveslopes
    downwardb/caspricesgoupconsumersbuylessandreduces
    qtyproduced

    MonopolymaximizesprofitbychoosingQUANTITYwhere
    MR=MC.Thenmoveuptothedemandcurveatthatquantityto
    findthePrice
    Profit=areaofABCD
    Profit=(AverageTotalRevenueAverageTotalCost)xQuantity
    =(TR/QTC/Q)xQe
    =(PATC)xQe

    EXTERNALITIES
    NEGATIVEEXTERNALITIES(e.g.Pollution)

    MSC=MC+Marginalexternalcost

    POSITIVEEXTERNALITIES(e.g.Knowledge)

    MSB=MB+Marginalexternalbenefit

    Graphicallyrepresentedbyaverticalshiftof
    thesupplycurveequaltotheamountofthe
    externality

    SociallyoptimalequilibriumisachievedwhereMSC=MSB

    Graphicallyrepresentedbyaverticalshiftof
    thedemandcurveequaltotheamountofthe
    externality

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