INTRODUCTION TO MICROECONOMICS
INTRODUCTION TO MICROECONOMICS ECON 201
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This 3 page Study Guide was uploaded by Obie Kunze on Monday October 19, 2015. The Study Guide belongs to ECON 201 at Oregon State University taught by D. Stone in Fall. Since its upload, it has received 23 views. For similar materials see /class/224543/econ-201-oregon-state-university in Economcs at Oregon State University.
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Date Created: 10/19/15
Sean Gordon Microeconomics 201 May 18 2009 Study Guide Chapter 4 Elasticity Elasticity measures how much one variable responds to change in another variable symbol for elasticity is S Elasticity a numerical measure of the responsiveness of Qd or QS to one of its determinants Price elasticity of demand measures how much Qd responds to a change in P atter the curce the bigger the elasticity steeper the curve the smaller the elasticity Price Elasticity Notation s change in quantity demanded change in price Chapter 5 Demand The Frank Bernanke Law of Demand People do less of what they want to do as the cost of doing it rises Reservation prices comes from preference some goods shelter water are required for subsistence Needs vs wants Utility the term used by economists for the satisfaction people derive from consumption The more you consume the less utility Assumption Individual s goal is to maximize utility Marginal Utility The additional utility from consuming one more unit of the good Marginal Utility change in utility change in consumption The Rational Spending Rule spending should be allocated across goods so that the marginal utility per dollar is the same for each good Rational Spending Ruleutility maximization rule Marginal Utility a Price a Marginal Utility b Price b Substitution Effect when the price of a good goes up substitutes are usually more attractive Nominal Price The absolute price of a good in terms of dollars The price you see in a store Real Price The nominal price of a good relative to the average dollar price of all other goods Real prices are adjusted for in ation The market demand is the horizontal sum of individual demand curves Consumer s surplus is the difference between the buyer s reservation prive and the market price Consumer Ef ciency describes the quantity demanded at each price when the total utility is maximized Marginal Bene t the maximum price a consumer is willing to pay for an extra unit of a good or service when total utility is maximized Chapter 6 Perfectlv C quotquot Supplv CostBene t Principle Buyers buy one more unit Only if the MU is at least as great as the marginal cost Sellers sell one more unit Only if Marginal Revenue is at least as great as marginal cost Price Taker a consumer or rm that has no in uence over market price Perfectly Competitive Market a market in which all rms amp consumers are price takers 1 Many buyers and many sellers 2 The goods offered for sale are largely the same 3 Firms can freely enter or exit the market 4 Buyers and sellers well informed Imperfectly competitive firm has some in uence over the market price Principle of Increasing Opportunity Cost Supply curves slope up because Marginal Cost increases and higher prices bring new suppliers Pro t Total Revenue 7 Total Cost Total Revenue Price X Quantity Production is the transformation of inputs into outputs A factor of production is an input used in the production of a good or service Sh01t Run the period of time when at least one of the rm s factors of production is fixed Long Run the period of time in which all inputs are variable Law of Diminishing Returns In the presence of a fixed input additional units of the variable input eventually yield even smaller amounts of additional outputs The marginal Product of any input is the increase in output arising from an additional unit of that input holding all other inputs constant Marginal Product of Labor AQ AL MPL diminishes as L increases Production function gets atter as L increases Marginal Cost is the increase in Total Cost from producing one more unit of output MC ATC AQ Fixed Cost FC costs of fixed inputs do not vary with the quantity of output produced Variable Costs V C costs of variable inputs Total Costs TC FC VC Average Fixed Cost falls as quantity rises Always sloped down Average Variable Cost as Q rises AVC may fall initially but will eventually increase Average Total Cost ATC ATC AFC AVC and ATC TC Q usually U shaped ATC starts high bc of FC and low Q When MC lt ATC ATC is falling and when MC gt ATC ATC is rising The MC curve crosses the ATC curve at the ATC curve s minimum Chapter 7 Ef ciency Exchange and The Invisible Hand in Action Are Dynamic change over time The Invisible Hand individuals acting in their own interests make society better off guided Accounting Pro t The rst type of pro t is the main type normal people think about Accounting Pro t Total Revenue 7 Explicit Costs Explicit m are monetary payments rms make to purchase inputs Easy to compute and easy to compare across rms Economic Pro t excess pro t Total Revenue 7 All Costs Total Revenue 7 Explicit costs implicit costs Implicit Costs are the opportunity costs of the resources supplied by the rm s owners Normal Pro t the difference between accounting pro t and economic pro t Normal Pro t Accounting Pro t 7 Economic Pro t Implicit Costs Opportunity Costs Accounting pro t to next best option Rationing Function price distributes scarce goods to the consumers who value them most highly Allocative Function price directs resources away from overcrowded markets to markets that are underserved Invisible Hand Theory actions of independent selfinterested buyers and sellers will often result in the most ef cient allocation of resource Market Supply Assumptions All existing rms and potential entrants have identical costs Each rm s costs do not change as other rms enter or exit the market The number of rms in the market is xed in the short run variable in long run The SR Market Supply Curve As long as P gt AVC each rm will produce its pro tmaximizing quantity MR MC In the Long run the number of rms can change due to entry and exit The Zero Pro t Condition Long run equilibrium The process of entryexit is complete remaining rms earn zero economic pro t Zero economic pro t occurs when P ATC Firms produce where P MR MC the zero pro t condition is P MC ATC MC intersects ATC at minimum ATC P minimum ATC The Longrun market supply curve is horizontal if all rms have identical costs and costs do no change as other rms enter exit the market Barrier to entry any force that prevents rms from entering a new industry Economic Rent the portion of a payment to a factor of production that exceeds the owner s reservation price Economic Ef ciency exists when no change could be made to bene t one party without harming another party
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