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Econ 201, Week 7

by: Cheyenne Thorpe

Econ 201, Week 7 Econ 201

Cheyenne Thorpe
GPA 4.0

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Week 7 notes in class and discussion
Introduction to Microeconomics
Class Notes
Econ, Econ 201, Microeconomics, Waddell
25 ?




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This 6 page Class Notes was uploaded by Cheyenne Thorpe on Friday February 19, 2016. The Class Notes belongs to Econ 201 at University of Oregon taught by Waddell in Winter 2016. Since its upload, it has received 21 views. For similar materials see Introduction to Microeconomics in Economcs at University of Oregon.

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Date Created: 02/19/16
Midterm, Feb 22,  Extra Credit due before midterm Econ 201­ Microeconomics­ Glen Waddell Class 12 Production technology  Inputs, or factors of production: Anything that in any way contributes to production  Production function: The relationship between inputs and outputs  Total Product: the amount of output obtained in total from a given quantity of input   Marginal Product: The change in the total product that results from a 1 unit increase in an input, holding the amounts of all other inputs constant  The “Law” of Diminishing Marginal Product: As more of one factor of production is used with a fixed quantity of other factors, the marginal product of expanding factors ultimately decreases  Average Product: The total product divided by quantity   Inputs              TP         MP       AP 1 3 3 3 2 8 5 4 Increasing  Decreasing  Marginal activitMarginal activity 3 15 7 ?  How many units of an input (eg labor) will a firm hire? o It depends on what the firm wants to do o The firms objective is to maximize profits, the difference between revenue and  total cost  Profit= TR­TC o How many units of an input will a profit­maximizing firm hire? o They should compare the marginal contribution of the input to the marginal  cost of hiring the input   Marginal Revenue Product: the increasing total revenue that results from a 1 unit  increase in an input, holding the amounts of all other inputs Don’t constant Hire o If we know the MP of an input and the price of the output Hire P, then we can calculate the MRP by,   MRP=MPxP Don’t Hire (it’s a demand  Inputs              TP         MP        MRP     wL        Hire?   curve)     TC   Profit 1 3 3 30 $40 Yes 30 40 ­10 2 8 5 50 $40 Yes 80 80 0 3 15 7 70 $40 Yes 150 120 30 4 21 6 60 $40 Yes 210 160 50 5 26 5 50 $40 Yes 260 200 60 6 30 4 40 $40 Yes 300 240 60 7 22 3 30 $40 No 330 280 50 8 35 2 20 $40 No 350 320 30 9 36 1 10 $40 No 360 260 0  With well­defined property rights, Resources are allocated such that: o The firm hires 6 units of input (at a cost of 6 x $40=240) o The value of goods produced is $300 o Economic rents of $60 are earned by the firm  Well­defined property rights: exist when a decision maker captures al of the marginal benefits produced by an action and suffers all of the marginal costs of an action  Common land ownership: Rules­ o  Members of the commune share equally in the value of everything produced o Members are free to join or quit the commune at any time  Socialist cooperative: Rules­ o Members of the commune share equally in the value of everything produced o Members decide how many people will join  Property rights matter Econ 201­ Microeconomics­ Glen Waddell Class 13 Transaction costs  Origin of gains from trade… people are better off through having the opportunity to voluntarily exchange goods  With private ownership of a resource, the owner can direct the use of that resource  If property rights aren’t well-defined, transaction costs are positive and resource allocation is different insofar as they are spent attempting to better-define these rights o When the right to a seat at Autzen stadium are not well- defined, resources are reallocated toward keeping the peace o Where workers are prone to shirk, resources are reallocated toward monitoring workers  Difficulty in completely contracting with another person or worker is best thought of as a transaction cost that keeps property rights from being well defined  Example: Confectioner and a Doctor- o the confectioner’s noise keeps the doctor from doing business at an estimated cost of $400,000 o To build a soundproof wall would cost $300,000 o For the confectioner to move it would cost $900,000  In this case the courts had little difficulty in granting the doctor the injunction he sought.  The Coase Theorem: in the absence of transition coasts, resource allocation is independent of the assignment of liability (or distribution of property rights) o If rules (property rights) are well known and enforceable to all, changes in those rights will change the wealth of the participants but not the outcomes  Baseball’s reserve clause, free agency, fault/ no fault divorce  If you ask your kid to make her bed everyday for a week you pay her $1.75..or you could pay her 25 cents a day. If its 25 cents a day it only costs her 25 to not make her bed, but if you pay her by week and she doesn’t make her bed it costs her 1.75 Preliminaries  What is economics  What is our role The economic problem  The organization of an economy  Prices and markets  Theory  Policy analysis  Scarcity and competition  Cost- value of the next best alternative  Demand and supply Consumer Theory  Individual preferences and behavioral postulates  Valuation- total versus marginal  The optimal purchase rule and demand theory  The diamond water paradox  Sale prices  Inflation  Individual responsiveness  Demand determinants  Shipping the good apples out Exchange and Supply  Voluntary exchange- you can't be forced into it  The supply side of the market  Organized markets Demand and Supply  Demand determinants and changes in demand  Supply determinants and changes in supply  Interactions between markets  Price controls  Black markets Cost and production  Productive advantages  Societys production choice  Marginal cost and supply  Market efficiency Production, Profit and Property Rights  Production technology  Factor demand Econ 201­ Microeconomics­ Glen Waddell Discussion Week 6 Econ Story: “Giften good”­ when the price goes up people buy more of it (doesn’t follow law of demand) ex­ price of rice goes up they buy more in China  Comparative/Absolute Advantage  PPF  Marginal, total, Average cost  Algebra GTF Tucker has some practice problems on Canvas for the midterm                   0            1            2            3            4           5 TV 0 30 50 60 70 75 MV 30 20 10 10 5 law of diminishing marginal value AV 30 25 20 70/4 15 (average =total/#of things) Total Marginal Derivative of Outputs: Outputs: total outputs input input s s The two correspond Tax of $2 Q=5+Pp Supply curve Q=15-3Pc Q=15- QS(P)=5+P P 3(Pp+2) 5 Pp+2=Pc QD(P)=15-3P P=5 2.5 Demand curve 5+Pp=15-3(Pp+2) 5+Pp=15-3Pp-6 7.5 15 4Pp=4 Q Pp=1 Qs=6 15-3(3) 15-9 5+P=QS=Qd+15-P 5+p=15-3P Pp+2=Pc 5+4P=5 1+2=Pc 4p=10 =3 p=2.5 PPF: Computer Produce on the line to be 10 A efficient (Impossible to Below is inefficient get to) Red=new 20 Phones


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