Intro to Economics Lecture Video Note Set 5
Intro to Economics Lecture Video Note Set 5 1200
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This 3 page Class Notes was uploaded by Chris Fall on Friday February 19, 2016. The Class Notes belongs to 1200 at Rensselaer Polytechnic Institute taught by Sarah M. Parrales in Spring 2016. Since its upload, it has received 52 views. For similar materials see INTRODUCTORY ECONOMICS in Economcs at Rensselaer Polytechnic Institute.
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Date Created: 02/19/16
2/17/16 Intro to Economics Lecture Video Note Set 4 Section 7.1 1. Reviewing the Definitions of Efficiency 1.1.A firm/economy is operating on its PPF 1.2.All resources are being used to their fullest capabilities 1.3.No resources are wasted 1.4.New definition: The benefits that accrue to participants in a market receive are maxed 1.4.1. The market economy is considered to be the most efficient way to organize an economy 2. Microeconomic Foundations of Demand 2.1.Willingness to Pay: the max amount a buyer is willing to pay for a good/service 2.2.Marginal Benefit: the benefit a buyer receives by consuming one unit of a good or service 2.2.1. From a numerical standpoint, these two prior terms are equal 2.3.Consumer Surplus: the difference between a consumer’s marginal benefit of a good/service and the price actually paid 3. Strategy for Consumer Behavior 3.1.If MB > price, the consumer will buy 3.2.If MB < price, the consumer won’t buy 3.3.If MB = price, the consumer is indifferent 3.3.1. For the purposes of the class, we will assume that if they equal, the consumer will buy Section 7.2 1. MB and CS in an Entire Market 1.1. The MB of every consumer is reflected in the demand curve 1.2. Consumer surplus for an entire market is equal to the area under the demand curve that is also above the price given 1.3. If price were to fall, there would be 2 components of the increase in consumer surplus 1.3.1. The increase in surplus due to the larger difference between MB of the buyers and price 1.3.2. The increase in CS due to the surplus which belongs to the new consumers who now participate in the market because the price has fallen below their MB Section 7.3 1. Microeconomic Foundations of Supply 1.1. Willingness to Supply: the minimum price a firm is willing to sell a unit of its good/service 1.2. Marginal Cost: the additional cost a firm gains by producing one more unit of a good or service 1.2.1. The willingness to supply and marginal cost are equal numerically 1.3. Producer Surplus: the difference in the price a firm receives for one unit of its product and the marginal cost associated with said unit 2. Strategy for Producer Behavior 2.1. If price > MC, the producer will supply 2.2. If price < MC, the producer will not supply 2.3. If price = MC, the producer is indifferent 2.3.1. Similar to before, we will assume the producer will supply if price and marginal cost are equal Section 7.4 1. Marginal cost will increase as the number of units increases 2. Our example: the 300 car will have a MC of $10,000, the $301 car has an MC of $10,100, etc. 3. As long as the price the car is being sold is more than or(in this case) equal to the MC of a particular car, the firm will supply that car 4. Drawing this situation out on a graph looks like a supply curve 5. MC and PS in an Entire Market 5.1.The MC of every producer is reflected in the supply curve 5.2.Producer surplus is equal to the area above the supply curve that is also below price 5.3.If price were to rise, two factors affect PS: 5.3.1. The increase in PS due to the greater difference between price and the MC of prior producers 5.3.2. The increase in PS due to the new producers that have entered the market, because the price has risen above their MC Section 7.5 1. Efficiency exists when the benefits given to participants in the market have been maximized 2. Total Economic Surplus = Consumer Surplus + Producer Surplus 2.1.Using this, we can say that efficiency exists when total economic surplus is at its maximum level 3. Deadweight loss: the reduction of total economic surplus in the market due to the market not being at its equilibrium 4. The market equilibrium is considered efficient because it provides the maximum total economic surplus Section 7.6 1. Trading should take place in a market as long as marginal benefit is greater than marginal cost, and will continue until the two equal 2. A market is efficient when the MB of the last unit traded is equal to the MC of its production 3. If output is below equilibrium output, MB is greater than MC and output is inefficiently low 4. If output is above equilibrium output, MB is less than MC and output is inefficiently high 5. Economic efficiency is a market outcome in which: 5.1.The sum of producer and consumer surplus is maximized 5.2.The marginal benefit of the last unit produced is equal to its marginal cost of production