ECO 105 Goel Week 8 Notes: 10/5-10/9
ECO 105 Goel Week 8 Notes: 10/5-10/9 ECO 105
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This 4 page Class Notes was uploaded by Daniel Hemenway on Thursday October 15, 2015. The Class Notes belongs to ECO 105 at Illinois State University taught by Rajeev Goel in Fall 2015. Since its upload, it has received 23 views. For similar materials see Principles Economics in Economcs at Illinois State University.
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Date Created: 10/15/15
ECO 105 Goel 105109 Facts About Monopoly Monopolist need not produce where ATC are minimized In Monopoly P gt MC Since P gt MR for Price Searchers and MC MR Monopolists produce where demand is elastic Monopolists DO NOT charge the highest possible price There is no supply curve of a monopolist Unlike a PC Firm a monopolist can continue to earn profits in the LR Due to Entry Barriers 0 Price Discrimination The practice of charging different prices to different customers for the same product 0 Examples Airlines Hotels University Tuition Comparing Monopoly and Competition Economic Efficiency When society s resources cannot be reallocated to make Everyone better off Economic Equity When resources are allocated according to a widely accepted fair criteria In general there is the classic tradeoff between Equity and Efficiency You have one or the other Externalities They are present when the costs andor benefits of a transaction between two parties are borne by third parties ie Parties not directly involved in the original transaction 0 Ronald Coase Social Costs Benefits Private Costs Benefits External Costs Benefits Pros and Cons of Competition Pros 0 Economic Efficiency Customer receives the lowest price s MC S ATC p I DMR P 0 o o 0 I n n I I39 n f IIl ECO 105 Goel 105109 Pros and Cons of Competition cont Cons MIGHT lead to inequalities MIGHT NOT be efficient in the presence of externalities MIGHT NOT be Conducive Receptive to high rates of technical change SMC PMC P D MR 0 8000 10000 Pros and Cons of Monopoly Pros Might encourage technical change Cons Contrived Artificial Scarcity Monopolist deliberately reduces output to raise the price Pm gt Pc Qm lt Qc Monopoly leads to Deadweight Loss ie loss in consumer surplus and producer surplus it measures lost gains from trade S Pm Profit T Pc Deadweight Loss ECO 105 Goel 105 109 Chapter 22 Macroeconomics Macroeconomics Growth and Cycles Microeconomics focuses on quotsmallquot economic aspects ie decision making by individual consumers and firms Macroeconomics deals with aggregate economywide issues Three Main Macro Issues Output and Growth Unemployment Inflation Business Cycles and Economic Growth Economic Growth LR increase in the total goods and services produced bu the economy Long term effects on the economy Economic Growth can also be represented by an outward shift on the PPF Business Cycle SR upward and downward movements in the output of an economy Business cycle has short lived effects on the economy Four Phases of Business Cycle DownturnRecessionDepression More Severe Trough Expansion Recovery Peak Recession occurs when the real output I the economy declines for 6 months or more Depression is a severe downturn in the economic activity for a long period Unemployment Labor Force Number of people employed Number unemployed Unemployment Rate Number of persons unemployed number of people in the labor force Natural Rate of Unemployment That unemployment rate at which there is an approximate balance between the number of unfiled jobs and the number of qualified job seekers Natural rate of unemployment is also referred to as full employment ECO 105 Goel 105 109 Inflation Inflation General increase in prices Deflation General decrease in prices Hyperinflation Very rapid and accelerated rate of inflation Rate of Inflation The rate at which the price level measured by a price index is changing Measuring Inflation Price Index Shows the cost of buying the same market basket of goods in different years as a percentage of its cost in some base year CPI Consumer Price Index Measures the level of consumer prices paid by households over time Narrow measure GDP Gross Domestic Product Deflator Measures the level of Prices of all final goods and services consumer goods investment goods and Government produced by the economy Broad measure Effects of Inflation Inflation redistributes income affecting the standard of living Redistributes income away from people who have underestimated it Inflation creates inefficiencies Businesses focus more on anticipating inflation than on more productive efforts Inflation spurts speculation Inflation creates uncertainty so that Adam Smith s invisible hand works less efficiently Question Why may the GDP Deflator be a better measure of inflation than the CPI Answer The GDP Deflator has a wider variety of goods in its basket than the CPI