Final Micro Exam
graphically solve for CS
!/2(b*h)
how to calculate cross price elasticity
( Q 2 + Q 1 ) / 2 and the ( P 2 + P 1 ) / 2
Opportunity cost
Value of the next best option, what ups give up
Types of price elasticity of demand
pirce,cross,income
comparative advantage
the ability to produce a good or service at a lower OC than other companies
Absolute
the ability to produce more output than other companies
Consumer surplus
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
negative Externality
the harm, cost, or inconvenience suffered by a third party because of actions by others, over production
Producer surplus
The difference between the price producers receive for a good or service and the minimum price they are willing and able to accept
Market power summary
<—--PC—---MC—----O—---M—-->
Prisoner's dilemma
A game where there is a best option, but often times it's the ignored because of a lack of trust
Average costs
Average fixed cost = fixed / Q Average variable cost= variable cost / Q Averagetotal cost= total cost / Q , FC/Q + VC/Q
Own price elasticity
Elastic lEl >1 Inelastic lEl <1 Unit lEl = 1
Elasticity
Elasticity- a measure of how responsive one variable is to change in another variable; calculated as the percentage change in quantity divided by the percentage change in price
How to calculate elasticities
Ex. coffee price went up from 1.00 to 3.00 and demand went down from 1,000 to 400 units At the same time demand for muffins has decreased from `100 to 20. Calculate cross price elasticity % change in Q / % change in P
Oligopoly Characteristics
Few large producers and many buyers Price makers (mutual independence ) Standard or homogenous products Barriers to entry and exit 0 econ profit
Profit maximization steps
Find where MR = MC , and go down to find Q* From Q go up to demand line to find P* Go back to Q* and find ATC and determine if profit will break even or loss.
Inferior goods
Goods for which demand tends to fall when income rises.
MArginal benefit
Happiness/profit from getting 1 more thing
Income elasticity of demand
Measure of how responsive demand is to a change in consumer income
Rules of indifference curves
Must be downward sloping IC further away from origin are better Can never touch one another All combos on a single line have the same amount of utility
Club (netflix)
Nonrivial and excluded
Public goods (street light,fireworks)
Nonrivial and nonexcludable
Cross price elasticity
Percent change in Q for good 1/ percent change in P for good 2
price discrimination
Perfect discrimination is best, 0 consumer surplus, expensive and hard to get, consumers don't know different price points Second degree (block or bulk pricing), more you buy lower the price Third degree (most common, (military discount)), provides discounts to groups of people; have to be able to tell groups apart; no resale market
Substitute effect
Price goes up, so you buy a good that substitutes that good for a cheaper price
Private goods (most goods)
Rival and excludable
Common goods (water fountain, fish in a pond)
Rival and nonexcludable
Monopoly Characteristics
Seller and many buyers Price makers Differentiated product Barriers to entry and exit Positive economic profit
Monopoly regulation
Sherman antitrust act
Indifference curve
Shows different combinations of goods that shows the same amount of utility
Cross price
Subs 3>0 positive Comp 3<0 negative
positive externality
beneficial side effect that affects an uninvolved third party,under producing
Inelastic
describes demand that is not very sensitive to price changes
negative income elasticity
inforier
nash equilibrium
no effect
postive income elasticity
normal
MC Increases
we consume more (Law of increasing opportunity costs)
MB decreases
we consume more (law of diminishing returns)
Dominant strategy
yields highest Payoff
