ECON 224 Unit 3 Exam
total profit=
(price-ATC)(quantity)
market power
ability to alter price of a product
how are public goods characterized?
by their non-excludability
MPP=
change in output/change in quantity
marginal revenue product
change in total revenue associated with one additional unit of input sets an upper limit to wage rate an employer will pay
marginal revenue
change in total revenue that results from a one-unit increase in the quantity sold always less than price for monopolies curve lies below demand curve at every point but the first
MRP=
change in total revenue/change in quantity of labor OR MPP (price)
As long as barriers to entry exist, monopolies can....
control the quantity of goods supplied
private cost
cost of an economic activity directly borne by the immediate producer or consumer
externalities
cost/benefits that come from a 3rd party difference between social/private costs/benefits of a market activity
derived demand
demand for labor and other factors of production result from the demand for final goods and services produced by these factors
what is the problem with public goods?
facilitates the free rider dilemma
emissions charge
fee imposed on polluters
monopoly
firm that produces the entire market supply of a particular good/service demand curve=market demand curve eliminate distinction between industry demand and demand curve in control of production and distribution of a product or service by one firm dominates one industry
social cost
full resource cost of an economic activity
public goods
good/service whose consumption by one person does not exclude consumption by others cannot be denied to consumers who do not pay can be consumed by more than one person at a time normally provided by the government
private good
good/service whose consumption by one person excludes consumption by others
inequity
government alters the distribution of income with taxes and transfers
patent
government grant of exclusive ownership of an innovation
government failure
government intervention that fails to improve economic outcomes no guarantee that the visible hand of government will be any better than the invisible hand of the marketplace
antitrust
government intervention to alter market structure or prevent abuse of market power
marginal physical product
how we measure a worker's value to the company how we measure their productivity change of total output associated with one additional unit of input MOST OF THE TIME, MPP declines
market failure
imperfection in the market mechanism that prevents optimal outcomes implies that the forces of supply and demand have not led us to the best point of the PPC
contestable market
imperfectly competitive industry subject to potential entry if prices/profits increase
free rider
individual who reaps the benefits of someone else's purchase of a public good
natural monopoly
industry in which one firm can achieve economies of scale over the entire range of market supply
What is the opportunity cost of working?
leisure
social demand=
market demand +/- externalities
what establishes a basis for government intervention?
market failure
What happens when externalities are present in the market?
market will fail to produce the right amount of output
optimal mix of output
most desirable combination of output attainable with existing resources, technology and social values
an example of a public good would be...
national defense
hiring decision
number of workers hired is determined by the demand and supply for labor
barriers to entry
obstacles that make it difficult or impossible for would-be producers to enter a particular market
income transfers
payments to individuals for which no current goods or services are exchanged
underproduction
people are reluctant to buy what they can get for free if public goods were marketed like private goods' everyone would wait for someone else to pay for them
total revenue=
price (quantity)
profit maximization rule
produce at the rate of output where MR=MC
what are the four sources of market failure?
public goods externalities market power inequity
demand for labor
quantities of labor are willing and able to hire at alternative wage rates in a given time period
wage rate
quantity of labor demanded depends on its price
What does having a minimum wage do?
reduce the quantity of labor demanded increase the quantity of labor supplied creates a market surplus some workers end up better off than others
economies of scale
reductions in minimum average costs that come about through increasing the size of plants/equipment
how do monopolies attain higher prices and profits?
restrict output
production decision
selection of short-run rate of output
external costs=
social costs - private costs
examples of income transfers
social security welfare unemployment benefits
marginal cost pricing
supply of goods at prices equal to their marginal cost
The government alters the distribution of income through ____________ and _______________.
taxes; transfers
what happens when monopolies restrict output?
they attain higher prices and profits
market demand
total quantities of a good/service people are willing and able to buy at alternative prices in a given period of time sum of individual demands downward sloping
market supply of labor
total quantity of labor that workers are willing and able to supply at alternative wage rates in a given time refers to all the hours people are willing to work at various wages upward sloping
What is the law of diminishing returns responsible for?
trade-off between wage and employment levels MPP increases, wages CAN increase without sacrificing jobs
The market tends to ______________ pubic goods and ____________________ private goods.
underproduce; overproduce
market mechanism
use of market prices and sales to signal desired outputs moves resource from one industry to another in response to consumer demands
labor supply
willingness and ability to work specific amounts of time at alternative wage rates in a give time period
What happens to income as marginal utility of income decreases?
you earn more