Shift factors

• Technology
• Availability of resources

Other

• Straight line: Constant opportunity cost
• Bowed out: Increasing opportunity cost

PPC

• binding must be below equilibrium
• quantity demanded is greater than quantity supplied
• creates a shortage
• example rent control

Price cealing

• binding must be above equilibrium
• quantity supplied is greater than quantity demanded
• create a surplus
• example a minimum wage

Price floor

• queens over princesses

elasticity along a demand curve

• less elastic curve pays more tax
• perfectly in elastic puts tax all on producers
• perfectly elastic puts tax all on consumers

Supply and demand with Tax, CS, and PS

• will keep producing until price falls below avc
• area between avc and atc is the amount of fixed cost
• change in fixed cost moves atc only
• change in variable cost moves atc, avc, and mc

Cost curves

• economies of scale, constant returns to scale, diseconomies of scale
• monop comp in the long run is producing in economies of scale

LRATC

• price taker
• product is identical and has perfect substitutes
• when profit is made in the short run firms enter (no barriers to entry)
• zero economic profit in the long run
• both productively efficient and socially optimal in the long run

Perfect competition

• high barriers to entry
• unique product
• price maker
• produces in the elastic region of the graph
• not productively efficient or socially optimal

monopoly

• d and mr are the same
• there is no CS or DWL

price discriminating monopolist

• when demand intersects atc while demand is downward sloping
• government can regulate (at socially optimal quantity with a price cealing)
• firm would need a lump sum subsidy (atc would be greater than price)

natural monopoly

• atc touches but does not cross darp line

monopolistic competition in long run equilibrium

• differentiated product
• some control over price
• when profit is being made firms will enter (no barriers to entry)
• demand for the firms product increases when firms leave the market and decreases when firms enter
• zero economic profit in the long run
• LRATC tangent at Q1 in long run
• not productively efficient or socially optimal

monopolistic competition in short run profit

• firms are wage takers
• sometimes just a shift in mrp
• hire where mrp= mfc
• min wage results in less workers hired

perfectly competitive labor market

• wage maker
• mfc curve is above the supply curve
• mfc doesn’t equal wage
• firm will hire additional labor as long as mrp is greater than mfc
• hires fewer workers than a perfectly competitive labor market

monopsony

• good is overproduced in the market
• msc> mpc
• cost to society is higher than the individual firm
• needs a per unit tax on producer to be socially optimal

negative production

• good is underproduced in the market
• msb>mpb
• benifit to society is higher than the benefit for the individual firm
• needs a per unit subsidy on consumer to be socially optimal

positive consumption

4 dots

• profit maximizing mc=mr
• socially optimal mc=d
• fair return atc=d
• revenue maximizing point where mr crosses q axis

elasticity

queens/ princesses

price elasticity of demand ed>1

%change in quantity demanded/%change in price

cross price elasticity of demand

% change in demand/ % change in p of related good

substitutes

e cross price > 0 positive number

complements

e cross price < 0 negative number

income elasticity of demand

% change in demand/ % change in income

normal goods

e income > 0 ppl will spend more on these when their income rises

inferior goods

e income < 0 ppl will spend less on these when income rises

Total revenue

p x q

price elasticity of supply es>1

%change in quantity supplied/ %change in price

utility maximizing rule

MUx/Px = MUy/Py

Fixed costs

constant, exists at zero output

Variable costs

change as output changes

Total costs

Fixed costs+ variable costs

Marginal cost

Change in TC (change in TC/ change in Q)

MPP

change in total product/ change in quantity of labor

MRP

Output x MPP

hire where mrp is greater than or equal to mfc