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Opportunity Cost

To put more resources else where

Relationship of Variables

Direct and Indirect/Inverse Relationship

Direct Relationship

Price-Up Quantity-Up

Indirect/Inverse Relationship

Price-Up Quantity-Down

Invisible Hand

Football NFL-we can care about what we want and the system will work.

Wealth of Nations

Adam Smith

Demand & Supply Changers

Price!

Relationship between Price & Quantity Supplied

Direct Relationship

Income Effect

2 for 1's
A change in the quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the product's price.

Changes of Demand

Taste and Prefences want--> don't want <--
# of Buys more--> less <--
Income
Buyers expectations of Price
Related Goods (Price) Substitute/Compliments

Demand Side Market Failures

When People are not willing to pay for all services....

Consumer Surplus

Story of Nicest Shirt ever, the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

Consumer Surplus & Producers Surplus

On a graph Consumer surplus is at the top & producer surplus is on the bottom.

Producers Surplus

The difference between the lowest price a producer will accept and the actual price. Also called economic rent.

Private & Public Goods

Public goods: goods that are nonrival in consumptin and/ or their benefits are nonexludable
Private: rival in consumption (if i eat a hamburger, you can't eat it too) and their benefits are excludable

Marginal Utilies

Apples and Oranges.

Utility Maximization Rule

Money income should be allocated such that MU per dollar spent on each unit of the goods be the same:
MUa/Pa= MUb/Pb=MUc/Pc

Utility Maximization Rule Formula

MUa/Pa=MUb/Pb=MUc/Pc...

Framing Effect

Focusing on one item

Endowment Effect

It is worth more because you owned it, selling a house that you raised your kids in.

Implicit Cost

Unrealized expenses.

Long Run Adjustment

Changes to plant Size, in the long run there is always an equilibrium,

Fix Costs

Don't Change Output

Variable Cost

Changes Output, wages, people and utilities

Decreasing Cost Industry

Technology

Pure Competition

a market structure with many competitors selling virtually identical products. Barriers to entry are quite low.

Characteristics of Pure Competition

Extremely Efficient, Using the invisible hand, maximum consumer & producer surplus.

Price Taking

Pure Competition

Productive Efficiency

Price=Marginal Cost=Total Cost

Pure Competition-Long Run

Profit Maximization Assumptions:
Entry & Exit Only
Identical Cost
Constant Cost Industry

Creative Destruction

Process when new products replace old ones

Pure Monopoly Characteristic

Single Seller, No close substitutes, Price Maker-only with a downward slope, blocked entry, non-price competition, barriers of entry, not always the highest price, low efficiencies

Barries to Entry

Economies of Scale, legal barriers (patents, and licenses), ownership of essential resources, pricing and strategic carries (Rockafella, illegal)

Natural Monopoly

A monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms

Queen Rule

Marginal Revenue=Marginal Costs

X-Ineffiency

Nepotism, paying family more, but they do less

Price Discrimination

Realize monopolistic power, market segmentation
-charging each what they are willing
-charging different prices of different units
-charging different price to different people
(textbooks, health care, airlines)
What makes most companies thrive!!

Monopost & Highest Price

False

Network Effect

iPhone, iPod, everything Apple.

Price Discrimination Legal?

False

Monopolist Competition

Competitive Market, Mono on Brand (iPad)

Monopolist Competition Characteristics

Relavitely large # of sellers, differentiated products, some control over price, easy entry & exit, advertising

Features of Oligopoly

Kinked-Demand Theory, Cartels & Collusion, Price Leadership
Four firm concentration Ratio80%-Oligopoly, 100%-Monopoly

Game Theory

The best results come when individuals do whats best for him & the group.
Can be used to predict that people always cheat to get ahead.

Kinked-Demand Theory

Impossiable to find price equilibrium
will start to hurt both companies

Economies of Scale

Simultaneous consumption-satelite radio, everyone can listen
Network effect

Herfindahl Index

Monoploy=10,000

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