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 <--
Buyers expectations of Price
Related Goods (Price) Substitute/Compliments
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.
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
Utility Maximization Rule
Money income should be allocated such that MU per dollar spent on each unit of the goods be the same:
It is worth more because you owned it, selling a house that you raised your kids in.
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.
Pure Competition-Long Run
Profit Maximization Assumptions:
Entry & Exit Only
Constant Cost Industry
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)
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
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!!
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
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.