Economics

Topics: Supply and demand, Costs, Cost Pages: 6 (1151 words) Published: November 11, 2013
Chapter 1 The Big Ideas in Economics
Think of why some goods should be allocated by money while some not. Why demand curve is downward sloping?
Two effects: 1.Substitution effect (dominent) 2.Income effect (small) The demand&supply curve can be read horizontally or vertically. You should be familiar with both ways of reading.

Chapter 3 Supply&Demand

Concepts:
1.A normal good: a good for which demand increases when income increases. An inferior good: a good for which demand decreases when income increases.

Five main reasons why the demand curve shifts:
1.An individual’s income changes
2.A change in tastes
3.The number of consumer changes
4.Change in expectations
5.Changes in the price of complements and subsititutes

Five main reasons why the supply curve shifts:
1.Changes in the price of the complements and subsititutes
2.Changes in expectation
3.The number of producers changes
4.Changes in technology
5.Changes in input prices

Chapter 5 Elasticity and Its Applications
The fundamental determinant of the elasticity of demand is how easy it is to substitute one good for another.

Less elastic
More elastic
Fewer substitutes
More substitutes
short run (less time)
long run (more time)
categories of product
specific brands
Necessities
Luxuries
small part of budget
large part of budget
The fundamental determinant of the elasticity of supply is how quickly per unit cost increase with an increase in production.

Less elastic
More elastic
Difficult to increase production at constant unit of cost (e.g: some raw materials) Easy to incease production at constant unit cost (e.g: some manufactured goods) Large share of market for inputs

Small share of market for inputs
Global supply
Local supply
Short run
Long run

The central planning approach failed because of problems of information and incenives.

The market price tells us the value of the good in its next highest-valued use.

Calculating formula: Elasticity of demand/supply=E(d)/E(s)= %△Q(demanded)/(supplied)/%△Price

Absolute Value of Elasticity
Name
How revenue changes with price
|E(d)|1
Elatic
Revenue&price move oppositely

Chapter 10
A private cost: a cost paid by the consumer or the producer. An external cost: a cost paid by people other than the consumer or the producer trading in the market. An external benefit: a benefit received by people other than the consumers or producers trading in the market.

The social cost is the cost to everyone: the private cost+the external cost

Externalities are external costs(negative externalities)or external benefits (positive externalities) that fall on bystanders.

Social surplus is consumer surplus + producer surplus + everyone else’s surplus The efficient quantity is the quantity that maximizes social surplus

A Pigouvian tax is a tax on a good with external costs
A Pigouvian subsidy is a subsidy on a good with external benefits.

Transaction costs are all the costs necessary to reach an agreement. The Coase theorem posits that if transaction costs are low and property rights are clearly defined, private bargains will ensure that the market equilibrium is efficient even when there are externalities.

Chapter 11
Whether the firm is a price taker or a price searcher(whether the market is competitive or not The long run is the time after all exit or entry has occurred. The short run is the period before exit or entry can occur.

An industry is competitive when firms don’t have much...
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