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Part 1 Lesson 1 key concepts to know •3 axiom of economic way of thinking◦•positive vs normative analysis•economic welfare•scarcity•opportunity cost•Absolute vs comparative advantage•property rights•Demand and SupplyModels to know •Comparative advantage and gains from trade◦will be on finalLesson 2 - market supply Key concepts to know •costs•inputs to production•diminishing return•accounting vs economic profit•economies of scale•short vs long run•equilibrium•assumptions of perfect competition•market and gov failuresLesson 3 - market equilibrium Concepts •Consumer surplus/ producer surplus•income elasticity•compliments or substitutesocompliment – goes with a goodosubstitutes – can be used to replace another goodhot dogs and burger•shifts in demand and supplyosupplytechnologyprice of inputs
consumption changeodemandprice of substitutesconsumer preferenceincomeLesson 4 - intervention in markets Concepts •reasons to intervene as government•implications of intervention in perfect competition•DWL and efficiency cost•incidence of taxation•subsidy, floor, ceilingPart 2 Lesson 5 - market power Concepts Pareto efficiencyefficiency loss due to interventionoEvery intervention results in an efficiency lossoCreates DWLoMeant to improve social welfaremonopoly, monopsony, duopoly, oligopolyowhen a consumer(s) or producer(s) is the price setteromake choices hoping to improve their welfareomonopolyfirm sets pricemarginal revenue intercept – 2x slopeomonopsonyconsumers set priceone price making buyeroduopolytwo sellers can affect pricehigher than competitive equilibriumooligopolymore sellers move monopoly equilibrium closer to competitive equilibriumprice discriminationHerfindahl - Hirschman index
oOne firm in market – 10000oModerately concentrated – 1000-1800oOver 1800 is a high concentrationOPEC and cartelsoType of oligopolyoCountries with high exports of crude oil founded OPECIran, Kuwait, Saudi Arabia, and Venezuela