EssentialGraphsforMicroeconomics

EssentialGraphsforMicroeconomics - Essential Graphs for...

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Essential Graphs for Microeconomics Basic Economic Concepts a Production Possibilities Curve Nature & Functions of Product Markets a Demand and Supply: Market clearing equilibrium Floors and Ceilings Variations: Shifts in demand and supply caused by  changes in determinants Changes in slope caused by changes in  elasticity Effect of Quotas and Tariffs Concepts: Points on the curve-efficient Points inside the curve-inefficient Points outside the curve-unattainable with  available resources Gains in technology or resources favoring one  good both not other. D S P Q P e Q e P e Q e D S P Q Q D Q S Floor • Creates surplus • Q d <Q s P e Q e D S P Q Q S Q D Ceiling • Creates shortage • Q d >Q s F A C B Good Y D E W Good X
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Consumer and Producer Surplus Effect of Taxes Theory of the Firm a Short Run Cost Price  buyers  pay P S D 2 D 1 Q Price  sellers  receive Price  w/o  tax Consumer  surplus D S P Q P e Q e Producer  surplus A tax  imposed on the  BUYER -demand curve  moves left o elasticity determines whether buyer or seller  bears incidence of tax shaded area is amount of tax connect the dots to find the triangle of  A tax  imposed on the  SELLER -supply curve  moves left o elasticity determines whether buyer or seller  bears incidence of tax shaded area is amount of tax o connect the dots to find the triangle of  deadweight or efficiency loss. S 2 S 1 D 1 Price  buyers  pay P Q Price  sellers  receive Price  w/o  tax AFC  declines as output increases AVC and ATC  declines initially, then reaches a  minimum then increases (U-shaped) MC  declines sharply, reaches a minimum, the  rises sharply MC intersects with AVC and ATC at  minimum points When MC> ATC, ATC is falling When MC< ATC, ATC is rising There is no relationship between MC and  AFC P/C Q MC ATC AVC AFC
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Long Run Cost Perfectly Competitive Product Market Structure Long run equilibrium for the market and firm-price takers Allocative and productive efficiency at P=MR=MC=min ATC Imperfectly Competitive Product Market Structure: Pure Monopoly MC P MR=D=AR=P P e y S P P e Variations: Short run profits, losses and shutdown cases caused by shifts in market demand and supply. ATC Q Economies  of Scale Diseconomies  of Scale Constant  Returns  to Scale Q D MR ATC MC P Q Q FR Q SO Q P D MR ATC MC P m Q m P FR P SO Single price monopolist (price maker) Earning economic profit Natural Regulated Monopoly Selling at Fair return ( Q fr  at P fr )
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Imperfectly Competitive Product Market Structure: Monopolistically Competitive Long run equilibrium where P=AC at MR=MC output Factor Market a Perfectly Competitive Resource Market Structure Perfectly Competitive Labor Market – Wage takers  Firm wage comes from market so changes in labor demand do not raise wages.
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