Econ 100A, Economic Analysis  Micro, Fall 2010
Tuesday, December 7, 2010
Tadeja Gra
č
ner
Roadmap  100A
Market equilibrium (Ch.14) & Longrun vs. shortrun equilibrium (Ch.13)

Supply curve is represented by MC curve above the ACmin (SR&LR)

Know firms' (cost) curves and relate them to industry curves (S, D).

Ushaped AC curve
b
IRS+DRS or/and in the case of output independent FC

Distinguish 3 cases of cost min: 1) output independent FC (license fee), 2) FC coming from
fixed input on SR, becoming VC on LR (capital), 3) output independent FC + FC coming from
fixed input on SR, becoming VC on LR

Shutting down (SR) vs. Exiting the industry (LR)

Equilibrium price (definition, graph)

Long run supply curve
o
identical vs. nonidentical producers > graphs 14.5. and 14.6.
o
upward sloping LR supply curve & identical producers & profit=0
b
relate to
externalities

Changing conditions and equilibrium
b
Table 4.1. (shifts in MC, AC)
o
change in output independent FC (LR AC, converging to SR AC)
o
change in the price of an input, fixed
on
the SR, but variable on
LR (r
increase/decrease) (LR AC, LR MC shift parallel)
o
change in VC (w increase/decrease) (SR & LR AC, MC shifts)
o
Change in demand
First welfare theorem (Ch.15)

Consumer surplus, producer surplus (market, firm)

Social planner sets SMB=SMC

Pareto efficiency, First welfare theorem – under certain conditions, markets are efficient
Government distortion (Ch.18&19)

price elasticity (equation and interpretation),

price floor (gives rise to surplus),

price ceiling (gives rise to shortage, as in rent control)

welfare analysis from graphs
o
without government intervention
o
with government intervention
s
purchase surplus/subsidize shortage