the supplier pays just a little bit of the tax, and most of the tax is passed to the consumer. If supply curve is very inelastic, most of the tax is paid by the supplier, and the consumer pays only a small portion of the tax. If demand is completely elastic, the supplier pay all of tax. If demand is completely inelastic, the consumer pays all of the tax. The US will export goods if the domestic price is greater than the world price. Exporting goods increases domestic PS, reduces domestic CS, and increases TS. The US will import goods if the domestic price is greater than the world price. Importing goods decreases domestic PS, increases domestic CS, and increases TS. Marginal utility (change in total utility / change in quantity) decreases as consumption increases. Consumer equilibrium-where total utility is maximized-occurs where MU/Pis equal for all of the goods you buy, and when you spend your entire budget. To determine the utility associated with an expected value under risk, draw a chord between the two possibilities, and go up to this chord at the expected value. The expected value is equal to the sum of the probabilities times the payoffs. EV = P1(Payoff1)+P2(Payoff2). Lower price of good measured on x-axis, flatter budget line. Higher price of good on x-axis, steeper budget line. Consumer equilibrium is located where the indifference curve is tangent to the budget line. In the short run, the only way firms can increase production is by increasing labor. In the long run, they can achieve this by changing L or K. TC=FC+VC. AFC=FC/Q. AVC=VC/Q. ATC=TC/Q. ATC=AFC+AVC. MC=change in total cost/change in quantity. MPL=change in quantity/change in labor. MR=TR2-TR1. When Q=0, VC=0 and TC=FC. Profit max: MC=MR. Eco profit where P>ATC. EP=P-ATC. TEP=(P-ATC)Q. Eco loss where P<ATC. Normal profit where P=ATC. TP=TR-TC=[p x q] – [ATC x q]. Firm will shut down when P<AVC. C.S.=max-price. P.S.=price-min. T.S.=C.S.+P.S.Perfectly competitive market: (1) lots of firms and buyers (2) no barriers to entry (3) identical product. MC=D. Market determines price, which is equal to MR curve and coincides with firm’s demand curve. (Single price) Monopoly: (1) one firm (2) unique product (3) huge barriers to entry or exit. For a monopoly, the D and MR curves are not the same. Firm produces where MC=MR, but charges at the price on the demand curve corresponding to the vertical line representing quantity. Create DWL, don’t price discriminate. P>MR. Price discrimination: (1) charging different customers different prices for the same product (2) charging a customer different prices for different units of a good. To occur, there must be (1) different classes of customers, (2) different willingness to pay, (3) way to prevent resale.
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