The role of prices in a market economy
Any society has to decide
1. Who owns the resources, and
2. How to allocate them, i.e. what, how, and for whom to produce.
In which quandrant does the US belong? North Korea? Vietnam? Jap
The output and pricing decision under
Characteristics of Pure Monopoly
1. ONE COMPANY controls the market for the product or service
2. The product or service has NO CLOSE SUBSTITUTES, i.e. it is
What is the implication of #1 and #2
Other sources of market failure
Externalities (Modules 36 - 37)
Public Goods and Common Resources (Module 38)
Imperfect Information (Module 45)
Income Inequality (Module 39)
Draw a graph showing the market failure from
Can we stop trade?
Do we want to stop trade?
Does voluntary trade make both buyers
and sellers better off?
What would you be wearing if there was no trade?
Should Tiger Woods mow his own
Additional Supply and Demand exercises.
In using the supply and demand model, label both axes and all curves. Then ask
1. Does the event result in a shift of a curve? (Yes if the event is something other
than a change in the price of the good in
1) Firms in a competitive market maximize profits by operating at the
level of output, which minimizes their average cost of production in the
short run. Agree or disagree with this statement and explain your
When thinking of a competitive market
1) Assume the following table shows the yields per acre of wine grapes and olive oil
in two different countries. Country A and country Z. (Also assume that in each
country the labor and other processing costs per acre are the same regardless of
Draw a supply-demand diagram of the market for rental apartments in Lowell in the
neighborhoods surrounding the university. Illustrate the effect on monthly rents of a sharp
decrease in state support of public higher education, combined with large increas
Suppose that the wages of young high school graduates fell. In what sense has the true
'cost' of a college education been changed by this development.
By setting a monetary value on education, one does not consider just the price of attending a
1. Externality describes the economic active consequences by a third party unrelated to the actions
performed, whether the result be positive or negative. If externalities are being considered,
unrelated market systems will find that they are not using th
What are the two distinguishing properties of a public good? Explain
each in one or two sentences. Give an example of a public good
different from any of the examples in your text or my notes.
The two distinctions for pure public goods are non-rivalry
1) Read the WSJ article on the attempted monopolization of the plastic clothes hanger market in
this week's notes. Why does monopolization have the potential to increase prices and profitability
significantly in the short run? Do you think this market wil
Introduction to Microeconomics
Lord Anzie Q
If they dont continue with the process of production, they would lose the initial investment
which is $5 million. If they go ahead and jumpstart production it will charge them an extr
College Writing 2
Surviving Economic Crisis and the Future
How has the relationship between a failing economy and unemployment directly affected
the American population?
Read intro again
A) The supply would decrease because crude oil is an input price of gasoline. The demand
would increase because the consumers expected gas prices to increase in the future. This
would automatically increase the price of gasoline. The quantity demanded
4 (3+3+3+3 = 12pt) What is the truth value of the following?
As always, you must give a precise justification of your answer. For instance, if I asked Is
there an x with x2 > 1? then you can answer Yes, when x = 2 then x2 > 1 but you will
get no credit fo
Results of a Monopoly vs. Firms Operating Under Perfect Competition
Under both Perfect Competition and Monopoly market structures, a firm can, but is not
guaranteed to make an economic profit in the short run.
Unlike Perfect Competition where a firm canno
Natural Monopoly, Large MES & Other Barriers to Entry
1 of 3
Monopoly & Barriers to Entry
In this section of notes we are going to make a distinction that your textbook does not discuss
Marginal Revenue and Demand Schedule facing the Monopolist
1 of 2
Marginal Revenue and Monopoly Pricing
Monopoly Pricing/Output Decision
This week we examine markets where a single produ
Example Of Profits from Monopolizing a Market
1 of 2
Example of Monopoly Power used to increase prices and profits!
By MARK MAREMONT
Staff Reporter of THE WALL STREET JOURNAL
When Tyco I
Review Questions: Week 6
1 of 1
Review questions for Week 6
1) Read the WSJ article on the attempted monopolization of the plastic clothes hanger market in this week's notes. Why
Market structure and economic efficiency
1 of 3
Do unregulated markets achieve an efficient pattern of resource use?
Efficiency Properties of Different Market Structures:
The Justice Department Settlement with Microsoft
1 of 4
As you read the following article on the resolution of the Governments attempt to curb the monopoly power of
Intro to Concept of Economic Efficiency
1 of 2
The Concept of Economic Efficiency
For the last few weeks of this course we have been examining the pricing and output dynamic
Review questions: week 8
1 of 1
Review questions on Economic Efficiency
1) What condition of competitive equilibrium in markets implies that resources are being devoted to their highest
1 of 2
Calculating Demand Elasticities
Last week we discussed supply/demand analysis and how changes in market prices result from changes in
supply or demand conditions. At
Answers to week 13 guestions
1) Both an increase in costs of education and support for higher education falling lead to
less income for students shifting the demand curve down to the left.
23) New safety standards raise the cost for Eanufactgrgrs:
Answers to chapter 2A
1) It is better to impose a tariff on olive oil because the demand is
elastic. With a higher price the demand for foreign olive oil will
decrease. However, beer has inelastic demand so an increase in
price might bring in more revenue