Regressive tax- a tax under which the proportion of income paid in tax declines as income rises. E.g. Rego
Proportional tax- a tax under which the proportion of income paid in taxes remains the same as income rises (eg.
Progressive tax- a tax under w
Types of Goods
Goods are described pure if they are totally two categories, eg a pure public good is
totally non-excludable and non-rivalrous.
Thinking as an Economist
Micro-economics Deals with individual firms within markets over a set period of time.
Macroeconomics looks at all the markets together on a national or international scale.
Surplus Difference between costs and benefits.
Perfectly Competitive Supply
Opportunity Cost plays an integral role in determining a firms supply curve. The greater
their opportunity cost the larger the prices will be compared to a firm with smaller
opportunity costs for the same quantity. Eg, a norma
Profit Maximisation for Price-Setting Firms
Profit is maximised at;
Marginal Cost = Marginal Revenue
This is because in a monopoly a firm has to (generally) charge the same price to all
buyers. They then set price at the price of that quantity demanded.
Thus if a firm has an economic profit less than zero, they are making an economic loss
and would be better off in another industry. Note: They could still be making an
Explicit Costs Actual payments a firm makes
Always assume Ceteris Paribus!
Price Elasticity of Demand The percentage change in quantity demanded that
results from a 1 percent change in price.
Elastic Demand Demand is elastic if the quantity demanded changes by greater than
1% as a result
Good decision making in business often requires that attention be paid to strategic interactions. Game theory
provides a tool for analysing strategic interactions.
Externality costs (Neg. Externality)- a cost of an acti
Average Fixed Costs (AFC) =
Average Variable Costs (AVC) =
Total Cost (TC) = FC + VC
Average Total Cost
Marginal Costs (MC )= =
Marginal revenue (MR) =
CHOOSING OUTPUT TO MAXIMISE PROFIT (MARGINAL ANALYSIS FOR A
(unable to cover all the variable costs)
When the price set by the markets is less than the minimum point of the AVC curve, the pizza shop should close
(cant cover any of the fixed costs, or things like wages).
Shutdown conditions when P<min AVC
Assume that on the first day of this class, ECON 10B, 90 students try to get in, but there are only 70 seats
available. We cannot change classrooms. We cannot wait for 20 people to drop this class. We must decide which
70 people to get in and