Perfect Market (Competitive Market)
Competition: setting prices, advertising, etc.
Normative vs. Positive Analysis
Normative Analysis relativity; ought to and should
Positive Analysis answers questions with facts; scientific responses
Monopoly a single firm; raises prices by creating an artificial shortage
We already know
Ideal price and quantity involving the perfect long run solution:
Social Ideal P* = P*, Q* = Q*
Qualities of a Monopoly
Players: the firms, consumer
Strategies decision options
Outcomes results of the decisions for all players
Sequential game decisions are made by all players successively Ex. Chess
Simultaneous game decisions are made by all players concurre
Shifts in Demand
Cannot be price and quantity in the market.
Once upon a time idea.
- As income rises, more is demanded at a given price or more will be paid for a given
Normal Goods % change in income > % change in deman
Public Goods Calculations
Total demand curves are calculated by adding each individual demand curve.
Usually, the government decides the value of P*.
Qd (A) = 96 3PA
Qd (B) = 96 2PB
Qd (C) = 96 4PC
PA = 32 Qd
PB = 48 Qd
PC = 24 Qd
Total Indirect Demand: P
Net value of the next best alternative.
Sacrifice. What are you giving up?
Implicit Costs vs Explicit Costs
Explicit costs involve monetary value.
The benefit is what the product is worth to the consumer.
Benefits Explicit Costs Opportu
Predict future market.
Simplify market trends.
Assume market conditions.
Ceteris Parabus other things equal holding everything constant except one vairable
Understand human behavior.
1. More is better.
Samuel Gompers r
Small, incremental changes.
In contrast to total analysis, which is not easily correctly calculated.
Do I consume one more of something?
Addition to total happiness by adding one more unit.
- Marginal Utility declines as
Measures of Inequality
1. Decile/Quintile Charts
2. Gini Coefficient
3. The Poverty Line
Why are we concerned with inequality?
Crime rate, homelessness, health care costs, education
Shaded region is the
The law exists to correct when the market fails.
Economists believe price should equal opportunity costs.
Malpractice: Civil law, not criminal law.
Deterrents mechanism that prevents malpractice by providing rewards for good behavior.
Income is the foundation of budge constraints.
Income = PXX - PYY
Assuming the only two
things that can be consumed
are xylophones and yo-yos.
Considering Y = mX + b
Income = PXX - PYY
PYY = Income - PXX
Y = Income - PX
Health Care Economics - a branch of economics concerned with issues related to efficiency,
effectiveness, value and behavior in the production and consumption of health care.
The United States spends about $8,000 per person per year on health
Unemployment rate (2011)
District of Columbia
1. As the years pass, it is becoming more of a challenge to have a good living
without going to college. As data is presented in the graph on question one, it
shows the information. The graph analyzes data from 1975 to 2013 based on the
level of education
Professor John Deal
February 15, 2014
Impact of Technology
Technology has changed the way that people go about their everyday lives. Virtually everything
that people do can be ordered online and put on their doorsteps in a matter of days. As
Elasticity of Demand
large change in quantity
small change in price
small change in quantity
large change in price
Calculating Total Revenue
TR = P (Q)
Inelastic demand P increases, TR increases
Unit elastic demand
Similar to Health Care, Labor Markets have their own area of study.
Firms control demand.
Workers control supply.
Marginal Revenue Product = Marginal Product Price
As more workers are hired, MP increases; therefore, MRP increases.
In a perfe
Early Studies of Microeconomics
Thomas Hobbes. Leviathon. 1650s.
All authority should be centralized.
The leviathan is the tyrant.
Kindergarten theory of behavior.
Adam Smith. Wealth of Nations. 1776.
Markets maximize happiness.
Problems With General Equilibrium
- Chart assumes maximum.
- Change in production can change box size.
- Economists suggest only perato optimal points should be used.
- Economists want to evaluate gains and losses.
Federal Income Tax: progressive
Excise Tax: regressive
Sales Tax: regressive
Value Added Tax (VAT): regressive
Property Tax: progressive
Inheritance & Estate Tax: progressive
Recent Trends of Taxes
Lower income tax.
Higher excise and sal
1. Assume that the market for good X is in equilibrium. Now assume that the supply of good X
has increased and the demand of good X has not changed. Describe the adjustment process
that would take place to get the market from the original equilibrium (bef
P is for the price and Q is for the quantity
This type of graph most likely will not have numbers
Each point represents an answer to P and Q
The graph shows that B is < C but C is still less than A
This graph works for Supply and demand
The idea of
- Develop lorenz curve- % income from bottom of income earned
- Top is income and bottom is pop
- Gini- is the info between perfect equality and the Lorenz curve
- The straight line in curve represents perfect equality
Most unequal coef
Traditional= sole supplier
Artificial= law customs
Monopolistic competitive= brand names
o Most common
o Lots of close but not perfect substitutes
o Example= shoes-different brand names and styles
Restaurants- all serve food but all s
Monopoly Markets- Single Firm
All monopolies set price and quantity- set is the key word because they can make price high
because of a (artificial) shortage of quantity.
In a monopoly P*>P*(a higher price than social ideal)
Q*<Q*(firm not going to produce