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| the finite resources for our infinite wants |
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| The social science that looks at how people, businesses, countries etc cope with scarcity |
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| Study of choices people and businesses make, and how these are affected by government |
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| Study of total effects on national and global economies |
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| How are self / social interest connected? |
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| pursuit of self-interest helps the social-interest too |
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| How much credit does US rack up daily? |
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| Almost 2 BILLION!!!! for over ten years |
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| Every choice is a TRADEOFF, with MARGINAL COST and MARGINAL BENEFIT |
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| giving up one thing for something else |
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| uses available resources to best achieve goals |
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| The gain or pleasure from a choice, determined by preferences |
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| Best alternative that is lost in decision |
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| the line or degree of your decision for / against it |
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| opportunity cost of a one-unit increase for it |
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| benefit of a one-unit increase of it |
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| FACT-BASED!!! POSITIVELY TRUE!!! |
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When does self-interest help social-interest?
How do people's choices affect flow of goods? |
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| Production Possibilities Frontier |
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| Boundary of POSSIBLE EFFICIENT OUTCOMES from a balance of resources |
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| When resources are being used to max efficiency |
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| Firms fail to produce right amount |
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| Excess on producer and consumer sides |
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| Selling NECESSITY for EXPENSIVE!! |
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| Good that EVERYONE can use at the same time, without using it up |
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| Impossible to prevent others from using it |
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| Using it doesn't intrude on others |
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Rival, but non-excludable.
Fish in rivers, etc |
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| Free Riders happen with _____ good |
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PUBLIC
Cuz one person did the work to make it and everybody benefits |
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| Absence of rules to protect common resources |
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| People's tendency to do bad things when unsupervised |
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| People's tendency to use superior knowledge to scam others |
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| Sewers, etc. Something that is so expensive to start, that it's inefficient to have competing suppliers |
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| Something that only one party has, and uses to their advantage |
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| When one side has more info than other |
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REVENUE - COST!!
Just like Accounting |
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The cost of Entrepreneurship.
Benefit of staying in a business, and cost of not starting a new one |
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| Easiest things to change, like hires / fires, and quick changes |
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| Time frame within which EVERYTHING can be changed, ex. amount of buildings, etc |
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| Total quantity produced in a given period |
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| Opportunity cost for a one-unit increase in amount of products produced |
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Economies of Scale
(Increasing return to scale) |
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Long-run,
Firm increases labor & capital equally
Output increases faster & cost decreases |
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| Last Total Utility + Marginal Utility |
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Diseconomies of Scale
(Decreasing returns to scale) |
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Firm increases labor & capital equally
OUTPUT DECREASES!! COST INCREASES!! |
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| Constant returns to scale |
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| Firm gets bigger (capital & labor) and output increases & cost decreases at perfectly flat rate w it |
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| How much the total utility goes up when you get a 1-unit increase of it |
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| The total utility from all the stuff u got |
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| Perfect Competition Requires: |
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| Firms selling IDENTICAL products, EZ to enter/exit, no advantages, SYMMETRIC info, reach constant returns quickly. Can only compete through price |
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| Price Elasticity of Demand Formula |
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Definition
(Q2 - Q1 / midpoint)
Divided by:
(P2 - P1 / midpoint) |
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| Price makes SMALL changes in demand |
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| Price makes LARGE CHANGES in demand |
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| Straight Across (ONLY BUY AT $1) |
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| Up & Down (PPL PAY ANYTHING for set amount) |
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| Substitutes? Necessity? Short / Long term price change? |
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| Price Elasticity of Supply |
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| How a price change affects how many ppl wanna sell it |
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| Elasticity of Supply Formula |
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% Change in supply /
% Change in price |
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| PRICE ALWAYS ON BOTTOM???!? |
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Definition
| YUP!! PRICE ALWAYS ON BOTTOM!! |
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| Cross Elasticity of Demand Formula |
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Definition
% change in Quantity demanded /
% change in PRICE of SUBSTITUTES |
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Consumer Surplus
(Consumer'S Surplus) |
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Definition
DIFFERENCE between price ppl would pay and amount available
(Pg. 147) |
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| How much ppl are still willing to buy when PRICE CHANGES |
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| Profit Maximization needs |
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| Profit to be more than Cost |
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| Benefit Maximization needs |
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| Benefit greater than Price |
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| Efficiency loss, from govt intervention, market failure, etc |
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| Things are substitutes if Cross-Price Elasticity goes ______ if one of their prices is raised |
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Cross Elasticity for guns when:
Swords PRICE is raised 20% and
Guns DEMAND is raised 10% |
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10 / 20 = 0.5!!
PRICE GOES ON BOTTOM!!! |
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| CALCULATE PRICE ELASTICITY OF DEMAND? |
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(Q2 - Q1) / Q2
OVER
(P2 - P1) / P2
!!!IMPORTANT IMPORTANT!!! (pg 112) |
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| IDK!!! LOOK IT UP IN BOOK!!! |
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| Something that can be switched out for something else |
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| Amount bought goes up with income increase |
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| Amount bought GOES DOWN with income increase |
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| How to calculate TOTAL Consumer Surplus? |
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CS TRIANGLE:
1/2 * Base (Qd) * Height (price) |
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Producer Surplus
(Producer'S Surplus) |
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Price sold at - Cost to Make it
(pg. 150) |
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| Fair outcomes VS Fair Rules |
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| The rules are the only ones that should matter |
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| Government-imposed max / min on prices (rent, food, etc). Creates overall inefficiencies for one side's benefit |
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| Government Actions include |
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| taxes, price controls (subsidies) & quantity controls (quotas) |
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| Smith's "Self-interest's effects on others" |
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| Lighthouse, streets, parks, etc |
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| Finite fish in sea, oil in ground, land |
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| "Free-Rider" / Moocher Problem |
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| Someone can get benefit from no work, if others do the work |
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| One company has too much / complete market power |
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| One side has better information than the other |
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| Fair Outcomes VS Fair Rules |
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| US Govt not gaining from trade cuz other side will get too much benefit. WTF?!?!? |
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Definition
| Price changes have LITTLE EFFECT on amount desired. BUYERS ARE HOOKED!!! |
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| Buyer amount changes LARGELY during price changes. THEY STOP IF ITS MORE EXPENSIVE!!! |
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Term
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| Price changes have LITTLE EFFECT on amount desired. BUYERS ARE HOOKED!!! |
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| Price changes have LITTLE EFFECT on amount desired. BUYERS ARE HOOKED!!! |
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| Buyer amount changes LARGELY during price changes. THEY STOP IF ITS MORE EXPENSIVE!!! |
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| Buyer amount changes LARGELY during price changes. THEY STOP IF ITS MORE EXPENSIVE!!! |
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Term
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Definition
ex. Firm 1 = 5L/A
Means firm 1 uses 5 Labor for 1 good A |
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Whoever has lower Unit Labor Requirement
(Can make a good with less labor) |
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| Whoever can make goods at lower opportunity costs |
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