Econ6320

• 1. Allocate Resources
• 2. Determine the composition of output
• 3. Distribute products
• 4. Provide for Growth
• In America price plays major role by converying consumer preference, Govenrment plays important role

• Demand
• Consumer Tastes
• Consumer Income
• Prices of substitutes and Compliments
• Transaction Costs
• Information

• Supply
• Increase in price
• Particular period of time
• Technology
• Level of input prices
• Taxes and government regulation

Change in demand = shift in the entire curve

Change in quantity demanded = shift along the demand curve because of price change

• measure relationship between a change in price and a change in quantity demanded.
• elastic if % change in price results in more than % change in quantity demanded
• inelastic if % change in price results in less than % change in quantity demanded

measures the percent change in a substitute good or compliment divided by the percent change in the price of the good

measrures the relationship between the change in price and the change in quantity supplied

measures the percent change in the demand for a given change in income

A good for which increase in price of one good leads to a decrease in demand for the other good

goods for which an increase in the price of one good leads to an increase in the demand for the other good

goods for which a decrease in the price of one good leads to an increase in the demand for the other good

amount producers recieve in excess of the amount necessary to induce them to produce the good

value the consumers get froma good but do not have to pay for

the maximum legal that can be charged in the market

minimum legal price that can be charged in the market

• Principal hires another to perform service on ther behalf and delagte some decision making ability.
• Fix is to make incentives congruent
• Perfect agent makes decisions the principal would make if fully informed

environment within which firms in aparticular market operate

Industry concentration- % of business done by X number of firms

Nature of demand- price elasticity of demand curve

Entry conditions- advantages over new entrants, government rules and regs

Product differentiation- degree to which consumers view one firms output as a substitute for the other firms output

Firm integration and diversification- extent to which firms offer one product or many, and the extent to which firms provide their own semiprocessed inputs

decisions firms make and the method used to implement these decisions

Pricing policy- collude, choose to sell small output at high price

Design of product- differentiate packaging

Advertising- advertizing changes elasticity of demand

Research budgets- invest in various amounts of new products

whether outcome enhances welfare and other social goals

Price and output at the level that would occur with competitive markets

does conduct reduce the number of jobs or wage rate in the industry?

small number of providers, seller large enough to influence the market

non-price competition, product differentiation and brand loyalty

single firm serves the market without close substitutes for its products or services

single payer, just one buyer

one buyer and one seller

• many buyers and sellers
• each firm produces a differentiated product
• firms can freely enter and exit the industry

• 1. Small size, large number of producers and buyers. Buyer or seller cannot influence price.
• not occur when hospital is a monopoly in ageographic area

• 2. Homogeneous product, each product is identical to the product of all others, no differntiation, buyers indifferent
• not occur in prescription drugs

• 3. Free mobility of resources, can respond to finacial signals by moving in and out of markets easily
• not occur in licensure laws as barriers to mobility

• 4. Perfect knowledge-consumers, resource owners, producers must have perferct knowledge of information about price, costs, wage, sales, and quality
• not occur when consumers can't judge quality of health care services

• 5. No externalities-someone not directly involved in the economic action bears a cost or recievs a benifit from the action
• not occur when increase in vaccinations benifts the community

• Production process had indivisablilities, results in increasing returns to scale and monopolies
• ex. potential cost saving techniques may not be researched if the cost of research is born by a single entity

• One person's consumption of a good does not reduce another person's consumption
• ex. public health measures, sanitation

• an owner does not incur all the benifits or costs associated with their property
• ex. factory makes smog that causes lung cancer

many buyers and sellerseach firm produces a differentiated productfirms can freely enter and exit the industry

Hospital would be worse off with lower volumes than with discounted charges

Insurer must be able to make a credible threat to move patients

hospital must be unable to replace patients