Econ Final

  1. Private goods
    • excludable, rival in consumption
    • Ex: food
  2. Public goods
    • not excludable, not rival
    • Ex: national defense
  3. Common resources
    • rival but not excludable
    • Ex: fish in the ocean
  4. Natural monopolies
    • excludable but not rival
    • Ex: cable TV
  5. Externality
    • a type of market failure
    • uncompensated impact of one person's actions on the well-being of a bystander.
    • can be negaive or positive
  6. Pigouvian taxes
    Corrective taxes. designed to induce private decision-makers to take account of the social costs that arise from a negative externality
  7. The Coase Theorem
    If private parties can costlessly bargain over the allocation of resources, they can solve teh externalities problem on their own
  8. Average v. Marginal tax rate
    Average = total taxes paid / total income: measures the sacrifice a taxpayer makes

    Marginal = the extra taxes paid on an additional dollar o income: measures the incentive effects of taxes on work effort, savings, etc
  9. Tax systems: Regressive, Proportional, Progressive
    • R: rich pay smaller fraction as it goes up
    • Proportional: all pay the same fraction
    • Progressive: rich pay larger fraction as it goes up
  10. Total revenue; Average revenue; Marginal revenue
    • TR = P X Q
    • AR = TR/Q = P
    • MR = ^TR/^Q
  11. Profit maximization for competitive firm
    • Profit maximizing Q:
    • MR = MC
  12. Shutdown
    • Cost = revenue loss (TR)
    • Benefit = cost savings (VC) (must pay FC)

    • So, shut down if TR < VC
    • Shut down if P <AVC
  13. Exit
    • cost: revenue loss (TR)
    • Benfit: cost saving (TC)

    • So exit if TR < TC
    • Exit if P < ATC
  14. Enter
    if P > ATC
  15. Long-run equilibrium
    • entry/exit complete
    • Remaining firms earn zero economic profit

    in the long run, P=minimun ATC
  16. Perfect Competition
    Many firms; no market power; easy entry/exit; identical products; rice, wheat, milk
  17. Monopoly
    only one firm; has market power; difficult entry; electricity, cable TV, tap water
  18. Monopolistic Competition
    many firms; has market power; easy entry/exit; differentiated products; shampoo, cereal, novels, movies, CD's.
  19. Oligopoly
    just a few firms; market power; difficult entry/exit; similar-identical products; car, cigarettes
  20. D curves for markets
    • Monopoly: market D curve
    • Competitive firm: MR=P. p set at market p. flat
  21. Profit maximization for monopoly
    • produce Q where MR = MC
    • once Q identified, monopolist sets the highest P consumers WTP from D curve
  22. Profit for M and C firms
    profit = (P - ATC) X Q. square on graph
  23. competitive market equilibrium
    P = MC total surplus maximized
  24. Monopoly equilibrium
    P > MR=MC. DWL!
  25. Monopolistic competition profit maximization
    produce Q where MR = MC

    Charge markup to D price.
Card Set
Econ Final
Econ final