Suppose the price of gasoline will increase in the future, what could happen?
The price will increase in the present, quantity is indeterminate
Increase in supply leads to?
Decrease in price and increase in quantity
Decrease in the cost of silicon to make iPhones means?
Increase in the supply of iPhones
An increase in the price of a complement of a good leads to?
A decrease in demand
A negative externality can cause?
DWL due to overproduction/consumption
A positive externality can cause?
DWL due to underproduction/ consumption
Why are public goods under provided in the free market?
the free rider problem
What can solve the externality problem caused by a negative production externality?
Pigouvian Tax
Private goods are?
excludable and rivalrous
common resource goods are?
non-excludable but rivalrous
club goods are?
excludable but non-rivalrous
public goods are?
non-rivalrous and non-excludable
Rivalrous?
if one person consumes, it another person cannot
Excludable
you can make someone pay for it before they can get it
tragedy of the commons?
If anyone can exploit a resource but no one can be stopped from doing it, no one has any incentive to conserve it
pigouvian tax?
A per unit tax that produces the optimal quantity as long as tax brings PMC in line with the SMC
Externality?
a side effect or consequence of an industrial or commercial activity that affects other parties without this being reflected in the cost of the goods or services involved, such as the pollination of surrounding crops by bees kept for honey.
free rider problem
once a public good has been produced, no one can be stopped from using it.
fixed cost
A cost you must pay no matter what q is
variable cost
costs that very with q
What separates accounting profit from economic profit?
Economic profit takes into account opportunity cost
What concept measures the cost of producing the next good?
Marginal Cost
What concept measures cost that can be avoided in the short run?
fixed cost
When looking at graph of firm costs, how do we find quantity for a profit maximizing price taking firm?
quantity where MC=MR
When price is above the minimum AVC, what brings it down in the long run?
Firms entering the market
At what price does the long run competitive equilibrium settle?
At minimum ATC
When there are economic losses being taken, what will happen in a competitive market?
Firms will exit pushing demand left
If market demand shifts right what will happen in the long run in competitive market?
Price unchanged, number of firms will increase
Suppose in a perfectly competitive market the price yields a quantity where price is below ATC but above AVC, what will this firm do?
They will produce in short run, but exit in the long run
Assumptions of monopolies
unique good, single firm, price makers, barriers to entry
assumptions of perfectly competitive markets
many sellers, homogenous goods, firms can freely enter or exit, firms are rice takers