Concepts For Micro Theory
Supply and Demand
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demand vs. quantity demanded
supply vs. quantity supplied
movements along vs. shifts of S & D
price ceiling, price floor
economic shortage/surplus
market & individuals' demand curves
horizontal summation
specific tax
tax incidence
elasticity of demand and supply
Consumer Theory
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consumption bundle
preferences
budget line
indifference curve
properties of indiff. curves
slope down
don't cross
"moon" shaped
tangency of budget line & indiff curve
normal vs. inferior goods
complementary vs. substitute goods
derivation of demand curves
endowment
Farm Programs
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deficiency payments
loan program (CCC)
food stamp program
surplus and profit
dead weight loss
The Firm
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Cost Curves and Profit Maximizing Output
economic profits
cost function, C(Q)
marginal cost
fixed vs. variable costs
 c = vc + fc
 ac = avc +afc
producer's supply curve
 mc above avc
 why does p = mc?
increasing, decreasing and constant costs
u-shaped costs diagram
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short-run vs. long-run supply
long-run competitive equilibrium
 profits are zero
 p = mc
 S=D
Deriving Cost Curves from Isoquants
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production function
returns to scale
isoquant
isocost = expenditure lines
tangency gives chosen inputs
derive cost curve
derive (conditional) factor demand
Monopoly
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marginal revenue for competitive firm
causes of monopoly
profit-maximizing P & Q for monopoly
barriers to entry
why MR=MC gives max profit
What's Wrong With Monopoly
deadweight loss of monopoly
regulation of public utility
Market Failure and Welfare
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Willingness to Pay
Surplus
Deadweight loss
Competition maximizes profits plus surplus
allocation
Pareto efficiency
efficiency versus income distribution
Public Good
A competitive Equilibrium is a Pareto Optimum
Pollution
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Technology Based Effluent Standard
 Isoquant diagram
 price that achieves same level of pollution
Major Water/Land/Air legislation and programs
 Clean Air Act.
 National Goals
 State Plans to meet goals; stricter standards in dirtier places
 Technology Based Effluent Standards --TBES--(Best Practicable, Available,
Conventional Technology)
 Point Source--TBES for new sources, existing sources in dirty areas, toxics
 Non-point Source--rules for cars but not yet for trucks, trains, and boats
 RECLAIM
 Acid Rain
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CERCLA--Superfund
 Fund to pay for cleanup of old wastes
 Ability to sue for Natural Resource Damages
 You Touched It, You're Responsible
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 Taxes vs. Standards: who gets the money/efficiency
 Right amount of pollution: Between firms, between firms and consumers.
 Diagram read from both sides
 price of clean air/water is too low
 results in too much of polluting input (isoquant diagram)
 results in too much output
 private marginal cost understates social mc
 Property rights in Water
 Appropriative: first in use, first in right
 Equal sharing
 Need for trade to get efficient allocations
 Coase Theorem
 is pollution independent of assignment of property rights
 transaction costs
 with high enough transactions costs it could be best to let the polluter pollute
 The smoker and asthmatic: does income matter?
 do property rights attenuate pollution
Fishery
 Increased growth = interest rate
 Open access