Opportunity Cost - What you give up the most
Trade-Off - What you give up
Marginal Thinking - How much more do you need
Incentives - You want something
- Positive: You want to go get something
- Negative: You do something to not get something
Trade - Exchange and Get
Law of demand
All else equal, there is an inverse relationship between price and quantity demanded.
If Price goes up, quantity demanded goes down
If Price goes down, quantity demanded goes up.
All else equal, there is a direct relationship between price and quantity supplied.
If Price goes up, quantity supplied goes up
If Price goes down, quantity supplied goes down.
Demand increases
Equilibrium price and quantity increase
Supply increases
Equilibrium price decreases and quantity increases
Demand decreases
Equilibrium price and quantity decrease
Supply decreases
Equilibrium price increases and quantity decreases
(New Quantity - Old Quantity)/(New+Old)/2
Divided by
(New Price - Old Price)/(New+Old)/2
Quantity
Total Variable Cost
Total Fixed Cost
Total Cost = Total Variable Cost + Total Fixed Cost
Average Variable Cost = Total Variable Cost / Quantity
Average Fixed Cost = Total Fixed Cost / Quantity
Average Total Cost = Total Cost / Quantity
Marginal Cost = Change in Total Variable Cost/ Change in Quantity
Perfectly Competitive Markets: Many Sellers, Similar Products, Free entry and exit
Monopolistic Competition: Many Sellers, Differentiated Products, Low Entry and exit
Monopoly: One Seller, Unique Product no subs, High Entry exit
Oligopoly: Few Sellers, Homogenous products, mid entry exit
Externality
•Third-party problem (internal cost/benefit ≠ social cost/benefit)
•Positive externality vs. negative externality
Correcting externality (internalizing the externality)
•Negative externality
1. Tax the product.
2. Regulate production.
3. Encourage research and development of alternative substitutes to the product.
•Positive externality
1. Finance and/or subsidize production and consumption of the good.
2. Laws requiring consumption.
3. Encourage research and development of
Property Rights
● Coase theorem - Don’t Interfere and parties can resolve.