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| | It is worth emphasizing two important points. First, keep “supply” and “demand” separate in your mind. When asked about “returns to scale,” for example, realize that is purely a function of supply. It has nothing to do with demand. Do not cite the demand when determining the returns to scale. This is a common mistake. Avoid it. | | It is worth emphasizing two important points. First, keep “supply” and “demand” separate in your mind. When asked about “returns to scale,” for example, realize that is purely a function of supply. It has nothing to do with demand. Do not cite the demand when determining the returns to scale. This is a common mistake. Avoid it. |
| | | | |
| − | Second, realize that the market acts in ways that are contrary to what you would prefer. We may care what happened yesterday, for example, but the demand curve does not. Nor do stock buyers care if selling off their shares will cause a company to go out of business and everyone to lose their job. The market maximizes efficiency, which can sometimes have unfortunate or counterintuitive results. Someone who opposes communism in China can affect his own buying decisions, but do not confuse his views and utility with that of the market. | + | Second, realize that the market acts in ways that are contrary to what you would prefer. We may care what happened yesterday, for example, but the demand curve does not. Nor do stock buyers care if selling off their shares will cause a company to go out of business and everyone to lose their job. The market maximizes efficiency, which can sometimes have unfortunate or counter-intuitive results. Someone who opposes communism in China can affect his own buying decisions, but do not confuse his views and utility with that of the market. |
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| − | Let’s pause for a moment and divide economic concepts into three categories: Introductory, Intermediate and Honors: | + | Let’s pause for a moment and divide economic concepts into three categories of difficulty: Easy, Medium and Honors: |
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| − | ===Introductory=== | + | ===Easy=== |
| | | | |
| | microeconomics (the study of individual “micro” market decisions, companies, consumers) | | microeconomics (the study of individual “micro” market decisions, companies, consumers) |
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| | marginal benefit of a firm’s output decision for producing one more Q: marginal benefit is P (price it is sold at) | | marginal benefit of a firm’s output decision for producing one more Q: marginal benefit is P (price it is sold at) |
| − |
| |
| − | monopoly
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| − |
| |
| − | price discrimination
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| | Law of Demand: when price goes up, then demand goes down. YOU MUST USE THIS LAW. | | Law of Demand: when price goes up, then demand goes down. YOU MUST USE THIS LAW. |
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| | demand side | | demand side |
| − |
| |
| − | ===Intermediate===
| |
| | | | |
| | substitutes | | substitutes |
| | | | |
| | complements | | complements |
| | + | |
| | + | ===Medium=== |
| | + | |
| | + | consumer surplus (savings by consumers who would pay more than the market price for a good) |
| | + | |
| | + | indifference curve |
| | | | |
| | fixed costs (FC) (these are costs that do not vary with a company’s output. E.g., rent payments) | | fixed costs (FC) (these are costs that do not vary with a company’s output. E.g., rent payments) |
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| | economic profit (total revenue minus both explicit and implicit costs) | | economic profit (total revenue minus both explicit and implicit costs) |
| − |
| |
| − | natural monopoly (a company that has increasing economies of scale, such that long-run average costs of production decrease, like power companies or railroads)
| |
| | | | |
| | In a perfectly competitive market ... | | In a perfectly competitive market ... |
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| | :if no such Q exists then the company is better off shutting down | | :if no such Q exists then the company is better off shutting down |
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| − | In a natural monopoly, there is falling ATC and MC, so ATC > MC.
| + | ===Honors=== |
| | | | |
| − | A monopoly shuts down in the short run if when MR = MC, AVC > P.
| + | price discrimination |
| − | | |
| − | A monopoly shuts down in the long run if when MR = MC, ATC > P.
| |
| − | | |
| − | ===Honors===
| |
| | | | |
| | cross-elasticity of demand (percent change in demand for good X divided by percent change in price for good Y) | | cross-elasticity of demand (percent change in demand for good X divided by percent change in price for good Y) |
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| | condition for shutting down (P<AVC in short run or P<ATC in long run) | | condition for shutting down (P<AVC in short run or P<ATC in long run) |
| | + | |
| | + | Coase theorem |
| | + | |
| | + | mathematical |
| | | | |
| | ===Equations=== | | ===Equations=== |
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| | :long run average costs (LRAC) are never more than short run average costs (SRAC) for a given Q. Why? See the alternative definition of “long run” in “Medium” list above | | :long run average costs (LRAC) are never more than short run average costs (SRAC) for a given Q. Why? See the alternative definition of “long run” in “Medium” list above |
| | :LRAC = P x (I / Q), where I is input and Q is output and P is price of the input | | :LRAC = P x (I / Q), where I is input and Q is output and P is price of the input |
| − | | + | |
| − | <move some of the remaining material to next class?>
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| − | | |
| − | <add section about Intellectual Property, including trademarks and copyright; they are monopolies>
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| − | | |
| − | <discuss Microsoft here>
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| − | | |
| − | <two monopolies: KJV and NIV translations of the Bible, and what the NIV owner plans to do next>
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| − | | |
| − | <tale of two towers: WTC and Sears Tower>
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| − | | |
| − | <Hunt Brothers trying to corner silver market>
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| − |
| |
| | ==Example: Homeschool Dinner Event== | | ==Example: Homeschool Dinner Event== |
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