| Line 23: |
Line 23: |
| | *optimal market price: where supply meets demand, or (for a monopolist that has no supply curve) where MC intersects demand curve (MC=P) | | *optimal market price: where supply meets demand, or (for a monopolist that has no supply curve) where MC intersects demand curve (MC=P) |
| | *comparing price and curves for ATC, AVC and MC, and realizing that maximum profits occur when MC=P; the firm shuts down in the long run when ATC>P; and the firm shuts down in the short run when AVC>P, but keeps operating in the short run when AVC<P but P<ATC (remember: "variable cost" is a short run issue; "total cost" is a long run issue) | | *comparing price and curves for ATC, AVC and MC, and realizing that maximum profits occur when MC=P; the firm shuts down in the long run when ATC>P; and the firm shuts down in the short run when AVC>P, but keeps operating in the short run when AVC<P but P<ATC (remember: "variable cost" is a short run issue; "total cost" is a long run issue) |
| | + | |
| | + | ===Example=== |
| | + | |
| | + | [[Image:Econ13c.jpg|right|250px|thumb|Figure C]] |
| | + | |
| | + | Consider the graph on the right. <need more here> |
| | | | |
| | == Review: Government Policy == | | == Review: Government Policy == |
| Line 30: |
Line 36: |
| | * market distribution of income (Lorenz curve) | | * market distribution of income (Lorenz curve) |
| | * market failure and imbalances in information | | * market failure and imbalances in information |
| | + | |
| | + | The Lorenz curve (also known as the Lorenz diagram) is a graph displaying a comparison of the actual distribution of income in a society against a hypothetical equal distribution of income. This could be done by plotting the percent of overall income on the y-axis and the percent of families on the x-axis. A hypothetical (imaginary) equal distribution of income would be a straight line at 45 degrees (the line y=x). But the actual distribution of income would be closer to a step function: going from the lowest 0 to 20% of families would have almost no increase in cumulative income on the y-axis, and then from 20% to 80% would show a big increase, and then from 80% to 100% would show a leveling again in cumulative income. |
| | + | |
| | + | On the CLEP exam, a question about the Lorenz curve is probably going to to be asked in a favorable way, suggesting that it is a proper role of government to try to equalize the income for everyone. |
| | + | |
| | + | Not everyone agrees. Churches used to play the role of "sharing the wealth," and they did it better than government does. Do we want government to replace churches? Usually not. |
| | + | |
| | + | But government may have a proper role in correcting for imbalances in information, in order to make sure that people have a better understanding of what they are buying. Food products are required by government to disclose their contents, and how much fat they contain. Cigarette companies are required to say that their product causes cancer and hurts people. In some states abortionists are required to disclose some of the harm that abortion causes. Government regulations that improve the knowledge of the public may be beneficial, and may help reduce negative externalities. |
| | + | |
| | + | Sometimes markets fail to work at all, as when competition disappears and there is only one supplier. Imagine the only gas station in town after a hurricane wipes out all his competitors. Or when the biggest banks fail, all at once. The "bail out" before the 2008 elections was an example of government trying to prevent a total market failure. Many disagree with government interference in cases of "market failure," however. What's your view? |
| | | | |
| | == Production Possibilities == | | == Production Possibilities == |
| Line 229: |
Line 245: |
| | | | |
| | ===Honors:=== | | ===Honors:=== |
| − |
| |
| − | [[Image:Econ13c.jpg|right|250px|thumb|Figure C]]
| |
| | | | |
| | Answer 3 out of 4 questions below: | | Answer 3 out of 4 questions below: |
| | | | |
| − | 10. Look at Figure C (right). Assuming it represents the long run, describe what type of industry this is (e.g., monopoly, oligopoly, monopolistic competition, or perfect competition). Explain your answer. | + | 10. Look again at Figure C in the lecture (the first one). Assuming it represents the long run, describe what type of industry this is (e.g., monopoly, oligopoly, monopolistic competition, or perfect competition). Explain your answer. |
| | | | |
| | 11. Explain why the production possibilities curve is convex (opening downward like the top of a circle) rather than concave (opening upward like the inside of a bowl) or a straight line. | | 11. Explain why the production possibilities curve is convex (opening downward like the top of a circle) rather than concave (opening upward like the inside of a bowl) or a straight line. |