Changes

We’ve covered all the issues concerning individual decisions by companies and consumers.  We’ve discussed supply and demand.  We’ve addressed marginal revenue and marginal cost.  We've discussed numerous other concepts of the free market, including substitutes, complements, consumer surplus, price controls (ceilings and floors), the Law of Demand, normal goods, inferior goods, elasticity, cost measures, utility and indifference curves.

We’ve covered all the issues concerning individual decisions by companies and consumers.  We’ve discussed supply and demand.  We’ve addressed marginal revenue and marginal cost.  We've discussed numerous other concepts of the free market, including substitutes, complements, consumer surplus, price controls (ceilings and floors), the Law of Demand, normal goods, inferior goods, elasticity, cost measures, utility and indifference curves.

Stephen Colbert, when interviewing your instructor on the Colbert Report on Tuesday, asked if we learn about "Keynesian economics."  Your instructor answered "no", we learn "free market economics."  What is the difference?

Television host Stephen Colbert, when interviewing your instructor on the Colbert Report on Tuesday, asked if we learn about "Keynesian economics."  Your instructor answered "no", we learn "free market economics."  What is the difference?

Keynesian economics is a theory that began with a liberal British economist named John Maynard Keynes (1883-1946).  Became a favorite of liberals in England and his theories of economics were one reason England declined from being the greatest power in the world in the 19th century to a weak nation that could not fully defend itself against Germany in World War II (1940-1945).

Keynesian economics is a theory that began with a liberal British economist named John Maynard Keynes (1883-1946).  Became a favorite of liberals in England and his theories of economics were one reason England declined from being the greatest power in the world in the 19th century to a weak nation that could not fully defend itself against Germany in World War II (1940-1945).

Finally, the third way that the Fed affects the economy is in its market operations: it buys and sells U.S. government securities.

Finally, the third way that the Fed affects the economy is in its market operations: it buys and sells U.S. government securities.

So why are some politicians calling for Bernard Bernanke to resign as Chairman of the Federal Reserve?  Operating with virtually no oversight or accountability, Chairman Bernanke does not seem to have helped the economy much.  National unemployment is 10% (as of December 2009) and many businesses are failing.

So why are some politicians calling for Bernard Bernanke to resign as Chairman of the Federal Reserve?  Operating with virtually no oversight or accountability, Chairman Bernanke does not seem to have helped the economy much.  National unemployment is 10% (as of December 2009) and many businesses are failing.  In addition, American taxpayers were socked with nearly a trillion dollar bailout package to save many banks from collapse, which is what the Fed was supposed to be making sure did not happen.

But students from Rutgers University just won second place in the annual College Fed Challenge, which requires an anlysis of about 40 economic indicators like unemployment, inflation, and gross national product (GNP), which is the total market value of all goods and services produced by a nation's economic during the year.  

Undeterred, however, students from Rutgers University just won second place in the annual College Fed Challenge, which requires an analysis of about 40 economic indicators like unemployment, inflation, and gross national product (GNP), which is the total market value of all goods and services produced by a nation's economic during the year.  

== Review: Short and Long Run ==

== Review: Short and Long Run ==

We have thoroughly covered monopolies at one end of the economic spectrum, and we have also thoroughly covered perfect competition at the other end of the economic spectrum.  But how well do we know "monopolistic competition," which is somewhere in the middle?

We have thoroughly covered monopolies at one end of the economic spectrum, and we have also thoroughly covered perfect competition at the other end of the economic spectrum.  But how well do we know "monopolistic competition," which is somewhere in the middle?

As its name suggestions, "monopolistic competition" has characteristics of both monopolies and competition.

In the real world, monopolistic competition is very common.  It is more common than a pure monopoly, and also more common than perfect competition.  As its name suggestions, "monopolistic competition" has characteristics of both monopolies and competition.

Recall that monopolistic competition is characterized by:

Recall that monopolistic competition is characterized by:

*more than one firm, unlike a monopoly

*many firms, unlike a monopoly, which is only one firm

*the firms sell slightly different goods that are not perfect substitutes

*the firms sell slightly differentiated goods that are not perfect substitutes

*low barriers to entry (new firms can easily enter the market)

*no (or low) barriers to entry (new firms can easily enter the market)

*firms have some "market power," meaning that they can raise the price and still have lots of buyers at the higher price

*firms have some "market power," meaning that they can raise the price and still have lots of buyers at the higher price

How is monopolistic competition created?  Firms engage in "product differentiation," as in Wendy's advertising that its hamburger is better than McDonald's.  That type of advertising differentiates Wendy's product from its competitors, and gives Wendy's the benefits of monopolistic competition.  It can then raise its price and earn more profits, because its customers cannot just switch to McDonald's and expect to obtain the exact same hamburger.

How is monopolistic competition created?  Firms engage in "product differentiation," as in Wendy's advertising that its hamburger is better than McDonald's.  That type of advertising differentiates Wendy's product from its competitors, and gives Wendy's the benefits of monopolistic competition.  It can then raise its price and earn more profits, because its customers cannot just switch to McDonald's and expect to obtain the exact same hamburger.

Inefficiencies result in any market that is not perfect competition, so there are inefficiencies in markets that consist of monopolistic competition.  The sales price is higher than it would be under perfect competition.

Inefficiencies result in any market that is not perfect competition, so there are inefficiencies in markets that consist of monopolistic competition.  The sales price is higher than it would be under perfect competition.

==Trade==

==Trade==

[[Category:Economics lectures]]

[[Category:Economics lectures]]

{{DEFAULTSORT: Economics Lecture 13}}

{{DEFAULTSORT: Economics Lecture 13}}