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| | 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. | | 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 of difficulty: Easy, Medium and Honors: | + | Let’s pause for a moment and divide economic concepts into three levels of difficulty: Easy, Medium and Honors: |
| | | | |
| | ===Easy=== | | ===Easy=== |
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| | *concept of a "firm" = company = supplier = seller | | *concept of a "firm" = company = supplier = seller |
| | *"inputs" into production by a firm | | *"inputs" into production by a firm |
| | + | *fixed costs (FC) (these are costs that do not vary with a company’s output. Examples: rental payments, taxicab license fee) |
| | + | *variable costs (VC) (costs that do vary directly with output. Examples: fuel, labor) |
| | *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) |
| | *stated another way: point at which firms sell their goods (where MR=MC) | | *stated another way: point at which firms sell their goods (where MR=MC) |
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| | *accounting profit (total revenue minus explicit cost) | | *accounting profit (total revenue minus explicit cost) |
| | *economic profit (total revenue minus both explicit and implicit costs) | | *economic profit (total revenue minus both explicit and implicit costs) |
| | + | *short run (period when only some inputs are increased in order to increase output; e.g. overtime) |
| | + | *long run (period when any and all inputs are increased to increase output; e.g., build new stadium) |
| | | | |
| | ===Medium=== | | ===Medium=== |
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| | indifference curve | | indifference curve |
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| − | fixed costs (FC) (these are costs that do not vary with a company’s output. E.g., rent payments) | + | fixed costs (FC) |
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| − | variable costs (VC) (costs that do vary directly with output. E.g., fuel, labor) | + | variable costs (VC) |
| | | | |
| | average total cost (ATC) (this is all the costs divided by the quantity of output Q) | | average total cost (ATC) (this is all the costs divided by the quantity of output Q) |
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| | marginal revenue (MR) | | marginal revenue (MR) |
| − |
| |
| − | short run (period when only some inputs are increased in order to increase output; e.g. overtime)
| |
| − |
| |
| − | long run (period when any and all inputs are increased to increase output; e.g., build new stadium)
| |
| | | | |
| | alternative definition of the “long run”: enough time to adjust all inputs in order to produce a given Q at the lowest possible cost | | alternative definition of the “long run”: enough time to adjust all inputs in order to produce a given Q at the lowest possible cost |