positive statement: fact 4 factors of production: land labor capital ent ability prod poss curve: if all resources

of econ are in use, more of one good can be pr oduced only if less of another good is produced laisse faire: gov shouldn't interfere with operation of econ dollar votes determine composition of output and alloc of resources in market ec on: consumer sovereignty invisible hand: desires of resource suppliers and producers to furter their own self interest will automatically further the public interest demand curve: inducates quantity demanded at each price in a series of prices price elast of demand coeff measures buyer responsiveness to price changes demand for product is inelastic with respect to pice if consumers are largely un responseive to a per unit price change perfectly inelastic demand schedule = line parllel to vertical axis price elasticity of demand tends to be elastic in high price ranges and inelasti c in low price ranges demand elastic when MANY substitutes avail Price Elasticity of Demand: %change in quantity/%change in price or change in quantity/sum of quantities/2 divided by change in price/sum of pric es/2 PEC >1, elastic demand PEC <1, inelastic, P and TR move in same direction PEC =1, unitary elasticity =0 perfectly inelastic demand >-1 or <0 inelastic or relatively inelastic demand =-1 unit elastic demand >neg infinite or <-1 elastic or relatively elastic demand =neg infinite perfectly elastic demand alloc efficiency: making what consumers want; P=MC prod eff: producing at the lowest cost; P=Lowest ATC circular flow model payments vs goods and services want velocity to be the same Marginal Utility = change total utility/change quantity diminishing marginal utility explains downward sloping demand: change in total u tility/change in quantity as consumption of a good or service goes up maximization of utility: MU of A/Price A = MU of B/Price B: is when satisfaction is fulfilled. consumer allocates money so last dollar spent on each product yie lds same amount of extra/marginal utility diminishing returns: in reference to producer, output vs input, marginal costs b egin to go up for producers, relates to supply Short run: at least one fixed cost Long run: all costs are variable Alternative/opportunity cost variable cost: costs that change in total amount as rate of output is changed fixed cost: don't change in total amount as rate of output is changed, eg rent barriers to entry: econ of scale, patents, ownership, raw material, MONO and OLI G

break even points: TR=TC, profit max when far apart Monopoly: single producer, demand curve is same as market demand curve downward sloping cost/revenue, MR beneath D smaller output, higher price see where P meets D, go down to see equilibrium Q, go back up to where Q meets A C, go left to see where price should be if perf comp. demand isdownsloping. MR is downsloping below demand curve AC meets MC below demand curve Monopolistically competitive firm: ADS, product differentiation downward sloping cost/revenue, MR beneath D AC meets MC above demand curve demand is downward sloping MR meets MC below demand curve Oligopoly: mutual interdependence, small number of producers, concerned withothe rs, match/follow price cuts, ignore price increases, kinked demand curve price leadership noncollusive=KINK Collusive oligop looks like monopolist Purely competitive firm: numerous producers, price TAKERS, no ads, horizontal de mand, TR=straight, upsloping, D=Price=MR=AverageR, ONLY demand curve not downwar d sloping, single producer vs. market demand curve P=MR=D MC and AC and D=MR meet at Q Collusion: olig trying to act like monop Imperfect Competition: anything les than perfect Perfect Competition: agriculture markets Marginal cost: change TC/change Quantity Marginal Revenue: change TR/change Q, beneath D in imperf comp markets Profit/loss: compare TR and TC Total cost= TFC+TVC or AVC*Q total revenue: P*Q Marginal physical product: change in physical output with 1 more input Marginal resource cost: change total cost with one more resource = wage; wage ra te for labor in pure comp marginal revenue product: change total reveue with one more resource: productivi ty, market value; change in total revenue from addition to factors of production econ of scale: cheaper to produce wit larger output profit maximization marginal concept: MC=MR total concept: diff TC and TR greatest; shut down if P<AVC; loss=fixed cost combination of resources purely comp --least cost: MPPa/Pa=MPPb/Pb --profit max: MRPa/Pa=MRPb/Pb=1 imperfectly comp --least cost: MPPa/MRCa=MPPb/MRCb --profit max: MRPa/MRCa=MRPb/MRCb=1 Supply curves of

indiv firms: MC curve above AVC; long run-firms can incur losses indus: constant cost-ATC constant; decreasing cost:atc decreasing, increasing co st, atc increases LABOR MARKET graphs/TYPES OF UNIONS craft/exclusive: up wage rate by artificially restricting labor supply, long app renticeships, occupational licensing -limits membership to reduce supply inclusive: up wage rate by gaining control of labor supply and threatening to wi thhold labor via strike... unless negotiation wage is obtained -tries to include as many as possible to enhance bargaining position derived demand: demand resource derived from demand of products the resource hel ps produce economic rent: price paid for use of land and other natural resources that are c ompletely fixed in total supply elasticity of resource demand: extent producers change quantity of resource the hire when price changes --less: ^difficulty of subbing, down elasticity of prduct demand, down proportio n TC accounted for by resource functional distribution of income: returns to factors of production in STATIC, l ongrun, purely comp econ, econ profits are ZERO INTEREST = price*rate*time interest rates: price paid to use money, determines interest income; smaller loa n=higher rate --nominal: rate of interest in dollars of CURRENT VALUE --real: purchasing power, dollars of inflation adjusted value TYPES OF MARKETS imperf comp -monopoly -monopsony: single buyer, wage maker -oligopoly purely comp: wage takers; resource price/wage rate=MRC, marginal product of reso urce diminishes monopsonist: labor supply curve upsloping, MRC>wage rate per worker, fewer worke rs, lower wage rate shifts in demand for products/resources -complements PRICE C down, DEMAND D up -substitutes --Price A down, down demand for B if substitution effect>output --Price A down, Up demand B if sub effect < output effect --sub effect: exchange expensive resources for cheaper ones wages: price paid per unit of labor service -nominal: actual amount paid -real: purchasing power, quantity goods and services worker can obtain wage differentials: from forces of supply and demand. influenced by diff in work ers marginal revenue, productivity, skills, nonmonetary differences - several la bor markets are imperfect because of discrimination, etc TOTAL COSTS OF PRODUCTION: total=Explicit (out of pocket) + implicit (opportunit y/nonexpenditure) Economic profit: after all factors of production have been returned to

Normal profit: return to entrepreneur rent ceilings=shortages externalities=increase production costs patents=encourage innovations but creates monopoly international trade=mutual advantage, compare costs asymmetric information -adverse selection: prior knowledge -moral hazard: alter behaviro after agreement antitrust laws: pro-competition bundled choices: pub sector failure, don't agree with all positions yet must acc ept business combinations: to increase profitability -conglomerate/circular: unrelated subsidiaries under central management -horizontal: same level of production, increase market share, targeted by antitr ust laws -vertical: diff level of production, cut costs countervailing power: market power of buyers/sellers offsets each other tax shift/incidence -inelastic demand--> consumer -inelastic supply--> producers types of taxes -progressive: avg tax rate directly with income -proportional -regressive