MICROECONOMICS
competitive market
government intervention
tax
subsidy
externalities (failure of the market to achieve a social optimum where MSB = MSC)
positive externalities of production
elasticity
PED (price elasticity of demand)
PES (price elasticity of supply)
XED (cross price elasticity of demand)
YED (income elasticity of demand)
price floor
price ceiling
positive externalities of consumption
negative externalities of consumption
negative externalities of production
supply
demand
market equilibrium
market failure
public goods
common access resource
theory of firm
long run
short run
Qd - price ; negative casual relationship
Qs - price ; positive casual relationship
non price determinants
non price determinants
income
preference/taste
substitutues/complements
normal goods
inferior goods
demographic change
Qd = a – bP
changes in a, there will be a shift of the demand curve.
change in “b” affects the steepness of the demand curve.
cost of production
technology
number of firms in the market
tax/subsidy
Qs = c + dP
if the “c” term changes, there will be a shift of the supply curve.
change in “d” affects the steepness of the supply curve.
excess demand
excess supply
where S and D intersect
price mechanism
signalling function
incentive function
These two functions result in a reallocation of resources when prices change as a result of a change in demand or supply conditions.
market efficiency
consumer surplus
producer surplus
allocative efficiency
the best allocation of resources from society’s point of view is at competitive market equilibrium, where social surplus (consumer surplus + producer surplus) is maximized
responsiveness of quantity demanded to a change in price
determinants
number and closeness of substitutes
degree of necesity
time to respond
proportion of income spent
determinants
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responsiveness of demand for one good (and hence a shifting demand curve) to a change in the price of another good.
substitutes
complementary goods
negative
positive
absolute value of XED depends on the closeness of the relationship between two goods
responsiveness of demand (and hence a shifting demand curve) to a change in income.
normal goods
inferior goods
positive
negative
relatively low YED for primary products
relatively higher YED for manufactured products and an even higher YED for services.
responsiveness of quantity supplied to a change in price along a given supply curve.
time
mobility of factors of production
unused capacity
ability to store stocks
specific tax
ad volurem tax
consequence
consumer
producer
government
why
consequence
why
government
consumer
producer
failure of the market to achieve allocative efficiency, resulting in an over-allocation of resources or an under-allocation of resources
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goals of firm
profit maximization
revenue maximization
growth maximization
satisficing / CSR