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./SherryYao2013530299APMICROREVIEWBasicEconomicConcepts<8%-14%>Scarcity,choice,andopportunitycostScarcity:thelimitednatureofsociety’sresourcesEconomics:thestudyofhowsocietymanagesitsscarceresourcesPeoplefacetrade-off<efficiencyorequality>Opportunitycost:whatevermustbegivenuptoobtainsomeitemProductionpossibilitiescurveTheproductionpossibilitiescurveshowsthecombinationsofoutputthattheeconomycanpossiblyproducegiventheavailablefactorsofproductionandtheavailableproductiontechnologyQy1.TheoppcostofQxequalstheslopeofcurve2.TheoppcostofQxishigher,thecurveissteeper3.oppcostisconstant,thePPFisstrictline4.Technologyadvance→PPFshiftIInefficientQxComparativeadvantage,absoluteadvantage,specializationandtradeComparativeadvantage:theabilitytoproduceagoodataloweropportunitycostthananotherproducerAbsoluteadvantage:theabilitytoproduceagoodusingfewerinputsthananotherproducersTradecanbenefiteveryoneinsocietybecauseitallowspeopletospecializeinactivitiesinwhichtheyhaveacomparativeadvantage.EconomicsystemPropertyrightsandtheroleofincentivesPropertyrights:theabilityofanindividualtoownanexercisecontroloverscarceresourcesMarketpowerMarketfailure:allocateresourcesinefficiently←NegativeexternalityIncentive:somethingthatinducesapersontoact<theprospectofapunishmentorareward>MarginalanalysisMarginalchange:asmallincrementaladjustmenttoaplanofactionPeoplemakechoicewhenmarginalbenefit＞marginalcost2.TheNatureandFunctionsofProductMarkets<55%-70%>SupplyandDemand<15%-20%>MarketequilibriumAsituationinwhichthemarketpricehasreachedthelevelatwhichquantitysuppliedequalsquantitydemandedDeterminantsofsupplyIncome:income↓,demandofnormalgoods↓,demandofinferiorgood↑Pricesofrelatedgoods:priceofsubstitute↓,demandofanothergood↓priceofcomplements↓,demandofanothergood↑TastesExpectations:expecthigherincome,demand↑Numberofbuyers:buyers↑,demand↑DeterminantsofdemandInputprice:inputprice↑,supply↓Technology:advanceintechnology,supply↑Expectations:expectthepriceofgoods↑,supply↑Numberofsellers:numberofsellers↑,supply↑PriceandquantitycontrolsDemand→,price↑,quantity↑Supply→,price↓,quantity↑ElasticityDemandCurveInelastic:Price↑,totalrevenue↑DemandCurveElastic:Price↑,totalrevenue↓NormalGoods&IncomeElasticity:TheQuantityofNormalGoodsmovesthesamedirectionwiththePercentageofIncome對normalgoods的需求量與收入變動同方向運動TheElasticityofNormalGoodsisusuallypositiveInferiorGoods&IncomeElasticityTheQuantityofInferiorGoodsmovestheoppositedirectionwiththePercentageofIncome對inferiorgoods的需求量與授予變動反方向運動TheElasticityofInferiorGoodsisusuallynegativeExy＞1,substitute,Exy＜1,complementaryConsumersurplus,producersurplus,andallocativeefficiencyConsumersurplus:theamountabuyeriswillingtopayforagoodminustheamountthebuyeractuallypaysforitProducersurplus:theamountasellerispaidforagoodminustheseller’scostofprovidingitAllocativeefficiency:thelastunitprovidesmarginalbenefittoconsumer=themarginalcosttoproducerTaxincidenceanddeadweightlossTaxincident:themannerinwhichtheburdenofataxisasharedamongparticipantsinamarketElasticity↑,thetaxburden↓Deadweightloss:thefallintotalsurplusthatresultsfromamarketdistortionsuchastaxTheoryofconsumerchoice<5%-10%>TotalutilityandmarginalutilityTotalutility:TheaggregatelevelofsatisfactionorfulfillmentthataconsumerreceivesthroughtheconsumptionofaspecificgoodorserviceMarginalutility:gainfromanincrease,orlossfromadecrease,inthe

consumptionofthatgoodorserviceUtilitymaximization:equalizingmarginalutilityperdollar.<MUX/PX=MUY/PY>IncomeandsubstitutioneffectsProductionandCosts<10%-15%>ProductionfunctionsProductionfunction:therelationshipbetweenthequantityofinputsusedtomakeagoodandthequantityofoutputofthatgoodThequantityoftheinput↑,theproductionfunctiongetsflatterMarginalproductanddiminishingreturnsMarginalproduct:theincreaseintheamountofoutputfromanadditionalunitoflaborDiminishingreturn:thepropertywherebythemarginalproductofaninputdeclinesasthequantityoftheinputincreasesShort-runcostsFixedcostintheshortrunLong-runcostsandeconomiesofscaleVariablecostinthelongrunEconomiesofscale:thepropertywherebylong-runaveragetotalcost↓asthequantityofoutput↑Diseconomiesofscale:thepropertywherebylong-runaveragetotalcost↑asthequantityofoutput↑Constantreturnstoscale:thepropertywherebylong-runaveragetotalcoststaysthesameasthequantityofoutputchangesCostminimizinginputcombinationandproductiveefficiencyEfficientscale:thequantityofoutputthatminimizedaveragetotalcostProducesgoodsinthequantitywhereMCintersectwithATC<minATC>Firmbehaviorandmarketstructure<25%-35%>ProfitShort-runprofit:WhenATC＜<MR=MC>Long-runprofit<Normalprofit>=zeroEconomicprofit:totalrevenue-totalcost<explicit+implicit>Accountingprofit:totalrevenue-totalexplicitcostProfitMaximization:producewhereMC=MRPerfectcompetitionCharacteristics:PricetakesFreeentry&exitManysellers&buyersFullysubstitutablePerfectlyelastic<demandcurveHomogenousLongrun:P=ATCMC=MR=PProfitmaximization:MC=MR=P=ATCShortrunsupplyandshutdowndecision:1.P<ATC:EconomicLoss2.AVC<P<ATC:OperateintheShortrunbutexitinthelongrun3.P=AVC/P<AVC:shutdowninshortrunShort-runsupply=MCShort-runsupply=MCMarketMarketFirmFirmMonopolyCharacteristics:singlesellerHighbarrierstoentryNosubstitutes<havekeyresources>InelasticPricemakerEconomicsprofit<P＞MC=MR>P*P*Profitmaximization:producequantityinQ*,priceinP*Naturalmonopoly:asinglefirmcanproduceoutputatalowercostthancanalargernumberofproducers<MChorizontal>Inefficiencyofmonopoly:Price＞MR=MC→deadweightlossPricediscrimination:thebusinesspracticeofsellingthesamegoodatdifferentpricestodifferentcustomers<reduceconsumersurplus→profit>Socialoptimal:MC=DMonopolycompetitionCharacteristics:monopoly＜numberofsellers＜competitivemarketImperfectsubstitutesImperfectinelasticityHeterogeneousproductsPricemakerLong-runprofit=zeroMR=MCDecideP*andQ*MR=MCDecideP*andQ*Short-runmonopolycompetitionP*=ATCEcoProfits=0P*=ATCEcoProfits=0P*>minATCP*>MCP*>MRLong-runmonopolycompetitionExcesscapacity:thequantityproduced＜efficientscale→excesscapacitytheprice＞marginalcost→markupTheproduct-varietyexternality:positiveexternalityThebusiness-stealingexternality:negativeexternalityOligopolyCharacteristics:fewsellerscontrolthewholemarketFewersubstitutesPricemakerInterdependenceinpricingInefficiencyEconomicprofitP＞MC.P＞MRCollusion:anagreementamongfirmsinamarketaboutquantitiestoproduceorpricestochargeCartel:agroupoffirmsactinginunisonGametheory:thestudyofhowpeoplebehaveinstrategicsituationNashequilibrium:reachedwhenthechoicesofallfirmsaresuchthatthereisnootherchoicethatmakesanyfirmbetteroff<increasesprofitsordecreaseloss>Dominantstrategy:astrategythatisbestforaplayerinagameregardlessofthestrategieschosenbyotherplayersTheoutputeffect:P＞MC,output↑,profit↑Thepriceeffect:Q↑,P↓,profit↓Outputeffect＞priceeffect→increaseproduction3.FactorMarkets<10%-18%>DerivedfactordemandDemandforafactorofproductionMarginalrevenueproductTheadditionunitofproductbringsadditionrevenueHiringdecisionsinthemarketsforlaborandcapitalAcompetitive,profit-maximizingfirmhiresworkersuptothepointwheretheVMPL=wageMarketdistributionofincomeWage=VMPL=PricexMPLLabordemandshiftP↑,VMPL↑,labordemand→AdvanceintechnologyThesupplyofotherfactorsLaborsupplyshiftChangesintastesChangesinalternativeopportunitiesimmigration4.MarketFailureandtheRoleofGovernment<12%-18%>ExternalitiesPositiveexternality:socialbenefit＞privatebenefitNegativeexternality:socialcost＞privatecostCorrectivetax:ataxdesignedtoinduceprivatedecisionmakerstotakeaccountofthesocialcoststhatarisefromanegativeexternalitySubsidiesPublicgoodsPrivategoods:excludable&rivalinconsumption<clothing/congestedtollroads>Publicgoods:notexcludable¬rivalinconsumption<nationaldefense/uncongestednontollroads>Commonresources:notexcludable&rivalinconsumption<environment/congestednontollroads