Finals Review Flashcards
What are the steps to figuring out the comparative advantage.
Step 1: See How Long Each Task Takes to find Opportunity Cost
For example: You can mow 1 lawn or weed 1 flower bed in one hour therefore:
Opportunity cost of mowing = 1 flower bed.
Your partner’s rate of work: Your partner can mow 1.5 lawns or weed 2 flower beds in one hour.
Opportunity cost of mowing = 2/1.5 = 4/3 flower beds.
Opportunity cost of weeding = 1.5/2 = 3/4 lawns
Step 2: Evaluate! Who can
produce each good at the
lowest opportunity cos
Comparative Advantage
Comparative advantage is when a country (or person) can produce a good at the lowest opportunity cost compared to another country. It’s about focusing on what you’re relatively better at producing! 🌾🚗
Absolute Advantage
Absolute advantage is about overall productivity, while comparative advantage considers opportunity costs to determine specialization and trad
Risk neutral
Indifferent to uncertainity
Person’s Utility
Measure of their Well-being
What are the five forces framework
1) Threat of New Entrant
2) Bargainning Power of Supplier
3)Bargaining Powers of Buyers
4) Threat of Substitution
5) Industry Rival
A natural monopoly occurs
when a single firm can supply the entire market’s demand at a lower average total cost than could be achieved by multiple firms competing in the market. This is often the case in industries with high fixed costs and significant infrastructure requirements, such as water distribution networks.
Profit Maximizing Quantity
Find where MR= MC
2. look at the quantity
Profit Maximazing Profit 4 a Monopoly
- Find Where MR= MC
- Trace it Back to Demand Curve
- Look its Pirce
Total Revenue
Price * Quantity
ATC
1) Find TR On Grape
2) Trace it back to Hit ATC
3) It’s that square
Socially Optiminal Quantity
- Find where Marginal Cost = ATC
- Trace Down to Quantity
How does monopoly produce deadweight lost
They produce to little output and charges to high of a price
Quantity with No Economic Profit
Total Revenue= TC
Imperfect Competition
Monoloy
Biography
Monopolysitc
In Imperfect Competition Firms must -___ prices to sell ___ output
lower prices; more output
Marginal Revenue is ___ the demand
below
When a firm operates under monopoly conditions, it is the sole seller of a product or service in the market. While this gives the firm significant pricing power, the price it sets is still constrained by ______.
market demand
In perfect competiton a firm is a price taker hence
P=MR=MC
Since a monopolist is a price maker meaning it has market power it can influence price by charging output
MC=MR
Price discrimination involves
discriminating for the same product
Marginal Private Cost
he extra costs paid by the seller from producing
one extra unit.
Gas Example: Money spent on extra labor, electricity, etc., needed to produce
another gallon of gas.
Marginal External Cost:
The extra cost imposed on bystanders from
producing one extra unit.
Gas Example: The additional pollution from this extra gallon of gas
Marginal Social Costs =
Marginal Private Costs + Marginal External Costs
Marginal Private Benefit:
The extra enjoyment by the buyer from
purchasing one extra uni
Marginal External Benefit
The extra benefit accruing to bystanders from
one extra unit
Marginal Social Benefit =
Marginal Private Benefit + Marginal External
Benefit
Socially optimal quantity is located where
Marginal social benefit = Marginal social cost
