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10 Cards in this Set
- Front
- Back
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Under perfect competition or monopolistic competition, economic profits go to zero because of the entry of new firms increases market supply and lowers prices.
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Economic profits are under no pressure to shrink under oligopoly or monopoly because entry doesn’t occur so prices do not fall.
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A firm should
a) produce an amount such that Marginal Revenue equals Marginal Cost (MR=MC), unless |
A firm should
a) produce an amount such that Marginal Revenue equals Marginal Cost (MR=MC), unless |
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The Relationship Between Slope and Elasticity
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The Relationship Between Slope and Elasticity
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The Verbal Explanation
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A good for which there are no good substitutes is likely to be one for which you must pay whatever price is charged. It is also likely to be one for which a lower price will not induce substantially greater consumption. Thus, as price changes there is very little change in consumption, i.e. demand is inelastic and the demand curve is steep.
Inexpensive goods that take up little of your income can change in price and your consumption will not change dramatically. Thus, at low prices, demand is inelastic. |
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At equilibrium the sum of producer and consumer surplus is as big as it can be (ABC).
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At equilibrium the sum of producer and consumer surplus is as big as it can be (ABC).
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Why the New Equilibrium?
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*If price of ipads drop suddenly, many more will be sold, and it may cause a shortage. If it is increased, less will be bought, creating excess.
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Income & Normal Goods
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You buy more of a normal quality good when you have more income.
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Income & Inferior Goods
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You buy less of a lower quality good when you have more income
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Taste
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Determinant of whether the good is in fashion or whether conditions are right for many people to want the good.
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Number of and Closeness of Substitutes
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The more alternatives you have the less likely you are to pay high prices for a good and the more likely you are to settle for something that will do
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