Lecture 01

Front 1

Perfect Competition: What is perfect competition? What are assumptions made about P.C.? What is the profit max?

Back 1

Perfect competition is a market where businesses are price takers that take the market price of their product as given and produce the quantity of output where marginal cost equals that price.

There must be many markets that sell an identical product, and there is freedom of entry and exit. Furthermore, there is no advantage for existing firms. There will be a trend towards a long run supply curve where economic profit is zero as more firms enter the market and increase the quantity of supply and decrease demand for consumers. Output markets are competitive. Input markets are competitive. Everyone has perfect information. There are no externalities or public goods.

Profit max is when the MR (marginal revenue) = MC (marginal cost)

Front 2

Monopoly: What is it? What are assumptions made about monopolies?

Back 2

Monopoly is a type of imperfect competition where a lone seller is the price setter of a unique product. There are huge or infinite barriers to entry (whether through government or anything else). There is a huge advantage for existing firm. There is only one price. There is no trend towards the long run supply curve where economic profit is zero.

Front 3

Externalities: What are they?

Back 3

They are activities that incur a cost or benefit that affect those not directly involved in the activity, affecting allocation of resources in an efficient market and personal self-interests.

Front 4

Public Goods: What are they?

Back 4

They are goods that are nonrival and nonexcludable. A nonrival good is one whose consumption by one person does not diminish its availability to others. Nonexcludable means that it is difficult to exclude nonpayers of the good from consuming it. Examples include fireworks on the New York harbor or the broadcast of The Late Show with David Letterman.

Front 5

Deadweight Loss: What is it?

Back 5

It is the reduction of the total economic surplus (for both producers and consumers) that results from adoption of a certain policy.

Front 6

Pareto Efficiency: What is it?

Back 6

A market or a situation is pareto efficient if a change can occur that will make some people better off without harming others.

Front 7

Marginal Cost: What is it?

Back 7

The increase in total costs that results from carrying out one additional unit of an activity.

Front 8

Application of Perfect Competition: What can perfect competition lead to? What conditions must be met for this situation to occur? What is the Key Efficiency Condition?

Back 8

Perfect competition leads to a pareto efficiency allocation of resources. The value of market price (VMP) of last input employed by all firms equals the input price. If the price of product is P, everyone with product will value it at P or more. P = MC for all goods and services produced.

The Key Efficiency Condition is when Price = Marginal Cost.

Front 9

Sources of Market Failures: What are they?

Back 9

They include imperfect markets (monopolies, oligopolies, differentiated product), imperfect information, external costs/benefits, and public goods (that are non-rival in consumption and nonexcludable)

Front 10

Health Market: What are characteristics of the health market? What is special about the health market? What are the total expenditures for the year of 2013?

Back 10

The health market has the most imperfections of all markets. There is imperfect and asymmetric information (about health, sickness). There is imperfect competition. There are public goods and externalities (such as vaccines). And there is great government intervention in the market.

The total expenditures were 17.4 percent of the nation’s GDP, growing from 5.1 percent back in 1960.

Front 11

United Network for Organ Sharing: What is this organization? What is controversial about the case of Mickey Mantle?

Back 11

UNOS distributes organs in the US to patients whose doctors have placed on waiting lists. These potential recipients are ranked according to many things (blood type, medical urgency, etc.). Mickey Mantle was a prominent former baseball player whose sickness necessitated a liver transplant. He received one within two days to much controversy since many others have waited much longer than that.

Front 12

Market for Organs: How is it? How is the supply and demand?

Back 12

There is a huge shortage of organs to the demand for organ donation (quantity demanded greatly exceeds the quantity supplied).

There is a demand of 40,000 organs in the US with 8 out of 12 Americans who need a transplant dying every year, but the suppliers have flatlined with about 4,900 for the past five years.

Front 13

Potential Supply of Organs: What can organs come from? How long was the waiting time back in 2006?

Back 13

They can come from cadaveric organs (40% of them are donated) or from live donors.

According to UNOS in 2006, the median number of the waiting list nationally was 306 days.

Front 14

Equilibrium Price: What are the costs of donating an organ? How much would an average person be paid to sell a kidney?

Back 14

The cost of donating an organ has 3 main parts: the risk of death due to harvesting organ, the lost time due to surgery and recovery time, and the risk of reduced quality of life as a result of donation.

They estimate a person with a salary of $35,000 would be willing to sell a kidney for $15,200.

Front 15

Additional Ideas on Organ Market: What are some proposals that can increase the donor amount and create efficiency in the market?

Back 15

Some ideas include giving a $100 bonus to those that sign up to be a donor when getting a driver’s license, give priority to those who request a transplant organ based on if and how long they have been a registered organ donor, and putting everyone on the donor list unless they request themselves not to be on there.

Front 16

Marginal Benefit: What is it?

Back 16

The increase in total benefits that results from carrying out one additional unit of an activity.