Unit 1: Markets are Efficient, Except . . . Intro to Microeconomics

Lesson 3a: Demand

3a Introduction

If the price of pizza goes up, what happens to the demand for pizza? . . . . . . . . . . . . . . . . . . . NOTHING! Nothing happens to the demand for pizza if the price changes! The next three lessons introduce the demand and supply model for explaining how prices arise and change in a market economy. Learn these lessons well. Do the assigned problems. Draw the graphs in the yellow pages and while you are reading and studying. DRAW GRAPHS! Get used to using the graphs to help you answer questions. If you are avoiding drawing the graphs you will do poorly and not get the practice that you need to learn the concept. Be sure to LABEL the axes of every graph that you draw. So why doesn't the demand for pizza change if the price changes? Because economists have a different definition of "demand". Demand is NOT the quantity that we buy. If the price of pizza goes up we will buy less, but that is not what "demand" means in economics. Economists tend to be precise with their definitions and sometimes their definitions are different than the more commonly used definitions. Things like "scarcity", "investment", "cost", "demand", and "supply", have different definitions in economics than what you may already know. Learn our definitions! Demand is not how much we buy. Demand has a different definition in economics. "Demand" means the "demand graph". Remember, that econmists use models (like the supply and demand model) to simplify the real world. They do this by isolating certain variables from all the clutter found in reality. Then by changing one variable at a time economists can see what effect it will have. In this lesson we will learn the economic definition of DEMAND and plot the demand graph. Then, we will look at one variable at a time to see what effect they have on the demand curve. We call these variables the "non-price determinants of demand". They are: Pe, Pog, I, Npot, T (P,P,I,N,T). LEARN THEM! LEARN THEM WELL! Know how each one affects the demand curve. Be sure to do the yellow pages.

3a Something Interesting - Why are we studying this?

What is that Campbell's Pork and Beans can doing on the display for VanCamp's Pork and Beans (see below)? After studying this lesson you will be able to draw a graph illustrating what happened to the demand for Campbell's Pork and Beans when a customer took a can out of their shopping cart and placed it on this display of VanCamp's Pork and Beans that were on sale. Which non-price determinant of demand explains why that Campbell's soup can is there?

3a Assignments: Readings

Ch 3, pp. 47-53 Optional, but very useful Lecture Outline

3a Assignments: Video Lectures

2.1.1 Understanding the Determinants of Demand 11:58 [MyNotes] 2.1.2 Understanding the Basics of Demand 11:54 [MyNotes] 2.1.3 Analyzing Shifts in the Demand Curve 8:13 [MyNotes] 2.1.4 Changing Other Demand Variables 10:43 [MyNotes] 2.1.5 Deriving a Market Demand Curve 9:16 [MyNotes] OPTIONAL: Linear Demand Equations Part 1 with exercises (econclassroom.com 6:41) Linear Demand Equations -- Shifts in Demand (econclassroom.com 14:16)

3a Outcomes - What you should learn

TOPICS Definition of demand Changes in Demand vs. Changes in Quantity Demanded Non-price determinants of demand and they affect the demand curve OUTCOMES define demand (note: it has a DIFFERENT DEFINITION in economics) If the price of pizza goes up, why does the demand for pizza stay the same? be able to correctly draw and label a demand graph why do economists employ the ceteris paribus assumption when creating a demand curve? what is the law of demand? why is the demand curve downward sloping (three explanations) list the non-price determinants of demand (Pe. Pog, I, Npot, T) or (P, P, I, N, T ) and understand how they affect the demand schedule and curve. This is VERY IMPORTANT. BE ABLE TO DO THIS! See the 3a/3b/3c yellow pages. explain the difference between the a "change in the quantity demanded" and a "change in demand" what is an "increase in demand" and a "decrease in demand" and show how they affect the demand schedule and the demand curve what is "market demand"? what is that Campbell's Pork and Beans can doing on the display for VanCamp's Pork and Beans (see picture at left)? Which non-price determinant of demand explains why that Campbell's soup can is there? Draw a supply and demand graph illustrating what happened in the market for Campbell's Pork and Beans when VanCamp's were put on sale.

3a Non-Price Determinants of Demand and Supply

Non-Price Determinants of Demand (PPINT) Pe -- expected price Pog -- price of other goods 1) substitute goods 2) complementary goods 3) independent goods I -- income 1) normal goods 2) inferior goods N -- number of POTENTIAL consumers T -- tastes and preferences Non-Price Determinants of Supply (PPPTTN) Pe -- expected price Pog -- price of other goods produced by same firm Pres -- price of resources T --technology T --taxes and subsidies N -- number of producers/sellers   NON-PRICE DETERMINANTS OF DEMAND Pe -- expected price Pe in the future D today Pe in the future D today Pog -- price of other goods 1) substitute goods P Maxwell House coffee D Folgers coffee P of one product D of its substitute 2) complementary goods P of wieners D of buns P of one product D of its compliment I -- income 1) normal goods Income D for normal goods Income D for normal goods 2) inferior goods Income D for inferior goods Income D for inferior goods Npot -- number of POTENTIAL consumers Npot D Npot D T -- tastes and preferences Tastes for a product D for that product Tastes for a product D for that product   NON-PRICE DETERMINANTS OF SUPPLY Pe -- expected price Pe in the future S today Pe in the future S today Pog -- price of other goods also produced by the same firm P soybeans S corn P soybeans S corn Pres -- price of resources worker's wages cost of making cars S cars Pres costs S Pres costs S Tech --technology Improved technology costs S Tax --taxes and subsidies Taxes costs S Taxes costs S Subsidies costs S Subsidies costs S N -- number of producers/sellers Nproducers S Nproducers S

3a Key Terms

Key Terms Flash Cards - Click Here Key Terms: demand, quantity demanded, law of demand, market demand, horizontal summation, income effect, substitution effect, diminishing marginal utility, change in demand, change in quantity demanded, increase in demand, decrease in demand, non-price determinants of demand, normal good, inferior good, substitute good, complementary good (complement), independent goods

3a Practice Quiz (under construction)

3a Key Graphs

The Demand Curve Changes in Demand Market Demand (horizontal summation of indievidual demand curves)

3a Review Videos

- Demand and Supply Explained- Econ 2.1 [6:20 YouTube ACDC Leadership] NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the LESSONS link on Blackboard for these assignments.

Unit 1: Markets are Efficient, Except . . . Intro to Microeconomics

Lesson 3b: Supply

3b Introduction

If the price of pizza goes up what happens to the SUPPLY of pizza? . . . . . . . . . . NOTHING! A change in the price of a product does not affect its supply, or its demand. When the price goes up the QUANTITY SUPPLIED will increase, but the supply does not change. Learn the difference between "supply" and "quantity supplied". "Supply" does NOT MEAN the quantity available for sale. Supply has a different definition in economics. "Supply" means the "Supply graph". So what would cause the supply graph, or supply itself, to change? Those things that cause supply to change are called the "non-price determinants of supply". They are: Pe, Pog, Pres, Tech, Tax, Nprod (P,P,P,T,T,N). See the Yellow Pages. Remember, the goal of chapter 3 is to learn a model that will help us understand why prices are what they are and why prices change. In the next lesson we will put demand and supply together and use the model (graph) to find the prices of products. Then, and more importantly, we will see what causes prices to change. If you hear on the news, or read in your news app, that the price of gasoline is going down, we will be able to explain WHY. The causes of changes in prices of products are the five non-price determinants of demand (Pe, Pog, I, Npot, T) and/or the six non-price determinants of supply (Pe, Pog, Pres, Tech, Tax, Nprod.). Whenever you hear that the price of something is changing think of these 11 possible causes.

3b Something Interesting - Why are we studying this?

Read the short news article below on the declining price of gasoline (Dec. 2015). Paragraph 10 states "Plunging oil prices are the main factor driving down the price at the pump." Gas falls below $2 a gallon [http://money.cnn.com/2015/12/20/news/economy/aaa-2-dollar-gas/index.html] After studying this lesson you should be able to: (1) list the non-price determinants of supply (2) select the determinant that is the cause of the decline in gasoline prices discussed in the news article, and (3) graph the effect that the change in the determinant will have on the supply curve for gasoline.

3b Assignments: Readings

Ch3, pp. 53-56 http://www.npr.org/blogs/parallels/2015/01/28/382173205/where-is-all-that-excess-oil-going [Why are they storing oil? What is happening to supply? Which determinant has caused the supply to change?] Optional, but very useful Lecture Outline

3b Assignments: Video Lectures

2.2.1 Understanding the Determinants of Supply 7:25 [MyNotes] 2.2.2 Deriving a Supply Curve 9:49 [MyNotes] 2.2.3 Understanding a Change in Supply versus a Change in Quantity Supplied 6:52 [MyNotes] 2.2.4 Analyzing Changes in Other Supply Variables 8:47 [MyNotes] 2.2.5 Deriving a Market Supply Curve from Individual Supply Curves 7:16 [MyNotes]

3b Outcomes - What you should learn

TOPICS Definition of supply Changes in Supply vs. Changes in Quantity Supplied Non-price determinants of supply and how they affect the supply curve OUTCOMES define supply (note: it has a DIFFERENT DEFINITION in economics) be able to correctly draw and label a supply graph if the price of pizza goes up why does the supply not change? why do economists employ the ceteris paribus assumption when creating a supply curve? what is the law of supply? why is the supply curve upward sloping (two explanations) list the non-price determinants of supply (Pe, Pog, Pres, Tech, Taxes, Nprod) or (P,P,P,T,T,N) and understand how they affect the supply schedule and curve. This is VERY IMPORTANT. BE ABLE TO DO THIS! See the 3a/3b/3c yellow pages. explain the difference between the a "change in the quantity supplied" and a "change in supply" what is an increase in supply and a decrease in supply and show how they affect the supply schedule and the supply curve what is "market supply"? Read the following and answer these questions: Which determinant has changed? Will it affect S or D of gasoline? Will the S or D of gasoline increase or decrease? Shift to the right or to the left? "According to the Lundberg Survey, the average price for regular gasoline dropped 3.99 cents over the three weeks up to July 11 to $3.6699 per gallon. . . . Lundberg explained that the average gasoline price continues to decrease because refiners, enjoying the lower crude oil prices in the market, are passing down the savings to the consumers. " From: http://www.techtimes.com/articles/10378/20140714/average-price-of-gasoline-in-u-s-drops-four-cents-now-at-3-67-a-gallon.htm

3b Non-Price Determinants of Demand and Supply

Non-Price Determinants of Demand (PPINT) Pe -- expected price Pog -- price of other goods 1) substitute goods 2) complementary goods 3) independent goods I -- income 1) normal goods 2) inferior goods N -- number of POTENTIAL consumers T -- tastes and preferences Non-Price Determinants of Supply (PPPTTN) Pe -- expected price Pog -- price of other goods produced by same firm Pres -- price of resources T --technology T --taxes and subsidies N -- number of producers/sellers   NON-PRICE DETERMINANTS OF DEMAND Pe -- expected price Pe in the future D today Pe in the future D today Pog -- price of other goods 1) substitute goods P Maxwell House coffee D Folgers coffee P of one product D of its substitute 2) complementary goods P of wieners D of buns P of one product D of its compliment I -- income 1) normal goods Income D for normal goods Income D for normal goods 2) inferior goods Income D for inferior goods Income D for inferior goods Npot -- number of POTENTIAL consumers Npot D Npot D T -- tastes and preferences Tastes for a product D for that product Tastes for a product D for that product   NON-PRICE DETERMINANTS OF SUPPLY Pe -- expected price Pe in the future S today Pe in the future S today Pog -- price of other goods also produced by the same firm P soybeans S corn P soybeans S corn Pres -- price of resources worker's wages cost of making cars S cars Pres costs S Pres costs S Tech --technology Improved technology costs S Tax --taxes and subsidies Taxes costs S Taxes costs S Subsidies costs S Subsidies costs S N -- number of producers/sellers Nproducers S Nproducers S

3b Key Terms

Key Terms Flash Cards - Click Here Key Terms: supply, quantity supplied, market supply, law of supply, change in supply, change in quantity supplied, increase in supply, decrease in supply, non-price determinants of supply

3b Practice Quiz (under construction)

3b Key Graphs

The Supply Curve Changes in Supply

3b Review Videos

- Demand and Supply Explained (2 of 2) - Econ 2.2 [4:54 YouTube ACDC Leadership] NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the LESSONS link on Blackboard for these assignments.

Unit 1: Markets are Efficient, Except . . . Intro to Microeconomics

Lesson 3c: Market Equilibrium and Efficiency

3c Introduction

We are going to learn two very important things in this lesson. First, we will put demand and supply together and learn how to use the model to to see why products have the prices that they do. Then, and more importantly, we will see what causes prices to change. If you hear on the news or read in your news app, that the price of gasoline is going down, we will be able to explain WHY. The causes of changes in prices of products are the five non-price determinants of demand (Pe, Pog, I, Npot, T) and/or the six non-price determinants of supply (Pe, Pog, Pres, Tech, Tax, Nprod.). Whenever you hear that the price of something is changing think of which of these 11 possible causes have changed, draw the graph and shift the appropriate demand and/or supply graph, and the graph will show the price changing. Second, after we learn that in a competitive market economy the interaction of demand and supply will determine what the prices of products will be and how much people will buy at that price, we will ask: Is this the allocatively efficient quantity and price? Our goal is to show that in a competitive market the price will change until allocative efficiency is achieved. In chapter 2 we learned that markets are allocatively efficient. This means they will produce the quantity of goods that maximizes the society's satisfaction. After studying chapter 3 we will bew able to show the allocatively efficient price and quantity on a graph. Competitive markets are efficient.

3c Something Interesting - Why are we studying this?

Read the first few paragraphs of Hybrid Car Prices Increasing Due To High Gas Prices. In lesson 3a you learned how the non-price determinants of demand (Pe, Pog, I, N, T) affect the demand curve. In lesson 3b you learned how the non-price determinants of supply (Pe, Pog, Pres, Tech, Tax, Nprod) affect the supply curve. After studying this lesson you will be able to use these determinants and the supply and demand graphs to explain why prices change. For example you will understand why: "It's becoming almost an annual tradition: As fuel prices rise in the spring, so do the prices of hybrid cars. "

3c Assignments: Readings

Ch. 3 pp. 56-61, 69-74 Ch. 5: pp. 93-99, Efficiently Functioning Markets Supply, Demand, and Economic Efficiency Optional, but very useful Lecture Outline

3c Assignments: Video Lectures

PUTTING SUPPLY AND DEMAND TOGETHER 2.3.1 Determining a Competitive Equilibrium 11:04 [MyNotes] 2.3.2 Defining Comparative Statics 7:02 [MyNotes] 2.3.3 Classifying Comparative Statics 11:54 [MyNotes] AC Micro 2.4 Double Shifts in Supply and Demand: Econ Concepts in 60 Seconds (2:34) EconMovies: Episode 4: Indiana Jones (Demand, Supply, Equilibrium, Shifts) (7:02) MARKETS AND EFFICIENCY Consumer and Producer Surplus in the Linear Demand and Supply Model (econclassroom.com 10:01) Efficiency and Equilibrium in Competitive Markets (econclassroom.com 11:48)

3c Outcomes - What you should learn

TOPICS Market Equilibrium Market Equilibrium and Changes in D and S Market Equilibrium and Allocative Efficiency MSB=MSC maximum consumer plus producer surplus OUTCOME Equilibrium what are the two assumptions of a competitive equilibrium? there are many buyers and sellers in the market who have no influence over the price; i.e. they are price takers define equilibrium; define market equilibrium what happens if the price is below the equilibrium price? If it is above it? how to find the equilibrium price and quantity on a supply and demand schedule and graph define "shortage" and "surplus" and explain using a supply and demand graph what is the "bidding mechanism"? the three (or four) steps to finding a new equilibrium when a non-price determinant changes and how to use them what happens to the equilibrium price and quantity if (1) demand increases, (2) demand decreases, (3) supply increases, and (4) supply decreases. what happens if both supply and demand change   Read the first few paragraphs of this 2012 news article and use the supply and demand model to explain why "Hybrid Car Prices Increasing Due To High Gas Prices". http://www.huffingtonpost.com/2012/03/21/hybrid-car-prices-increase_n_1367983.html Which determinant has changed? Will it affect S or D of Hybrids? Will S or D of Hybrids increase or decrease? What happens ot the S and D graph of hybrids? Markets and Efficiency be able to use two models to show why competitive market economies achieve allocative efficiency MSB=MSC maximum consumer plus producer surplus define consumer surplus and shade it in on a supply and demand graph define marginal social benefit and explain why it is often measured by the demand curve define producer surplus and shade it in on a supply and demand graph define marginal social cost and explain why it is often measured by the supply curve define deadweight loss and be able to locate it on a supply and demand graph if too much or too little is produced explain why allocative inefficiency occurs where MSB > MSC causing an underallocation of resources (too little produced); show on graph using the MSB=MSC model and show the deadweight loss on the consumer and producer surplus model explain why allocative inefficiency occurs where MSB < MSC causing an overallocation of resources (too much produced); show on graph using the MSB=MSC model be able to find WHAT WE GET and WHAT WE WANT on the MSB=MSC model graph

3c Non-Price Determinants of Demand and Supply

Non-Price Determinants of Demand (PPINT) Pe -- expected price Pog -- price of other goods 1) substitute goods 2) complementary goods 3) independent goods I -- income 1) normal goods 2) inferior goods N -- number of POTENTIAL consumers T -- tastes and preferences Non-Price Determinants of Supply (PPPTTN) Pe -- expected price Pog -- price of other goods produced by same firm Pres -- price of resources T --technology T --taxes and subsidies N -- number of producers/sellers   NON-PRICE DETERMINANTS OF DEMAND Pe -- expected price Pe in the future D today Pe in the future D today Pog -- price of other goods 1) substitute goods P Maxwell House coffee D Folgers coffee P of one product D of its substitute 2) complementary goods P of wieners D of buns P of one product D of its compliment I -- income 1) normal goods Income D for normal goods Income D for normal goods 2) inferior goods Income D for inferior goods Income D for inferior goods Npot -- number of POTENTIAL consumers Npot D Npot D T -- tastes and preferences Tastes for a product D for that product Tastes for a product D for that product   NON-PRICE DETERMINANTS OF SUPPLY Pe -- expected price Pe in the future S today Pe in the future S today Pog -- price of other goods also produced by the same firm P soybeans S corn P soybeans S corn Pres -- price of resources worker's wages cost of making cars S cars Pres costs S Pres costs S Tech --technology Improved technology costs S Tax --taxes and subsidies Taxes costs S Taxes costs S Subsidies costs S Subsidies costs S N -- number of producers/sellers Nproducers S Nproducers S

3c Key Terms

Key Terms Flashcards - Click Here Market Equilibrium equilibrium, market equilibrium, bidding mechanism, surplus, shortage, scalping, Efficiency productive efficiency, allocative efficiency, marginal social benefits, marginal social costs, "what we get", "what we want", profit mximizing quantity, underallocation of resources, overallocation of resources, consumer surplus, producer surplus, deadweight loss

3c Practice Quiz (under construction)

3c Key Graphs

Market Equilibrium Changes in Demand and Supply and the Effects on Equilibrium P and Q Market Equilibrium is Efficient

3c Review Videos

- Shifting Demand and Supply- Econ 2.3 [4:49 YouTube ACDC Leadership] - Double Shifts- Econ 2.5 (Technical Tuesday) [3:26 YouTube ACDC Leadership] - Micro 4.13 Dead Weight Loss- Key Graphs of Microeconomics [4:45 YouTube ACDC Leadership] - Micro 2.7 Consumer and Producer Surplus and Dead Weight Loss [3:42 YouTube ACDC Leadership] NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the LESSONS link on Blackboard for these assignments.

Unit 1: Markets are Efficient, Except . . . Intro to Microeconomics

Lesson 5a: Government Interference in Markets and Market Failures (Negative Externalities)

5a Introduction

In lesson 3c we learned that competitive markets are efficient and we learned two models to show that markets are efficient: (1) MSB = MSC, and (2) maximum consumer plus producer surplus. You must understand these models to understand chapter 5. In chapter 5 we learn that SOMETIMES markets are NOT efficient. When are product markets not efficient? 1. when the government sets the price (price ceilings and price floors - lesson 5a, chapter 3, pp 61-64 ) 2. when the supply curve does not include all of the costs of producing or consuming the product (negative externalities - lesson 5a, chapter 5) 3. when the demand curve does not include all of the benefits of consumption (positive externalities - lesson 5b, chapter 5) 4. when the products are "public goods" (lesson 5b, chapter 5). 5. when there is not competition (monopolies and oligopolies - chapters 10 and 11) In this lesson we also will begin our look at the role of the government in a market economy. This would be a good time to review chapter 2. In chapter 2 we learned that there is a limited role for government in market economies. We learned in lesson 3c that markets are efficient, so there is little need for the government. In this lesson we will see what happens if the government interferes in markets. We will learn that sometimes governments will set prices (price ceilings and price floors), rather than letting the market set the price. In other words: SOMETIMES GOVERNMENTS CAUSE ALLOCATIVE INEFFICIENCY. (This is the plywood after a hurricane example discussed in the 5Es reading in lesson 1b.) Then we will begin to look at examples of when the markets on their own fail to achieve allocative efficiency and examine what the government can do to correct these market failures. SOMETIMES MARKETS BY THEMSELVES ARE INEFFICIENT and the government may try to modify the market to help it achieve allocative efficiency. There are three MARKET FAILURES that we will look at in chapter 5. A "market failure" occurs when the market fails to achieve allocative efficiency. In lesson 5a we look at the market failure caused by negative externalities - when the supply curve does not include all of the costs to society of producing and consuming the product. Then in lesson 5b we look at the market failures caused by positive externalities and public goods. We will assume that businesses will always produce the profit maximizing quanitity since their goal is to maximize profits. The profit maximizing quantity is also the equilibrium quantity that we studied in chapter 3, when the Qs = Qd. This is WHAT WE GET. We get whatever they produce and they will produce the quantity that gives them the biggest profits. The goal of business is not to be efficient. Their goal is to maximize their profits. If a business can make larger profits by being inefficient then they will be inefficient. Or if they can make larger profits by being efficient they they will be efficient. The main point is that efficiency is not their goal, rather, maximizing profits is their goal. The allocatively efficient quantity is what society wants. We learned at the end of chapter 3 that allocative efficiency occurs at the quantity where MSB = MSC. This is WHAT WE WANT. We want to maximize our satisfaction and we learned in chapter 1 that this occurs when we achieve the 5 Es. Allocative efficiency is one of the 5 Es. When the profit maximizing quantity equals the allocatively efficient quantity then markets are efficient . This means that profit maximizing businesses are producing the quantity that maximizes society's satisfaction. WHAT WE GET = WHAT WE WANT. This is the INVISIBLE HAND of capitalism that was discussed in chapter 2. It's as if there is an invisible hand guiding businesses to not only make decisions that maximize their profits, but also to maximize society's satisfaction. As if they don't even know it is happening. When markets fail to achieve allocative efficiency, the profit maximizing quantity (WHAT WE GET or the equilibrium quantity from chapter 3) is not the same as the allocatively efficient quantity (WHAT WE WANT or the quantity where MSB=MSC). Since one of the economic goals of government is to help the economy achieve efficiency, governments often get involved to correct for market failures. If the market produces too much (negative externalities cause allocative inefficiency because of an overallocation of resources) the government tries to get it to produce less. If the market produces too little (positive externalities and public goods causing allocative inefficiency resulting in an underallocation of resources) the government tries to get it to produce more.

5a Something Interesting - Why are we studying this?

Cities, states, and countries are debating whether to add taxes, or raise taxes, on gasoline, soda, and junk food. Why? Why would it be good for society to raise these taxes? Below are a small sample of the many news articles about these taxes Why gasoline prices might be too low: http://www.npr.org/templates/story/story.php?storyId=4858826 Why San Francisco and Philadelphia considered taxing sodas: http://www.npr.org/sections/thesalt/2016/06/09/481390378/taxing-sugar-5-things-to-know-about-phillys-proposed-soda-tax http://www.sfgate.com/bayarea/article/Tax-on-soda-to-be-floated-in-San-Francisco-4932025.php http://www.huffingtonpost.com/2014/11/04/bay-area-soda-tax_n_6104000.html Why Mexico taxes junk food and soda: http://www.politico.com/story/2014/01/mexico-soda-tax-101645 After studying this lesson you should be able to discuss how negative externalities associated with these products are the reasons for such taxes and illustrate the effects of negative externalities on a demand and supply graph. You should understand why many people support these taxes.

5a Assignments: Readings

Chapter 3: pp 61-64, "Application: Government Set Prices" Audio: http://www.marketplace.org/topics/wealth-poverty/fast-food-strike-walk-outs-and-drive-throughs Chapter 3: pp 62-63, "Last Word: A Legal Market for Human Organs?" Chapter 5: pp 104-110, "Externalities" and "Government's Role in the Economy Read: http://economics.about.com/od/externalities/ss/A-Negative-Externality-on-Production.htm Lecture Outline

5a Assignments: Video Lectures

GOVERNMENT INTERFERENCE IN MARKETS: Price Ceilings and Floors 2.5.1 Understanding How Price Controls Damage Markets 9:38 [MyNotes] 2.5.2 Understanding the Problem of Minimum Wages in Labor Markets 14:47 [MyNotes] Determining the Effects of Price Ceilings and Price Floors (econclassroom.com 12:04) MARKET FAILURE:NEGATIVE EXTERNALITIES EconMovies 7: Anchorman (Efficiency and Market Failures) 8.4.1 Defining Externalities 5:46 [MyNotes] 8.4.2 Explaining How to Internalize External Costs (Negative Externalities) 11:58 [MyNotes] 8.5.1 Finding a Market Solution to External Costs 12:21 [MyNotes] Introduction to Market Failure and Negative Externalities of Production (econclassroom.com 14:45) 8.5.2 Finding a Negotiated Settlement to an External Cost -- the Coase Theorem 12:45 [MyNotes] 8.5.3 Applying the Coase Theorem 7:02 [ [MyNotes]

5a Outcomes - What you should learn

TOPICS Price Ceilings Price Floors Negative Externalities OUTCOMES Price ceilings and floors define price ceiling and give examples how do price ceilings affect allocative efficiency (too little being produced; underallocation of resources), explain using the MSB=MSC model and the consumer and producer surplus (dead weight loss) model what other effects do price ceilings have? what happens if the government sets a price ceiling rate that is lower than the equilibrium? define price floor and give examples explain the efficiency effects of a price floor using the MSB=MSC model and show on a graph (too much being produced; overallocation of resources) what happens if the government sets a price floor that is higher than the equilibrium? Market Failure: negative externalities (also called external costs or spillover costs) what is a market failure? what is an externality? define negative externalities (external costs or spillover costs) give examples of negative externalities use the MSB=MSC model to show the effects (overallocation) on allocative efficiency of negative externalities what can the government do to correct the market failure caused by negative externalities and show the effects of these policies on the MSB=MSC model Supply is usually equal to MSC, but when there are negative externalities the supply curve is to the right of the MSC curve. Why? what is an excise tax? Why might gasoline prices be too low? http://www.npr.org/templates/story/story.php?storyId=4858826 Why is San Francisco considering taxing sodas? http://www.sfgate.com/bayarea/article/Tax-on-soda-to-be-floated-in-San-Francisco-4932025.php http://www.huffingtonpost.com/2014/11/04/bay-area-soda-tax_n_6104000.html Why did Mexico tax junk food and soda? http://www.politico.com/story/2014/01/mexico-soda-tax-101645 what is the Coase theorem? explain how according to the Coase Theorem that under certain circumstances bargaining can solve the problems created by negative externalities without the government using an example what are the necessary condition needed for the Coase Theorem to work? what is the tragedy of the commons?

5a Key Terms

Key Terms Flash Cards - Click Here Key Terms: price ceiling, rent controls, price floor, market failure, externality, negative externality (external cost, spillover cost), internalizing the externality, excise tax, incidence of a tax, cap and trade, Coase Theorem

5a Practice Quiz (under construction)

5a Key Graphs

Price Ceiling (causes a shortage) Price Floor (causes a surplus) Negative Externality Negative Externality and Taxes

5a Review Videos

- Price Ceilings and Floors- Economics 2.6 [4:34 YouTube ACDC Leadership] - Pollution, the Government, and MSB=MSC- Microeconomics 6.2 [3:25 YouTube ACDC Leadership] - Micro 6.3 Negative Externalities: Econ Concepts in 60 Seconds-Externality [2:31 YouTube ACDC Leadership] NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the LESSONS link on Blackboard for these assignments.

Unit 1: Markets are Efficient, Except . . . Intro to Microeconomics

Lesson 5b: Market Failures Continued (Positive Externalities and Public Goods)

5b Introduction

We have learned that competitive markets are usually efficient. This is one of the benefits of a market economy or capitalism (chapter 2) . But sometimes even markets can be allocatively inefficient. In lesson 5a we learned that when negative externalities exist, a market will produce too much of a good or service (an overallocation of resources) and therefore the government should tax the product (like gasoline taxes) to get consumers to buy less, i.e. without the tax the price of gasoline is too low. In this lesson we will look at two other market failures, but this time the market produces too little (an underallocation of resources) because the demand curve for the product does not include all of the benefits. This occurs when there are positive externalities and when there are "public goods". Be careful - remember - economists often change the definitions of words. Public schools and a public parks are not public goods according to our definition. Since markets produce too little when there are negative externalities or public goods, the goal of government is to increase production. In later chapters (10 and 11) we will discuss another market failure: the lack of competition. If a market is not competitive, like when it is a monopoly or an oligopoly, then profit maximizing businesses will produce less than the allocatively efficient amount. The invisible hand of capitalism does not work well if the market is not competitive.

5b Something Interesting - Why are we studying this?

Why does the government do what it does? Governments in the United States, build and run schools, libraries, and parks, but not gas stations, clothing stores, or grocery stores? Why some things and not other things? Does it make sense or is it just random? We have learned that competitve markets achieve efficiency, both allocative and productive. And we learned that compeititve markets have a limited role for government. So why does the government do schools, libraries, and parks, and we could add roads, bridges, airports, football stadiums, and vaccinations. Why these things and not other things? Why not let private businesses do these things like they do gas stations, clothing stores, and grocery stores? If markets are efficient, then, if the government is doing something rather that the market, WE SHOULD ASK, WHY? In this lesson you will learn two reasons that explain much of why the government does what it does: POSITIVE EXTERNALITIES and PUBLIC GOODS. One other interesting question: public schools, public libraries, and public parks ARE NOT PUBLIC GOODS? Why not?

5b Assignments: Readings

Chapter 5: pp 99-110, "Public Goods", "Externalities" and "Government's Role in the Economy" Lecture Outline

5b Assignments: Video Lectures

MARKET FAILURE: POSITIVE EXTERNALITIES 8.4.3 Explaining How to Internalize External Benefits (Positive Externalities) (5:34) [MyNotes] Market Failure - Positive Externalities of Consumption (econclassroom.com 10:51) MARKET FAILURE: PUBLIC GOODS 8.2.1 Defining Public Goods 13:32 [MyNotes] The Tragedy of the Commons as a Market Failure (econoclassroom.com 14:29) [MyNotes] Tragedy of the Commons (YouTube - LearnLiberty - 3:19)

5b Outcomes - What you should learn

TOPICS positive externalities public goods tragedy of the commons OUTCOMES Market Failure: positive externalities (also called external benefits or spillover benefits) define positive externalities (external benefits or spillover benefits) give examples of positive externalities use the MSB=MSC model to show the effects on allocative efficiency of positive externalities what can the government do to correct the market failure caused by positive externalities and show the effects of these policies on the MSB=MSC model Demand is usually equal to MSB, but when there are positive externalities the demand curve is to the left of the MSB curve. Why? Are positive externalities (spillover benefits) good or bad for society? Why or why not? Comment on: EconMovies 7: Anchorman (Efficiency and Market Failures) http://www.youtube.com/watch?v=FBjFDtH-iZM Market Failure: Public Goods define "public goods (public goods are non-exclusive and non-rival)" give examples of public goods and explain why they are public goods define private (exclusive) goods" and give examples define "rival goods" and give examples what is the "free rider problem"? explain how to derive the demand curve for public goods what effect do public goods have on allocative efficiency? what can the government do to correct for the market failure of public goods? Why are public schools, public parks, and public libraries NOT "public goods"? If they are not public goods then why does the government produce them? Market Failure: Tragedy of the Commons what is the Tragedy of the Commons (common goods non-exclusive but rival) how does the tragedy of the commons affect allocative efficiency? what can be done to better achieve allocative efficiency when there is a tragedy of the commons?

5b Key Terms

Key Terms Flash Cards - Click Here Key Terms: positive externalities (external benefits or spillover benefits), private goods, public goods, rivalry (rival goods), nonrival goods, excludability (exclusion principle, exclusive goods), nonexcludability, (nonexclusive goods), free-rider problem, benefit-cost analysis (marginal-cost-marginal-benefit rule), tragedy of the commons

5b Practice Quiz (under construction)

5b Key Graphs

Positive Externalities Positive Externalities and the Role of Government: Increase Demand Positive Externalities and the Role of Government: Increase Supply

5b Review Videos

- Micro 6.4 Positive Externalities- ACDC Econ [2:42 YouTube ACDC Leadership] NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the LESSONS link on Blackboard for these assignments.

Unit 2: Elasticity, Consumer Choice, Costs

Lesson 6a: Consumer Decisions: Utility Maximization

6a Introduction

When I go into the grocery store why do I buy 12 cans of pop, 3 frozen pizzas, and 1 pound of hamburger? Why don't I buy 12 pounds of hamburger and 1 can of pop? In this lesson we will use benefit-cost analysis to understand why we buy what we do. We will calculate the marginal benefits (MB) of consuming something and the marginal costs (MC) of consuming something. (Remember: all costs in economics are opportunity costs.) If our goal is to maximize our satisfaction we will consume the quantity of goods and services where MB = MC. First, we will examine the benefits we get from consumption. Economists call these benefits "utility". We will calculate and graph total utility (TU) and marginal utility (MU). As always, be sure you understand the SHAPES of these graphs. Remember: Define, Draw, Describe. Then, we will use the utility maximizing rule, MUx/Px = MUy/Py = MUz/Pz = . . . , to calculate how much we should buy in order to maximize our satisfaction (utility). Be sure that you can see that the utility maximizing rule is really just a version of benefit cost analysis, MB=MC. If I am thinking about going skiing today, the MB would be the extra utility that I get from a day of skiing: MBskiing = MUskiing. Since all costs are opportunity costs, the marginal cost of skiing would be the utility that I would lose because I am not doing something else like going to a movie with my wife: MCskiing = MUmovie. Finally, why do we divide the MU by the price? It doesn't make sense to compare a $45 ski ticket with a $12 movie ticket. By dividing by price we end up comparing $1 worth of skiing with $1 worth of a movie. So, to maximize my utility I should go skiing and go to movies with my wife so that the: MUskiing/Pskiing= MUmovie/Pmovie. Even though MUx/Px = MUy/Py looks different than MBx=MCx, it is really the same thing. Be sure you do the exercises in the yellow pages.

6a Something Interesting - Why are we studying this?

In October and November ski resorts in the west begin to open with just a few runs open and large crowds of skiers and snowboarders. In late April most western ski areas have a lot of snow and are mostly 100% open but few skiers and snowboarders come. Why? Why are there so many customers when the snow is bad in the fall and so few when the snow is good in the spring? Read the following from an online skiing discussion forum: http://www.epicski.com/t/39322/skiing-in-past-march-why-not-popular Note: "PNW" means the "Pacific northwest" (i.e. the states of Oregon and Washington). The skier asks, "But, for some reason, people just stop skiing (in April). WHY? I just don't understand." After studying this lesson you should be able to explain WHY to the skier who posted on the forum. Here is another interesting question: Why do pop vending machines allow you to only get one can at a time while newspaper vending machines allow you to take as many as you want when you only pay for one? ANSWER: The answer to both questions has to do with the "law of diminishing marginal utility".

6a Assignments: Readings

Ch. 6 pp. 116-125 Lecture Outline

6a Assignments: Video Lectures

3.1.1 Understanding Utility Theory 4:31 [MyNotes] Plotting MU at the Midpoint (4:50) [Does not work with Mozilla Firefox browser, use Internet Explorer, Chrome, or Safari] 3.1.2 Finding Consumer Equilibrium - The Utility Maximizing Quantities to Buy 4:47 [MyNotes] Professor Harmon Calculates the Utility Maximizing Bundle in 5 mins (YouTube - 02001orh) 4:58

6a Outcomes - What you should learn

TOPICS diminishing marginal utility utility maximization OUTCOMES Define, Draw, and Describe the total utility and marginal utility graphs Understand the relationship between the total utility and marginal utility graphs Understand the law of diminishing marginal utility. Describe how rational consumers maximize utility by using benefit-cost-analysis. (Utility maximizing rule; MUx/Px = MUy/Py = MUz/Pz ) Explain how a demand curve can be derived by observing the outcomes of price changes in the utility-maximization model If lobster was free and if lobster was your favorite food, would you eat lobster for every meal everyday? Why or why not? Why do pop vending machines allow you to only get one can at a time while newspaper vending machines allow you to take as many as you want when you only pay for one? Why do we have to divide by price in the utility maximizing rule? Benefit Cost Analysis: MB = MC Utility Maximizing Rule: MUa/Pa = MUb/Pb

6a Key Terms

Key Terms Flash Cards - Click Here Key Terms: utility, total utility (TU), marginal utility (MU), law of diminishing marginal utility, rational behavior, benefit-cost analysis, budget constraint, utility-maximizing rule, marginal utility per dollar (MU/P), "util", income effect, substitution effect, diamond-water paradox

6a Practice Quiz (under construction)

6a Formulas

marginal utility  MU = TU / Qconsumed   benefit-cost analysis  MB  = MC   utility-maximizing rule MUa/Pa = MUb/Pb = MUc/Pc = . . .

6a Key Graphs

Total Utility (TU) and Marginal Utility (MU). Remember: the marginal is the slope of the total. The slope of the TU curve is getting smaller and smaller (less steep) as the quantity consumed increases. At the same time MU is less and less. At its peak the slope of the TU curve is zero and at this quantity MU is zero (it crosses the X axis).

6a Review Videos

- Micro 2.12 Utility Maximization: Econ Concepts in 60 Seconds - Diminishing Marginal Utility [2:10 YouTube ACDC Leadership] NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the LESSONS link on Blackboard for thise assignments.

Unit 2: Elasticity, Consumer Choice, Costs

Lesson 7a: Price Elasticity of Demand and Tax Incidence

7a Introduction

In chapters 7, 8, 9, 10, and 11 we will be looking at the producer decision of HOW MUCH TO PRODUCE. We will use benefit cost analysis (MB=MC) to find the profit maximizing quantity or WHAT WE GET. Once we know how much businesses will produce, we will ask: Is this quantity efficient (both allocatively and productively)? To find the profit maximizing quantity we will use benefit-cost analysis: MB=MC. So, what are the extra benefits of producing one more unit of output? How do businesses benefit when they produce one more? Well, they get more money, called revenue. Even if they are earning losses, they receive more revenue when they sell more. The extra revenue that businesses get when they produce and sell one more unit is their marginal revenue (MR). This is the MB of producing one more. But there are also extra costs of producing one more unit of output. We call these the marginal costs (MC). When MR=MC (MB=MC) their profits will be maximized. NOTE: when MR=MC profits are not necessarily zero, but they are as large as possible. We will calculate these profits in chapters 8, 9, 10, and 11. In this chapter, chapter 7 we begin by looking at the MC. Then in chapters 8, 9, 10, and 11 we add the MR. In chapter 7 we will introduce three new sets of graphs. First (lesson 7a) we will look at the production function thast shows how output changes when we add more resources. We will then (lesson 7b) use the production function graph to understand the SHAPES of the other two sets of graphs. The two sets of cost graphs show us what happens to costs when we produce more. These two sets of cost graphs are the total cost graphs (TC, TVC, and TFC) and the average cost graphs (ATC, AVC, AFC, and MC). Let's begin with the production function, or HOW DOES OUTPUT CHANGE WHEN WE ADD MORE RESOURCES? One more thing. If a firm is earning zero economic profits, that is OK!!! But a zero economic profit is NOT the same as a zero accounting profit. A zero economic profit could be an accounting profit of $1 million dollars a year! Be sure you learn the difference between an "economic profit" and an "accounting profit" and understand WHY the difference exists. (Hint: It has to do with the fact that economists always use "opportunity costs" and accountants don't.)

7a Something Interesting - Why are we studying this?

Assume your GPA is 3.0, a "B" average. Let's call the GPA that you earn this semester your MARGINAL grade point (MGP; Remember "marginal" means "extra".) What happens to your 3.0 GPA if you get straight C's this semester? (What happens to your grade point AVERAGE, 3.0 if your MARGINAL grade point, 2.0, is lower?) What happens to your 3.0 GPA if you get straight A's (4.0) this semester? (What happens to your grade point AVERAGE if your MARGINAL grade point is higher?) What happens to the AVERAGE Product (AP) if the MARGINAL Product (MP) is above it? ANSWER: if MP is greater than AP then AP will rise. What happens to the AVERAGE Product (AP) if the Marginal Product (MP) is below it? ANSWER: if MP is less than AP then AP will fall. Marginal Product curve crosses the Average Product curve where? For all graphs: DEFINE, DRAW, DESCRIBE the shape.

7a Assignments: Readings

Ch. 7 pp. 140-147 Lecture Outline

7a Assignments: Video Lectures

AN ECONOMIST'S VIEW OF COSTS AND PROFIT 5.1.4 Finding Economic and Accounting Profit 13:54 [MyNotes] PRODUCTION IN THE SHORT RUN 4.1.1 Understanding Output, Inputs, and the Short Run 8:48 [MyNotes] 4.1.2 Explaining the Total Product Curve 15:57 [MyNotes] 4.1.3 Drawing Marginal Product Curves 7:22 [MyNotes] How to Plot MP at the Midpoint 6:54 Does not work with Mozilla Firefox browser, use Internet Explorer, Chrome, or Safari 4.1.4 Understanding Average Product 10:32 [MyNotes]

7a Outcomes - What you should learn

TOPICS accounting and economic profits production function: how output changes with inputs OUTCOMES Distinguish between explicit and implicit costs, and between accounting and economic profits Explain why a normal profit is an economic cost, but an economic profit is not Why is a zero economic profit OK for businesses? What are sunk (fixed) costs and why are they ignored? Explain the law of diminishing (marginal) returns Differentiate between the short run and the long run. Compute and graph marginal product and average product when given total product data Explain the relationship between total product, marginal product, and average product Explain the shape of the total product, marginal product, and average product graphs (specialization and teamwork, congestion, and overcrowded) Differentiate between production, productivity, and productive efficiency Explain what is meant by: the MP curve is the slope of the TP curve (Note: All marginal curves are the slopes of their total curves.) Assume your GPA is 3.0. What happens to your GPA if your you get straight C's this semester? Straight A's this semester? What happens to the AP curve if the MP is above it? Below it?

7a Key Terms

Key Terms Flash Cards - Click Here Key Terms: economic cost, explict cost, implicit cost, accounting profit, economic profit, normal profit, production function, short run, long run, total product (TP), marginal product (MP), average product (AP), law of diminishing returns, increasing marginal returns, diminishing marginal returns, negative marginal returns, specialization and teamwork, congestion (getting crowded), overcrowded, productivity vs. production vs. productive efficiency

7a Practice Quiz (under construction)

7a Formulas

accounting profit  acct. profit = total revenues - explicit costs   economic profit econ. profit = total revenue - (expicit costs + implicit costs)   marginal product (MP)  MP = TP / Qres   average product (AP)  AP = TP / Qres

7a Key Graphs

The Production Function: Total Product (TP), Average Product (AP), and Marginal Product (MP)   NOTICE: The marginal is the slope of the total. The slope of the TP curve is gets bigger (steeper) at first then it gets smaller and smaller (less steep) as the quantity of the resources increases. At the same time MU at first goes up then gets less and less. At its peak the slope of the TP curve is zero and at this quantity MP is zero (it crosses the X axis). MP is at its highest when TP is at its steepest point. MP crosses AP when AP is at its peak. Another way of saying this is when MP is above AP, then AP is increasing. When MP is below AP then AP is decreasing.

1b Review Videos

- Economic Profit and Costs- ACDC Econ - Micro 3.6 [3:47 YouTube ACDC Leadership]   - Diminishing Marginal Returns- Micro 3.1 [5:53 YouTube ACDC Leadership] - Micro 3.1 The Law of Diminishing Marginal Returns - Econ Concepts in 60 Seconds (YouTube, ACDC Leadership 5:30) NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the LESSONS link on Blackboard for these assignments.

Unit 2: Elasticity, Consumer Choice, Costs

Lesson 7b: Production Costs in the Short Run

7b Introduction

OK. Now that we know about (1) specialization and teamwork, (2) getting crowded, and (3) overcrowded, from lesson 7a, that is, we know why the TP curve has the shape that it does, we are ready to look at the graphs that we will be using most in this class: the cost curves (both total and average). Remember, we are studying economic costs so that we can calculate the MC - the extra costs of producing one more unit of output. In chapters 8, 9, 10, 1nd 11 we will combine MC with MR (the extra benefits of producing and selling one more unit of output ) so that we can find the profit maximizing quantity of output, or the quantity where MR=MC. This is WHAT WE GET. The costs curves show us how costs change with output. The production function in lesson 7a showed us how output changes when we add more resources. They are related. We studied the production function so that we could learn about (1) specialization and teamwork, (2) getting crowded, and (3) overcrowded, because these concepts will help us understand the shapes of the cost curves. Remember: whenever we learn a new graph we must understand it shape (For all graphs: DEFINE, DRAW, DESCRIBE its shape). In this lesson we will be looking at the SHORT RUN COST CURVES. We studied the definition of "short run" in lesson 4b. It doesn't really have much to do with time. The short run in some industries is longer than the long run in other industries. In the short run the quantity of at least one resource is fixed, does not change. We will usually assume that the number of factories or the size of the factory does not change. So in the short run we are adding more resources to an EXISTING factory . . . and it may get crowded or overcrowded. We will look at the long run costs (when we can change the number of factories or the size of the factories) in the next lesson, 7c. Finally, we will be looking at three types of costs: fixed, variable, and total (total equals fixed plus variable), and three "families" of costs: total, average, and marginal. By the end of this lesson you should be able to correctly Calculate, Define, Draw, and Describe the shapes of: TFC, TVC, TC, AFC, AVC, ATC, and MC. (For all graphs: DEFINE, DRAW, DESCRIBE its shape).

7b Assignments: Readings

Ch. 7, pp. 147-152 Lecture Outline

7b Assignments: Video Lectures

4.1.5 Relating Costs to Productivity 5:26 [MyNotes] 4.2.1 Defining Variable Costs 4:23 [ [MyNotes] 4.2.2 Graphing Variable Costs 4:57 [MyNotes] 4.2.3 OPTONAL: Graphing Variable Costs Using a Geometric Trick 5:04 [MyNotes] 4.3.1 Defining Marginal Costs 6:41 [MyNotes] 4.3.2 Deriving the Marginal Cost Curve 10:59 [MyNotes] 4.3.3 Understanding the Mathematical Relationship between Marginal Cost and Marginal Product 10:26 [MyNotes] 4.4.1 Defining Average Variable Costs 5:39 [MyNotes] 4.4.2 OPTIONAL: Understanding the Relationship between Average Variable Costs and Average Product 6:06 [MyNotes] 4.4.3 Understanding the Relationship between Marginal Cost and Average Variable Cost 7:54 [MyNotes] 4.5.1 Defining and Graphing Average Fixed Cost and Average Total Cost 6:55 [MyNotes] 4.5.2 Calculating Average Total Cost 4:50 [MyNotes] 4.5.3 Putting the Cost Curves Together 10:09 [MyNotes] 4.6.4 Shifts in the Cost Curves 4:49 [MyNotes] PRACTICE PROBLEMS How to find TVC on a graph with letters Optional Review Videos: Micro 3.3 Cost Curves: MC, ATC, AVC, and AFC (YouTube ACDC Leadership, 2:46) Micro 3.2 AP Economics - Marginal Product and Marginal Cost: Econ concepts in 60 Seconds Review (YouTube ACDC Leadership, 4:54) Costs of Production and Cost Curves 1 of 2 (YouTube, ACDC Leadership, 5:17) Costs of Production and Cost Curves 2 of 2 (YouTube, ACDC Leadership, 3:14) Marginal Cost and ATC - Why do cost curves do that? (YouTube, ACDC Leadership, 3:16)

7b Outcomes - What you should learn

Distinguish between fixed, variable and total costs Explain the difference between average and marginal costs Compute and graph AFC, AVC, ATC, and MC when given total cost data Know how and why we graph the MC "at the midpoints". Explain how TC, TVC, and TFC relate to one another do TC and TVC get closer together? Explain how AVC, ATC, and MC relate to one another do ATC and AVC get closer together? why does MC cross ATC and AVC at their lowest points? Explain the shapes of the total, average, and marginal cost curves (TC, TVC, TFC, ATC, AVC, AFC, and MC) Relate average product to average variable cost, and marginal product to marginal cost Explain what happens to the cost curves if there is a change in fixed costs; variable costs (what can cause cost curves to rise or fall?)

7b Key Terms

Key Terms Flash Cards - Click Here Key Terms: short run, fixed costs, variable costs, total fixed cost (TFC), total variable cost (TVC), total cost (TC), average fixed cost (AFC), average variable cost (AVC), average total cost (ATC), marginal cost (MC)

7b Practice Quiz (under construction)

7b Formulas

AFC = TFC / Q AVC = TVC / Q ATC = TC / Q AFC + AVC = ATC TFC + TVC = TC MC = TC / Q

7b Key Graphs

Total Cost Curves: Total Cost TC, Total Variable Cost, (TVC), Total Fixed Cost (TFC)   Average Cost Curves and Marginal Cost: Average Total Cost (ATC) , Average Variable Cost, (TVC), AverageFixed Cost AFC), and Marginal Cost (MC) NOTICE: MC crosses ATC and AVC at their lowest points Which graph below is drawn correctly?

7b Review Videos

- Costs of Production- Microeconomics 3.3 (Part 1) [5:16 YouTube ACDC Leadership] - Cost Curves- Microeconomics 3.3 (Part 2) [3:13YouTube ACDC Leadership] - Marginal Cost and Average Total Cost- Micro 3.4 [3:16 YouTube ACDC Leadership] - Micro 3.5 AP Economics Marginal Product and Marginal Cost: Econ Concepts in 60 Seconds Review [4:54 YouTube ACDC Leadership] - How to find TVC on a graph with letters [Screencast by your instructor] NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the LESSONS link on Blackboard for these assignments.

Unit 2: Elasticity, Consumer Choice, Costs

Lesson 7c: Production Costs in the Long Run

7c Introduction

In lesson 7b we calculated and graphed SHORT RUN costs when the size of the factory was fixed (did not change). Here we will learn how costs change in the LONG RUN. In the long run we can change the size of the factory. Be sure that you can define "short run" and "long run". As always, be sure you know why the long run ATC curve has the shape it does; For all graphs: DEFINE, DRAW, DESCRIBE the shape. Note that in the next unit (unit 3) we will use long run graphs to find the allocatively efficient quantity and the productively efficient quantity.

7c Something Interesting - Why are we studying this?

Why are there many hardware stores in Illinois but only two automobile production plants? ANSWER: The answer has to do with the different shapes of the long run ATC curve for retail stores and for automobile production.

7c Assignments: Readings

Ch 7, 152-162 Lecture Outline

7c Assignments: Video Lectures

4.6.1 Defining the Long Run 5:55 [MyNotes] 4.6.2 Determining the Firm's Return to Scale 9:01 [MyNotes] 4.6.3 Understanding the Short Run and Long Run Average Cost Curves 15:06 [MyNotes]

7c Outcomes - What you should learn

Explain the difference between short run and long run costs State why the long run average cost is expected to be U shaped List and explain the causes of economies and diseconomies of scale Indicate the relationship between economies of scale and number of firms in an industry and their sizes Why are there many hardware stores in Illinois but only two automobile production plants?

7c Key Terms

Key Terms Flash Cards - Click Here Key Terms: short run, long run, economies of scale, diseconomies of scale, constant returns to scale, minimum efficient scale, natural monopoly

7c Practice Quiz (under construction)

7c Key Graphs

Economies of Scale over a wide range of output Diseconomies of Scale begin at a relatively low level of output Constant Returns to Scale over a wide range of output

7c Review Videos

- Economies of Scale- Micro 3.2 [3:54 YouTube ACDC Leadership] NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the LESSONS link on Blackboard for these assignments.

Unit 3: Are Businnesses Efficient? Product Markets and Efficiency

Lesson 10a: Monopoly - Characteristics and Short Run Equilibrium

10a Introduction

We learned in lesson 2a that competitive markets are efficient (except when there are externalities or public goods - ch.5). But what happens if markets are NOT competitive? We said that competition is the "invisible hand" that forces businesses to be efficiency. If the market is not competitive we will not get the efficient quantity. This means that the profit maximizing quantity that businesses will produce (WHAT WE GET) will not be the same as the allocatively efficient quantity that society wants (WHAT WE WANT). Remember the word "competition" has a different meaning in economics. This is NOT the competition that occurs between Ford and Chevrolet. "Competition" in economics means there are many buyers and sellers in the market so that firms have no influence over the price; i.e. they are price takers. Much of the business world is not competitive, and therefore, not efficient. In this lesson we will look at monopolistic industries - industries with only one firm. There are few pure monopolies. Even though there are few true monopolies they do exist, but we will also study monopolies because most firms are a combination of competition and monopoly. For each of the four product market models (chapters 8-11), including monopolies, you should use the following general outline to guide your studying: General Outline for Each Product Market Model: 1. Know the model's characteristics and examples (See the "Ch. 8 - 4 PRODUCT MARKET MODEL" quiz on our Blackboard site.) 2. Be able to explain the shape of the demand curve 3. Draw the short run equilibrium graphs for (a) profit maximizing firms, (b) loss minimizing firms, and (c) firms that will shut down 4. Draw the long run equilibrium graph and find the profit maximizing quantity (WHAT WE GET), allocatively efficient quantity (WHAT WE WANT), and the productively efficient quantity. See the 3 Rules and 4 Models Yellow (or BLUE) Pages. 5. Understand any other issues associated with the model Never forget this: To maximize profits business will produce the quantity where MR=MC.

10a Something Interesting - Why are we studying this?

What's so bad about monopoly power? http://www.cbsnews.com/news/whats-so-bad-about-monopoly-power/ ANSWER: "The bottom line is that when companies have a monopoly, prices are too high and production is too low. There's an inefficient allocation of resources."

10a Assignments: Readings

Ch. 10, pp. 194-203 Lecture Outline

10a Assignments: Video Lectures

MONOPOLY 6.1.1 Defining Market Power 10:10 [MyNotes] 6.1.2 Defining Marginal Revenue for a Firm with Market Power 12:43 [MyNotes] PROFIT MAXIMIZATION FOR A MONOPOLY 6.1.3 Determining the Monopolist's Profit Maximizing Output and Price 14:18 [MyNotes] 6.1.4 Calculating a Monopolist's Profit and Loss 6:24 [MyNotes] PRACTICE PROBLEM Finding the profit maximizing quantity on graphs (with numbers and with letters) OPTIONAL Introduction to Pure Monopoly (econclassroom) 14:11 Profit Maximization, Revenue Maximization and PED in Pure Monopoly (econclassroom) 17:11

10a Outcomes - What you should learn

List the five characteristics of pure monopoly. Explain the difference between a "pure" monopoly and a "near" monopoly. List and give examples of the four barriers to entry. Describe the demand curve facing a pure monopoly and how it differs from that facing a firm in a purely competitive market. Why is the demand curve for a monopoly downward sloping? Compute marginal revenue when given a monopoly demand schedule. Explain why the marginal revenue is equal to the price in pure competition but marginal revenue is less than price in monopoly. Why is the MR curve below the demand curve? Why is the extra revenue that a monopoly receives from selling one more unit (MR) less than the price that they charge for that unit (D)? Determine the price and output level the monopoly will choose given demand and cost information in both table and graphic form. Draw the short run equilibrium graphs for a pure monpoly that (a) maximizes profit, (b) minimizes loss, and (c) shuts down .

10a Key Terms

Key Terms Flash Cards - Click Here Key Terms: pure monopoly, barriers to entry, economies of scale, patent, natural monoply, price maker

10a Practice Quiz (under construction)

10a Key Graphs

Monopoly: Short Run Earning Profits Monopoly: Short Run Earning Losses Monopoly: Short Run Shut Down

10a Review Videos

- Micro 4.1 Monopoly Demand and MR: Econ Concepts in 60 Seconds monopoly graph [4:41 YouTube ACDC Leadership] NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the LESSONS link on Blackboard for these assignments.

Unit 3: Are Businnesses Efficient? Product Markets and Efficiency

Lesson 10b: Monopoly: Long Run Equilibrium, Price Discrimination, and Regulation

10b Introduction

In chapter 9 we learned that in the long run purely competitive firms are both allocatively and productively efficient. They maximize society's satisfacton. In lesson 10a we learned how find the quantity produced by monopolies. Here in lesson 10b we will learn if that quantity that we get, the profit maximiing quantity, is the efficient quantity. Are monopolies efficient? Are businesses efficient? In chapter 9 we also learned that if purely competitive firms have short run profits, then in the long run new firms will enter. This will increase the supply of the product because if the number of producers increases then supply increases (chapter 3). When supply increases it causes the price to drop and this will reduce the profits of the firms. This will continue to happen until there are just normal profits. In the long run, purely competitive firms earn only normal (zero) profits BECAUSE THERE ARE NO BARRIERS TO ENTRY. So, what about monopolies? In this lesson we will learn that SINCE MONOPOLIES DO HAVE BARRIERS TO ENRTY (entry is blocked) they will earn economic profits in the long run, Also, at the profit maximizing quantity (what we get) monopolies will be both allocatively and productively INEFFICIENT. When monopolies produce the quantity that maximizes their profits they will be producing less than the allocatively efficient quantity (underallocation of resources) AND they will not be producing at the lowest possible cost per unit (productive inefficiency). Next, we will look at PRCE DISCRIMINATION. What if instead of charging the same price to all customers, a monopoly charged different prices to different customers for the same product? We will learn that if monopolies price discriminate then they will produce more and the market will be MORE allocatively efficient. Finally, since momopolies are inefficient the government usually prevents them from forming (anti-trust laws), but sometimes the government will allow a monopoly to exist if it is in the public interest, like when it is a natural monopoly, but they will then regulate it, i.e. set its price. So in this lesson we will study three things: 1. monopolies are allocatively and productively inefficient 2. monopolies that price discriminate may be allocatively efficient 3. monopolies are often prevented from forming or are broken up by the government, but the government will allow a natural monooploy to exist and will regulate its price.

10b Something Interesting - Why are we studying this?

Why do state governments prevent competition in the distribution of electricity? In northern Illinois only ComEd can run electricity wires from house to house. - ANSWER: The distribution of electricity is a natural monopoly. It is productively more efficient to have only one company running wires from house to house. With fewer wires we can get the same amount of elctricity. So, the government only gives a license to one company to distribute electricity because it saves resources compared to having several companies distribute electricity in the same neighborhood. Once the government creates a monopoly like ComEd, why will they then regulate the price of electricity? In Illinois the state run Illinois Commerce Commission sets the price of electricity. - ANSWER: In this lesson we will learn that monopolies are allocatively inefficient. They will charge a high price and sell less to maximize profits. This is bad for society so the goverment regulates the price.

10b Assignments: Readings

Ch 10, pp, 203-214 Chapter 18: - pp. 376-382 Antittrust Policy: Issues and Impacts - pp. 381-383 Industrial Regulation - pp. 383-384 Deregulation Chapter 4: Last Word (box) - Elasticity and Pricing Power: Why Different Consumers Pay Different Prices, pp. 86-87 (Price Discrimination) Lecture Outline

10b Assignments: Video Lectures

THE SOCIAL COST OF MONOPOLY 6.2.1 Determining the Social Cost of Monopoly 12:22 [MyNotes] 6.2.2 Calculating Deadweight Loss 15:23 [MyNotes] Price Discrimination and its Effects on Efficiency in a Monopolistic Market (econclassroom.com) 14:51 REGULATING NATURAL MONOPOLIES Natural Monopoly and the Need for Government Regulation (econclassroom.com) 14:14

10b Outcomes - What you should learn

TOPICS Long Run Equilibrium Monopolies and Efficiency (Inefficienct) Price Discrimination Natural Monopolies and Regulation OUTCOMES Discuss the economic effects of pure monopoly on price, quantity of product produced, allocative and productive efficiency, distribution of income, and technological progress. Understand the adjustment process from the short run to the long run and the role of barriers to entry Why does a monopoly earn economic profits in the long run? Draw the long run equilibrium graph for a pure monopoly and indicate the profit maximizing quantity, the allocatively efficient quantity, and the productively efficient quantity. Give examples of how new technology has lessened monopoly power. Define price discrimination, list three conditions necessary for price discrimination, explain how price discrimination affects allocative efficiency, explain why profits and output will be higher for a discriminating monopoly. We know that single price monopolies are allocatively inefficient in the long run. What happens to allocative efficiency if the monopoly can price discriminate? Identify two pricing strategies of monopoly regulation and explain the dilemma the regulators face in utilizing these strategies Explain why a regulated monopoly does not have an incentive to reduce costs. Why does the Illinois government allow ComEd to have a monoply on the distribution of electricity in northern Illinois?

10b Key Terms

Key Terms Flash Cards - Click Here Key Terms: allocative inefficiency, productive inefficiency, deadweight loss, economies of scale, natural monopoly, X-inefficiency, anti-trust policy, price fixing, tying contract, public interest theory of regulation, legal cartel theory of regulation, deregulation, price discrimination, regulated monopoly, natural monopoly, socially-optimal price (allocatively efficient price), fair-return price (average-cost price)

10b Practice Quiz (under construction)

10b Key Graphs

Monopoly: Long Run Equilibrium - M is the profit maximizing quantity (MR=MC); What We Get - Q is the allocatively efficient quantity (P=MC); What We Want - N is the productively efficient quantity (MC=ATC); producing at a minimum cost Regulated Natural Monopoly - Q3 is the profit maximizing quantity (MR=MC) if unregulated - Q2 is the allocatively efficient quantity (P=MC) - Q4 is the productively efficient quantity (MC=ATC) - Q1 is the "fair return" quantity if regulated Monopoly with Perfect Price Discrimination - M is the profit maximizing quantity (MR=MC) if no price discrimination; What We Get - Q is the profit maximizing quantity (D=MR=MC) if there is perfect price discrimination - Q is also the allocatively efficient quantity (P=MC); What We Want - N is the productively efficient quantity (MC=ATC); Producing at a Minimum Cost

10b Review Videos

- Monopoly Graph Review and Practice- Micro 4.7 [5:34 YouTube ACDC Leadership]   - Micro 4.8 Price Discriminating Monopoly (First Degree) [4:41 YouTube ACDC Leadership] NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the LESSONS link on Blackboard for these assignments.

Unit 3: Are Businnesses Efficient? Product Markets and Efficiency

Lesson 11a: Monopolistic Competition: Are Businesses Efficient?

11a Introduction

Competitive firms are efficient and monopolies are inefficient, but there are few if any purely competitive markets or purely monopolistic markets (monopolies). So what happens in the real world? Are businesses efficient? We learned that competitive firms earn zero long run profits because there are no barriers to entry and monopolies do earn long run profits because entry is blocked. What about monopolistically competitive markets where there are LOW BARRIERS? What about oligopolistic markets where there are HIGH BARRIERS? Guess what? If there are low barriers firms will earn zero long run profits (monopolistic competition) and if there are high barriers firms will earn long run economic profits (oligopolies). What about efficiency? We will learn that both monopolistically competitive firms and oligopolies are inefficient but not to the same degree. Monopolistically competitive frms are only slightly inefficient and they do provide society some additional benefits, but oligopolies are very inefficient and are closely watched by the government. General Outline for Each Product Market Model: 1. Know the model's characteristics and examples (See the "Ch. 8 - 4 PRODUCT MARKET MODEL" quiz on our Blackboard site.) 2. Be able to explain the shape of the demand curve 3. Draw the short run equilibrium graphs for (a) profit maximizing firms, (b) loss minimizing firms, and (c) firms that will shut down 4. Draw the long run equilibrium graph and find the profit maximizing quantity (WHAT WE GET), allocatively efficient quantity (WHAT WE WANT), and the productively efficient quantity. See the 3 Rules and 4 Models Yellow (or BLUE) Pages. 5. Understand any other issues associated with the model Never forget this: To maximize profits business will produce the quantity where MR=MC.

11a Something Interesting - Why are we studying this?

Why are there so many different kinds of hamburgers? Wikipedia has a list of over 30 different types of hamburgers [https://en.wikipedia.org/wiki/List_of_hamburgers]. Why are there so many? Why do different restaurants continue to invent their own "new" hamburger? ANSWER: In this lesson you will learn that firms gain market power through product differentiation - making their product a little different from their competitors. This allows them to charge a higher price and increase their profits. BUT, other restaurants can always copy the new hamburger recipe stealing away those profits. Welcome to Monopolistic Competition: part "monopoly" because of product differentiation and part "pure competition" because of low bariers to entry.

11a Assignments: Readings

Ch. 11, pp. 216-223 Lecture Outline

11a Assignments: Video Lectures

6.4.1 Defining Monopolistic Competition 7:01 [MyNotes] 6.4.2 Understanding Pricing and Output in Monopolistic Competition -Short-Run Profit Maximization for a Monopolistically Competitive Firm - 8:58 [MyNotes] Monopolistic Competition (econclassroom.com -- efficiency begins at 15:00) 20:51 Monopolistic Competition in the Long-Run: Econ Concepts in 60 Seconds with AP Economics Teacher (ACDCEcon) 3:25

11a Outcomes - What you should learn

List the characteristics of monopolistic competition. Explain how product differentiation occurs in similar products. Determine the profit maximizing price and output level for a monopolistic competitor in the short run when given cost and demand data. Explain why a monopolistic competitor will realize only normal profit in the long run. Draw the short run equilibrium graphs for a monopolistically competitive firm that (a) maximizes profit, (b) minimizes loss, and (c) shuts down Understand the adjustment process from the short run to the long run and the role of barriers to entry (why do monopolistically competitive firms earn zero economic profits in the long run?) Draw the long run equilibrium graph for a monopolistically competitive firm and indicate the profit maximizing quantity, the allocatively efficient quantity, and the productively effeicient quantity. Why does a monopolistically competitive firm earn zero economic profits (normal profits) in the long run? Identify the reasons for excess capacity in monopolistic competition. Explain how product differentiation may offset these inefficiencies.

11a Key Terms

Key Terms Flash Cards - Click Here Key Terms: monopolistic competition, product differentiation, collusion, nonprice competition, four-firm concentration ratio, Herfindahl index, normal profit, excess capacity

11a Practice Quiz (under construction)

11a Formulas

Herfindahl index = MARKET SHARE SQUARED HI = ms12 + ms22 + ms32 + ms42 + ms52 + .. . . . means "sum" or "add all together"

11a Key Graphs

Monopolistic Competition in Long Run Equilibrium - D is the profit maximizing quantity (MR=MC); What We Get - G is the allocatively efficient quantity (P=MC); What We Want - E is the productively efficient quantity (MC=ATC): Produce at a Minimum Cost

11a Review Videos

Monopolistic Competition- Short Run and Long Run- Micro 4.12 [2:02 YouTube ACDC Leadership] NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the LESSONS link on Blackboard for thise assignments.

Unit 3: Are Businnesses Efficient? Product Markets and Efficiency

Lesson 11b: Oligopoly: Are Businesses Efficient?

11b Introduction

Oligopolies are industries with just a few firms because there are high barriers to entry. So do they earn long-run profits (YES) and are they efficient (NO)? Oligopolies are more complex than the other three models. Instead of one model to explain how oligopolies determine price and quantity we will have four: 1. kinked demand model 2. collusion 3. price leadership 4. game theory General Outline for Each Product Market Model: 1. Know the model's characteristics and examples (See the "Ch. 8 - 4 PRODUCT MARKET MODEL" quiz on our Blackboard site.) 2. Be able to explain the shape of the demand curve 3. Draw the short run equilibrium graphs for (a) profit maximizing firms, (b) loss minimizing firms, and (c) firms that will shut down 4. Draw the long run equilibrium graph and find the profit maximizing quantity (WHAT WE GET), allocatively efficient quantity (WHAT WE WANT), and the productively efficient quantity. See the 3 Rules and 4 Models Yellow (or BLUE) Pages. 5. Understand any other issues associated with the model Never forget this: To maximize profits business will produce the quantity where MR=MC.

11b Something Interesting - Why are we studying this?

Are these mergers good for society? How do they affect efficiency? Just skim the first few paragraphs of the following: - Airline Mergers Push Fares Higher - Mavericks, Hot Documents And Beer - Beer Map: Two Giant Brewers, 210 Brands ANSWER: It is often up to the US Justice Department to determine whether or not to allow businesses to merge into one single business. Such mergers can reduce competition, raise prices, and cause allocative and productive inefficiency. "Their job, essentially, is to figure out whether a merger would reduce competition so much that a company could raise prices without losing business to competitors."

11b Assignments: Readings

Ch. 11, pp. 223-240 Ch 11 appendix, pp. 241-244 Ch. 18 Mergers, pp. 379-380 Lecture Outline

11b Assignments: Video Lectures

OLIGOPOLY EconMovies 8: The Dark Knight (Oligopolies and Game Theory) 7:01 6.3.1 Introducing Oligopoly and the Prisoner's Dilemma 17:26 [MyNotes] 6.4.3 Understanding Monopolistic Competition (Oligopoly ???) as a Prisoner's Dilemma - Advertising and Brand Names 6:44 [MyNotes] 6.3.2 Understanding a Cartel as a Prisoner's Dilemma 10:47 [MyNotes] 6.3.3 Understanding the Kinked-Demand Curve Model 4:22 [MyNotes] Kinked Demand Model (econclassroom.com) 14:06 Oligopolies, Duopolies, Collusion, and Cartels (Khan Academy) 8:26 Episode 30C: Mergers (YouTube: mjmfoodle) 4:36 SUMMARY Determining the Efficiency of Firms in Different Market Structures (econclassroom.com) 18:23

11b Outcomes - What you should learn

TOPICS oligopoly mergers game theory OUTCOMES Describe the characteristics of an oligopolistic industry. Differentiate between homogeneous and differentiated oligopolies. Identify and explain the most important causes of oligopoly. Describe and compare the concentration ratio and the Herfindahl index as ways to measure market dominance in an industry. Distinguish between three types of mergers. (Ch. 18) Explain how the Herfindahl index is used as a guideline by the government in deciding whether to permit horizontal mergers. (Ch. 18) Use a profit-payoffs matrix (game theory) to explain the mutual interdependence of two rival firms and why oligopolists might tempt to cheat on a collusive agreement. Identify three possible models of oligopolistic price-output behavior. Use the kinked demand curve theory to explain why prices tend to be inflexible. Why is there a "kink" in the kinked demand curve? Understand the adjustment process from the short run to the long run and the role of barriers to entry (why do oligopolistic firms earn economic profits in the long run?) Draw the long run equilibrium graph for a kinked demand oligopoly and indicate the profit maximizing quantity, the allocatively efficient quantity, and the productively effeicient quantity. Explain the major advantages of collusion for oligopolistic producers. List the obstacles to collusion behavior. Draw the long run equilibrium graph for a collusive oligopoly and indicate the profit maximizing quantity, the allocatively efficient quantity, and the productively effeicient quantity. (Hint: the long run monopoly graph.) Explain price leadership as a form of tacit collusion. Explain why oligopolies may prefer nonprice competition over price competition. List the positive and negative effects of advertising. Explain why some economists assert that oligopoly is less desirable than pure monopoly. Explain the three ways that the power of oligopolists may be diminished. Why does an oligoplistic firm earn economic profits in the long run? Are these mergers good for society (efficiency)? Airline Mergers Push Fares Higher, NPR Morning Edition, April 18, 2013 http://www.npr.org/2013/04/18/177721489/airline-mergers-push-fares-higher Mavericks, Hot Documents And Beer http://www.npr.org/blogs/money/2013/02/15/171955074/mavericks-hot-documents-and-beer Beer Map: Two Giant Brewers, 210 Brands http://www.npr.org/blogs/money/2013/02/19/172323211/beer-map-two-giant-brewers-210-brands

11b Key Terms

Key Terms Flash Cards - Click Here Key Terms: oligopoly, homogeneous (standardized) oligopoly, differentiated oligopoly, mutual interdependence, interindustry competition, collusion, kinked demand, cartel, price leadership, merger, horizontal merger, vertical merger, conglomerate merger, game theory, strategic behavior, prisoner's dilemma, dominant strategy, Nash equilibrium, self enforcing agreement

11b Practice Quiz (under construction)

11b Key Graphs

Oligopoly Kinked Demand Long Run Equilibrium - 10 is the profit maximizing quantity (MR=MC) What We Get - 14 is the allocatively efficient quantity (P=MC); What We Want   Oligopoly Game Theory

11b Review Videos

Micro 4.11 Kinked Demand Curve: Econ Concepts in 60 Seconds [2:02 YouTube ACDC Leadership] Micro 4.9 Oligopolies and Game Theory: Microeconomics Concepts in 60 Seconds with Mr. Clifford [3:24 YouTube ACDC Leadership] NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the LESSONS link on Blackboard for thise assignments.

Unit 4: Labor and Efficiency: Resource Markets, Inequality, and Immigration

Lesson 12a: Demand For Resources

12a Introduction

In unit 3 we studied the FOUR PRODUCT MARKET MODELS to learn how product prices and quantity are determined. We learned characteristics and examples of each model. We discussed the differences between their demand curves. We drew their short run equilibrium graphs and found the long run equilibrium quantity, allocatively efficient quantity, and the productively efficient quantity. Finally we discussed other issues associated with some of the models. In unit 4 we will discuss the EIGHT LABOR MARKET MODELS to learn how wages and the level of employment are determined. We will learn what determines how much will people be paid and how many people will be hired. We will finish the unit by looking at two important issues associated with labor markets: income inequality and immigration. This lesson begins our study of the labor markets by looking at the demand for resources, the elasticity of demand for resources, and the first two labor market models: (1) a competitive labor market working in a competitive product market, and (2) a competitive labor market working in an imperfectly competitive product market (like a monopoly or oligopoly). We will use benefit-cost analysis (BCA) throughout this unit. It would be useful to review BCA in lesson 1d. For example, to find the profit maximizing quantity of workers to hire firms will continue to hire up to the point where MRP = MRC.

12a Something Interesting - Why are we studying this?

Why are people paid differently? (Look at the websites below.) Lowest Paying College Majors: http://money.cnn.com/2015/05/08/pf/college/lowest-paying-college-majors/index.html http://college.usatoday.com/2014/08/13/the-top-10-lowest-paying-college-majors/ Highest Paying College Majors: http://money.cnn.com/2015/05/07/pf/college/highest-paying-college-majors/index.html http://college.usatoday.com/2014/07/30/top-10-highest-paying-college-majors/ ANSWER: The supply and demand for labor helps explain why different people and different jobs receive different wages. But there are also other factors that we will need to explore. We will end up with 8 to 10 different labor market models that will help us answer this question.

12a Assignments: Readings

Chapter 12: - pp. 248-257 - pp. 260-261 DO NOT STUDY: "Optimal Combination of Resources", pp. 257-260 Lecture Outline

12a Assignments: Video Lectures

7.1.1 Deriving the Factor Demand Curve 15:10 [MyNotes] 7.1.3 Analyzing the Labor Market 15:24 [MyNotes] (THE LOST EPISODES) Factor Market Overview (YouTube mjmfoodle) 1:27 (The Lost Episodes) Perfectly Competitive Factor and Output Markets (YouTube mjmfoodle) 5:14 5.2 Perfectly Competitive Labor Market and Firm: Econ Concepts in 60 Seconds (YouTube ACDC Econ) 3:27 Micro 5.3 Comparing Product and Resource Markets: Econ Concepts in 60 Seconds- Review (YouTube ACDC Econ) 2:24

12a Outcomes - What you should learn

TOPICS The Profit Maximizing Quantity to Hire MB = MC MRP = MRC VMP = W (allocative efficiency) Finding the Resource Demand Curve Determinants of Resource Demand Elasticity of Resource Demand OUTCOMES Present four major reasons for studying resource pricing. Explain the concept of derived demand as it applies to resource demand. Determine the marginal-revenue-product schedule for an input when given appropriate data. State the principle employed by a profit maximizing firm in determining how much of a resource it will employ. Apply the MRP = MRC principle to find the quantity of a resource a firm will employ when given the necessary data. What is VMP = W or (P x MP) = W? Explain why the MRP schedule of a resource is the firm's demand schedule for the resource in a purely competitive product market. Explain why the resource demand curve is downward sloping when a firm is selling output in a purely competitive product market; an imperfectly competitive product market. List the three determinants of demand for a resource and explain how a change in each of the determinants would affect the demand for the resource. Explain what demand factors have influenced the growth and decline of the occupations listed in Tables 12.5 and 12.6. List three determinants of the price elasticity of demand for a resource, and state how changes in each would affect the elasticity of demand for a resource. Explain the marginal productivity theory of income distribution and present two criticisms of it. Derived Demand Determine the marginal-revenue-product schedule for an input when given appropriate data. Apply the MRP = MRC principle to find the quantity of a resource a firm will employ when given the necessary data. Explain why the MRP schedule of a resource is the firm's demand schedule for the resource in a purely competitive product market. Explain why the resource demand curve is downward sloping when a firm is selling output in a purely competitive product market; an imperfectly competitive product market. List the three determinants of demand for a resource and explain how a change in each of the determinants would affect the demand for the resource. List three determinants of the price elasticity of demand for a resource, and state how changes in each would affect the elasticity of demand for a resource.

12a Key Terms

Key Terms Flash Cards - Click Here Key Terms: derived demand, productivity, marginal product (MP), marginal revenue product (MRP), marginal resource cost (MRC), profit maximizing rule for hiring resources (MRP=MRC rule), value of the marginal product (VMP), substitution effect, output effect, elasticity of resource demand, marginal productivity theory of income distribution

12a Practice Quiz (under construction)

12a Formulas

marginal product: MP = TP / Qres marginal revenue product: MRP = TR / Qres marginal resource cost: MRC = TC / Qres profit maximizing rule for hiring resources: MRP=MRC value of the marginal product: VMP = P X MP

12a Key Graphs

Competitive Labor Market in a Competitive Product Market   Competitive Labor Market in an Imperfectly Competitive Product Market

12a Review Videos

- 5.2 Perfectly Competitive Labor Market and Firm: Econ Concepts in 60 Seconds- Advanced Placement [3:29 YouTube ACDC Leadership] - Micro 5.3 Comparing Product and Resource Markets: Econ Concepts in 60 Seconds- Review [2:27 YouTube ACDC Leadership] - Micro 5.4 Resource Market, MRP and MRC: Econ Concepts in 60 Seconds- Factor Market [2:54 YouTube ACDC Leadership] NOTE: Mr Clifford says "MRP = P x MP" This is true ONLY IF we have a competitive labor market (wage is constant). I prefer to use the formula: "MRP = change in TR / change in Qlabor", because this works for ALL labor market models NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the LESSONS link on Blackboard for these assignments.

Unit 4: Labor and Efficiency: Resource Markets, Inequality, and Immigration

Lesson 13a: Wage Determination: Labor Markets

13a Introduction

Eight Labor Market Models 1. Competitive labor market in a competitive product market 2. Competitive labor market in an imperfectly competitive product market 3. Monopsony 4. Union Model: increasing demand for labor 5. Union Model: craft (exclusive) union 6. Union Model: industrial (inclusive) union 7. Union Model: bilateral monopoly 8. Minimum Wage (three models) a. traditional minimum wage model b. minimum wage in a monopsony c. minimum wage and the price elasticity of demand for labor For EACH model know the following: 1. assumptions, characteristics, and examples 2. graph 3. find the profit maximizing quantity of labor (this is the quantity that WILL BE HIRED, where MRP = MRC) 4. find the allocatively efficient quantity of labor (where VMP = W or Qd=Qs) You will find a summary of each of these eight (actually ten) models in our Yellow Pages. It is strongly recommended that you study these summaries. REMEMBER: to find the profit maximizing quantity of workers to hire firms will continue to hire up to the point where MRP = MRC. So for any questions that ask "how many will be hired?" or "what will the wage be?", the first thing you do is calculate MRP and MRC and then hire all where the MRP is greater than MRC (MRP > MRC) up to where MRP = MRC.

13a Something Interesting - Why are we studying this?

What if the federal miniumum wage doubled to $15 an hour. Would this help or hurt fast food workers? Read or listen to: http://www.marketplace.org/topics/wealth-poverty/fast-food-strike-walk-outs-and-drive-throughs ANSWER: After studing this lesson you should be able to explain this statement found in this news report: " . . . if we woke up tomorrow and fast food restaurants had doubled worker pay tomorrow . . . I'm sure you would see a lot of jobs lost , . . . But that’s only part of the story, Baker argues. Even if there was, let’s say, a 20 or 30 percent drop in employment at these places (Saltsman told me he projects there could be up to a 27 percent drop), the remaining workers would still “take home twice as much pay. They're still way better off,” says Baker." To understand and explain this statement you need to discuss price elasticity of demand for workers. Does Baker think that the price elasticity of demand for fast food workers is elastic or inelastic? [Answer: Inelastic]

13a Assignments: Readings

Ch. 13, ALL Audio: Fast food strike: Of walk outs and drive-throughs Economists disagree on whether the minimum wage kills jobs. Why? Lecture Outline

13a Assignments: Video Lectures

(THE LOST EPISODES) Monopsony Factor Market, Perfectly Competitive Output Market (YouTube mjmfoodle 8:11) Micro 5.1 Market and Minimum Wage: Econ Concepts in 60 Seconds:- Economics Lesson (YouTube ACDC Econ 3:26 11.4.2 An Analysis of Labor Unions and Unemployment (7:27) [MyNotes] 11.4.1 Minimum Wage Laws (7:31) [MyNotes] 11.4.4 The Theory of Efficiency Wages (10:54) [MyNotes] OPTIONAL: 11.4.3 Something Interesting: "La Causa": The United Farm Workers (5:10) MyNotes]

13a Outcomes - What you should learn

TOPICS productivity 8 labor market models why wages differ OUTCOMES List those factors that have led to an increasing level of real wages in the U.S. historically. Determine the equilibrium wage rate and employment level when given appropriate data for a firm operating in a: purely competitive product and labor market; a firm operating in a monopolistically competitive product market and a purely competitive labor market; and a firm operating in a purely competitive product market and a monopsonistic labor market. Illustrate graphically how wage rates are determined in purely competitive and monopsonistic labor markets. List the methods used by labor organizations (labor unions) to increase wages and the impact each has on employment. Give specific examples. Illustrate graphically how an inclusive (industrial) union and an exclusive (craft) union would affect wages and employment in a previously competitive labor market. Explain and illustrate graphically wage determination in the bilateral monopoly model. Present the major points in the cases for and against the minimum wage. Explain the demand factors that create wage differentials. Explain the supply factors that create wage differentials. Describe briefly salary systems in which pay is linked to performance rather than to time. Interesting:: http://www.huffingtonpost.com/2013/02/13/minimum-wage-productivity_n_2680639.html "Minimum Wage Would Be $21.72 If It Kept Pace With Increases In Productivity: Study"

13a Key Terms

Key Terms Flash Cards - Click Here Key Terms: wage rate, purely competitive labor market, monopsony, exclusive (craft) union, occupational licensing, inclusive (industrial) union, bilateral monopoly, minimum wage

13a Practice Quiz (under construction)

13a Key Graphs

Competitive Labor Market in a Competitve Product Market   Competitive Labor Market in an Imperfectly Competitive Product Market Monopsony Union: Increase Demand  Union: Craft (Exclusive)  Union: Inclusive (Industrial)  Union: Bilateral Monopoly Minimum Wage Traditional Model: employment decreases Minimum Wage in a Monopsony: employment increases Does the Minimum wage help the poor? YES if the demand for labor is inelastic because total income increases from 0ADF to 0BCE   Does the Minimum wage help the poor? NO if demand for labor is elastic because total income decreases from 0adf to 0bce

13a Review Videos

- Micro Unit 5, Question 12: Monopsony [2:59 YouTube ACDC Leadership] - Micro 5.1 Market and Minimum Wage: Econ Concepts in 60 Seconds:- Economics Lesson [3:26 YouTube ACDC Leadership] - Minimum Wage Misconceptions with Jacob Clifford [5:09 YouTube ACDC Leadership] NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the LESSONS link on Blackboard for these assignments.

Unit 4: Labor and Efficiency: Resource Markets, Inequality, and Immigration

Lesson 20a: Income Inequality and Discrimination

20a Introduction

The gap between the rich and the poor is getting wider and income inequality has become an important political issue. We will learn that the 85 richest people on Earth now have the same amount of wealth as the bottom half of the global population. 85 people have the same amount of wealth as the poorest 3.5 billion (3,500,000,000) ! We will first look at some data on the distribution of income and learn how to measure it. Then we will learn two models concerning income distribution: 1. The Case for Equality Model: Maximizing Total Utility. This is the President Obama Example from lesson 1b (fig. 20.3) and 2. The Occupational Discrimination (Crowding) Model The Yellow Pages have one page summaries of each of these models. You should find them and study them.

20a Something Interesting - Why are we studying this?

Read: Oxfam report highlights widening income gap between rich, poor "The 85 richest people on Earth now have the same amount of wealth as the bottom half of the global population, according to a report released Monday by the British humanitarian group Oxfam International." 85 = 3,500,000,000 Think about it.

20a Assignments: Readings

Chapter 20: - pp. 410-419 - pp.426-427 "Occupational Segregation: The Crowding Model" Oxfam report highlights widening income gap between rich, poor Lecture Outline

20a Assignments: Video Lectures

10.3.4 Hot Topic Income Distribution in the U.S. 5:20 [MyNotes] Wealth Inequality in America (Politizane YouTube) 6:24 Researchers Examine Gap between Rich and Poor (NPR Morning edition, 1/28/2014) Read or listen 5:43

20a Outcomes - What you should learn

TOPICS Describing Income Distribution Government Redistribution Growing Inequality The Equality Model (Pres. Obama) The Occupational Crowding Model OUTCOMES Describe the distribution of income in the United States by personal income categories by households and quintile distribution by households. Explain how Lorenz curves and Gini ratios are used to describe income inequality. Discuss the impact of income mobility on income distribution data. Explain the broadened concept of income, which includes the effects of taxes and transfer payments, and how this affects the extent of inequality of income and poverty in the U.S. List seven causes of an unequal income distribution. Describe changes and causes for the changes in inequality since 1970. State and evaluate the cases for and against income inequality, using the equality vs. efficiency argument ["The Case for Equality: Maximizing Total Utility = The President Obama Example (fig. 20.3)] Occupational Discrimination - The Crowding Model - The Model (figure 20.7) Understand the connection between the Pres. Obama example of equity and the chapter 20 "Case for Equality" (fig. 20.3)? What is the problem with this reasoning?

20a Key Terms

Key Terms Flash Cards - Click Here Key Terms: income inequality, quintile, Lorenz curve, Gini ratio (Gini coefficient), income mobility, transfer payment, progressive income tax, noncash transfers, equality-efficiency trade-off, discrimination, occupational segregation, President Obama example

20a Practice Quiz (under construction)

20a Key Graphs

Lorenz Curve   The Case for Equality = the President Obama Example The Utility Maximizing Distribution of Income   The Occupational Segregation Model of Discrimination

Unit 4: Labor and Efficiency: Resource Markets, Inequality, and Immigration

Lesson 22a: Immigration

22a Introduction

Immigration is another labor issue that has become an important political topic. We will first study some historical data on U.S. immigration then we will look at two immigration models: 1. a simple immigration model showing the "Impact on Wage Rates, Efficiency, and Output", and 2. a model showing the impact of illegal workers in a low wage labor market The Yellow Pages have one page summaries of each of these models. You should find them and study them.

22a Something Interesting - Why are we studying this?

Read this short news article from 2013: http://www.nytimes.com/2013/02/17/magazine/do-illegal-immigrants-actually-hurt-the-us-economy.html From the eighth paragraph of the above website: Nearly all economists, of all political persuasions, agree that immigrants — those here legally or not — benefit the overall economy. “That is not controversial,” Heidi Shierholz, an economist at the Economic Policy Institute, told me. Shierholz also said that “there is a consensus that, on average, the incomes of families in this country are increased by a small, but clearly positive amount, because of immigration. After studying this lesson you should be able to discuss the effect of immigration on substitute resources and complementary resources.

22a Assignments: Readings

Ch. 22 ALL Do Illegal Immigrants Actually Hurt the U.S. Economy? Give Me Your Tired, Your Poor and Your Economists, Too Lecture Outline

22a Assignments: Video Lectures

- Costs, Benefits and How Best to Respond - Professor Richard D Wolff (RichardDWolff 6:59) - Immigrants do depress wages - Immigrants are not a net gain - Allow immigrants but support labor unions - CNN Report on the economics of immigration (RI4AVideo 2:24) - Three Ways To Totally Transform U.S. Immigration Policy NPR, Planet Money - http://www.nytimes.com/2013/02/17/magazine/do-illegal-immigrants-actually-hurt-the-us-economy.html Do Illegal Immigrants Actually Hurt the U.S. Economy? - "Give Me Your Tired, Your Poor, and Your Economists, Too" By N. GREGORY MANKIW, Published: February 9, 2013 http://www.nytimes.com/2013/02/10/business/how-economics-has-benefited-from-immigration.html

22a Outcomes - What you should learn

TOPICS Economic immigration Economic effects of immigration The illegal immigration debate OUTCOMES Understand the historical pattern of legal and illegal immigration the United States. Understand what motivates an individual to migrate. List the factors influencing the decision to migrate. Understand the potential impact immigration can have on wage rates, efficiency, and output. "Impact on Wage Rates, Efficiency, and Output" (Figure 22.3) Understand how immigration can affect income shares. Identify potential complications with the traditional model of immigration: Remittances, Full-Employment or Unemployment, and Complements and Substitutes. Understand the effect immigration to the United States has on Federal, State, and Local governments' fiscal position. Understand the illegal immigration debate in the context of " job crowding-out". ["Impact of Illegal Workers in a Low Wage Labor Market"] Explain the potential price effects that illegal immigration can have on an economy. Understand the concept of 'optimal' immigration Do Illegal Immigrants Actually Hurt the U.S. Economy? http://www.nytimes.com/2013/02/17/magazine/do-illegal-immigrants-actually-hurt-the-us-economy.html Discuss the effect on substitute resources and complementary resources on employment From paragraph 8 of the above website: "Nearly all economists, of all political persuasions, agree that immigrants — those here legally or not — benefit the overall economy. “That is not controversial,” Heidi Shierholz, an economist at the Economic Policy Institute, told me. Shierholz also said that “there is a consensus that, on average, the incomes of families in this country are increased by a small, but clearly positive amount, because of immigration.” Comments?

22a Key Terms

Key Terms Flash Cards - Click Here Key Terms: economic immigrants, legal immigrants, illegal immigrants, human capital, beaten paths, backflows, efficiency gains from migration, brain drain, remittances, complementary resource, substitute resource, fiscal impacts

22a Practice Quiz (under construction)

22a Key Graphs

Simple Immigration Model Impact of Illegal Workers in a Low Wage Labor Market