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Chapter 5 Notes- Demand: The benefit side of the market
-Law of demand: people do less of what they want to do as the cost of doing it rises-utility- is the concept to represent the satisfaction people derive from their consumptionactivities-utility maximization- people try to allocate their incomes so as to maximize their satisfaction-Marginal Utility = change in utility/ change in consumption-denotes the amount by which total utility changes when consumption changes by oneunit-law of diminishing marginal utility- tendency for marginal utility to decline as consumptionincreases beyond some point-rational spending rule- spending should be allocated across goods so that marginal utility per dollar is the same for each good-consumer surplus- economic surplus received by buyers-real price- the dollar price of a good relative to the average dollar price of all other goods-nominal price- the absolute price of a good in dollar terms
 
Chapter 6 Notes- Perfectly competitive supply: The cost side of the market
-profit- the total revenue a firm receives from the sale of its product minus all costs (explicit andimplicit) incurred in producing it-Profit = Total Revenue- Total Cost-Profit = Total Revenue- Variable Cost- Fixed Cost-profit-maximizing firm – a firm whose primary goal is to maximize the amount of profit it earns-perfectly competitive markets- markets in which individual firms have no influence over themarket prices of the products they sell-perfectly competitive firms- can be described as price takers because their inability to influencemarket price-4 characteristics of markets that are perfectly competitive:-all firms sell the same standardized product-the market has many buyers and sellers, each of which buys or sells only a small fractionof the total quantity exchanged.-productive resources are mobile-buyers and sellers are well informed-imperfectly competitive firms- a firm that has at least some control over the market price of its product-factor of production- an input used in the production of a good or service-a firm’s factor of production are employees and the machine(s)-short run- a period of time sufficiently short that at least some of the firm’s factors of  production are fixed-long run- a period of time of sufficient length that all the firm’s factors of production arevariable-law of diminishing returns-a property of the relationship between the amount of a good or service produced and the amount of a variable factor required to produce it; it says that when some factors of production are fixed,increased production of the good eventually requires ever-larger increases in the variable factor.-fixed factor of production- an input whose quantity cannot be altered in the short run-machines-variable factor of production- an input whose quantity can be altered in the short run-labor -variable cost- the sum of all payments made to the firm’s variable factors of production-total cost- the sum of all payments made to the firm’s fixed and variable factors of production-marginal cost- as output changes from one level to another, the change in total cost divided bythe corresponding change in output-short-run shutdown condition- Profit is less than the minimum value of AVC-P<minimum value of AVC-average total cost(ATC) – ATC= Total Cost(TC) / total output (Q)-average variable cost(AVC) – AVC= variable cost (VC)/ total output(Q)-maximum profit condition- price=marginal cost
 
Chapter 7 Notes-Efficiency and Exchange-efficient(or Pareto efficient) – a situation is efficient if no change is possible that will help some people without harming others--deadweight loss- the reduction in total economic surplus that results from the adoption of a policy
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