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Principles of Economics chapters

1. Ten Principles of Economics
2. Thinking Like an Economist
3. Interdependence and the Gains from Trade
4. The Market Forces of Supply and Demand
5. Elasticity and Applications
6. Supply, Demand, and Government Policies
7. Consumers, Producers and the Efficiency of Markets
8. Application: The Costs of Taxation
9. Application: International Trade
10. Externalities
11. Goods and Common Resources
12. The Tax System
13. The Costs of Production
14. The Competitive Firm
15. Monopoly
16. Oligopoly
17. Monopolistic Competition
18. The Markets for the Factors of Production
19. Earnings and Discrimination
20. The Distribution of Income
21. The Theory of Consumer Choice
22. Measuring a Nation's Wealth
23. Measuring the Cost of Living
24. Production and Growth
25. Financial Markets: Saving, Investment,
and Interest Rates
26. Unemployment
27. The Monetary System
28. Inflation: Its Causes and Costs
29. Open-Economy Macroeconomics: Basic Concepts
30. A Macroeconomic Theory of the Open Economy
31. Aggregate Demand and Aggregate Supply
32. Monetary and Fiscal Policy Determinants of
Aggregate Demand
33. The Short-Run Tradeoff between Inflation
andUnemployment
34. Five Debates over Macroeconomic Policy

Principles of
Microeconomics
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Principles of
Macroeconomics
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Price

S

P

Area of rectangle
= total spending
by consumers
= total revenue received
by producers
=PxQ

D

Q
Quantity

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Price of Water

1[2

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S2
S1
P2
P1

Demand
Q3

Q2 Q1

Shortage
Quantity of Water

?2

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A

Supply

Price

PB
P1
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B

C

D
F

E

Demand
Q2

O2

Q1
Quantity

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"2

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*F&:6:=#:&-(F&"/':'0(:5(G <($%/5&-*#(5&#.6&5(:5("#*"(IJ)J,<("/9(.#%9&$*#
5&#.6&5(:5("#*"(KJLJB2((>4*#*(:5(/%(9*"9E*:84'(6%55<("5("66('4*(.%'*/':"6(8":/5
7#%-('#"9*("#*(#*"6:S*9T('%'"6(5&#.6&5(:5('4*(*/':#*("#*"(=*'E**/('4*(9*-"/9("/9
5&..60($&#?*5DDIJ)J,JKJLJB2

Supply
Price of Pizza

12

PB
P1
Ps

A
B

C

D

E

F

Demand
Q2 Q1
Quantity of Pizza

=2

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8%?*#/-*/'(#*?*/&*(:/$#*"5*5(=0()JK<("/9(9*"9E*:84'(6%55(:/$#*"5*5(=0(,JL2

$2

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)JK('%('4*(8%?*#/-*/'('%(-"Q*(&.(7%#('4*(6%5'('";(#*?*/&*<('4*/(*?*#0%/*
E%&69(=*(=*''*#(%77('4"/(E:'4%&'('4*('";2((>4*(*F&:6:=#:&-(F&"/':'0(E%&69(=*(G <
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8-2

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)JK('%('4*(8%?*#/-*/'<('4*/("66('4#**(."#':*5<(:/$6&9:/8('4*(8%?*#/-*/'<(E%&69
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A2

O2

R2

"2

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6"/9%E/*#5(=*"#('4*(*/':#*(=&#9*/(%7('4*('";2((X*/'*#5(E%/@'(=*("77*$'*9("'("662

=2

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6"/9%E/*#5(E:66(."55('4*('";(%/('%('4*:#(.%%#*#(#*/'*#5<W(:5($%##*$'2((3:'4("('";
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*;'*/'('%(E4:$4('4*0(9%('4:5(9*.*/95(%/('4*(*6"5':$:':*5(%7(5&..60("/9(9*-"/92(
V/('4:5($"5*<('4*('";(:5("(9:#*$'("99:':%/('%('4*($%5'(%7(#*/'"6(&/:'5<(5%('4*(5&..60
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"/9(6"/9%E/*#5<(9*.*/9:/8(%/('4*(*6"5':$:':*5(%7(9*-"/9("/9(5&..602

"2

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'4*(8%?*#/-*/'<W(:5(:/$%##*$'2((I/(*;"-.6*(:5('4*($"5*(%7("('";(E4*/(*:'4*#
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F&"/':'0(/%#("/0(9*"9E*:84'(6%55<(=&'(:'(9%*5(#":5*(#*?*/&*2

=2

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"/0(9*"9E*:84'(6%55<W(:5(:/$%##*$'2((I/(*;"-.6*(:5('4*($"5*(%7("(1YY(.*#$*/'('";
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"(6"#8*(9*"9E*:84'(6%55<(5:/$*(:'(#*9&$*5('4*(F&"/':'0(5%69('%(S*#%2

"2

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#&==*#(="/95(E:66(=*(=%#/*(6"#8*60(=0(=&0*#52((I5(B:8&#*(CDO(54%E5<($%/5&-*#
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8-3

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10-6

Price of Pollution

P

Pigovian tax

D1
D2
Q2
Q1
Quantity of Pollution

A2

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Price of Pollution

Supply of
pollution permits

P1
P2
D1
D2
Q
Quantity of Pollution

112

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A2

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"2 34*(:6C*>($%7'(%:(7*''6/B(&.5%''*>(6/(L6B&#*(1GMK2 300 Total cost 250 200 Costs ]2 150 100 50 Average total cost 8 Marginal cost 0 1 2 3 4 5 6 7 8 9 10 Quantity of Lemonade !"#$%&#'()#"$*(+(.%-.(67(RF($*/'72( 82 34*(:%55%96/B('"85*(74%97('%'"5($%7'=("<*#"B*('%'"5($%7'=("/>(-"#B6/"5($%7'2( 34*7*("#*(."/0 13-5 .*# $&.('4*(5*-%/">*(7'"/>(67(E@FF2((34*(<"#6"85*($%7'(.

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arginal cost 35 30 Costs \2 Average total cost 25 Average variable cost 20 15 10 5 0 0 1 2 3 4 5 6 Quantity of Juice !"#$%&#'()#"$*(+(."2 34*(:%55%96/B('"85*(74%97("<*#"B*(<"#6"85*($%7'(OAW.P(:%#(*"$4(?&"/'6'02 [ W. I. 3. AW.&'(67(5*77('4"/(K=("7("<*#"B*('%'"5($%7'(67 >*$56/6/B2((34*(-"#B6/"5($%7'($&#<*(67("8%<*('4*("<*#"B*('%'"5($%7'($&#<*(94*/ %&'.

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

!"#$%&'()*+((,-'./(-0(!1.$&%-%-2&(3#'4&%/
56&/%-10/(71'(8&2-&9+((:0/9&'/
12

3($%-.*'4'45*(64#-(47("(64#-(4/("(-"#8*'(4/(9:4$:;((<1=(':*#*("#*(-"/0(>&0*#7("/?(-"/0
7*@@*#7(4/(':*(-"#8*'A(<B=(':*(C%%?7(%66*#*?(>0(':*(5"#4%&7(7*@@*#7("#*(@"#C*@0(':*(7"-*A
"/?(<D=(&7&"@@0(64#-7($"/(6#**@0(*/'*#(%#(*E4'(':*(-"#8*'2

B2

F4C&#*(1GH1(7:%97(':*($%7'($&#5*7(6%#("('0.4$"@(64#-2((F%#("(C45*/(.#4$*(<7&$:("7(I =J
':*(@*5*@(%6(%&'.&'(':"'(-"E4-4K*7(.#%64'(47(':*(%&'.&'(9:*#*(-"#C4/"@($%7'(*L&"@7(.#4$*
<M =J("7(@%/C("7(.#4$*(47(C#*"'*#(':"/("5*#"C*(5"#4">@*($%7'("'(':"'(.%4/'(<4/(':*(7:%#'
#&/=J(%#(C#*"'*#(':"/("5*#"C*('%'"@($%7'(<4/(':*(@%/C(#&/=2

Price, Costs

Marginal cost
Average total cost

P*

Average variable cost

Q*
Quantity

D2

3(64#-(94@@(7:&'(?%9/('*-.%#"#4@0(46(':*(#*5*/&*(4'(9%&@?(C*'(6#%-(.#%?&$4/C(47(@*77
':"/(':*(5"#4">@*($%7'7(%6(.#%?&$'4%/2((N:47(%$$&#7(46(.#4$*(47(@*77(':"/("5*#"C*(5"#4">@*
$%7'2

G2

3(64#-(94@@(*E4'("(-"#8*'(46(':*(#*5*/&*(4'(9%&@?(C*'(46(4'(7'"0*?(4/(>&74/*77(47(@*77(':"/
4'7('%'"@($%7'2((N:47(%$$&#7(46(.#4$*(47(@*77(':"/("5*#"C*('%'"@($%7'2

O2

3(64#-P7(.#4$*(*L&"@7(-"#C4/"@($%7'(4/(>%':(':*(7:%#'(#&/("/?(':*(@%/C(#&/2((Q/(>%':(':*
7:%#'(#&/("/?(':*(@%/C(#&/J(.#4$*(*L&"@7(-"#C4/"@(#*5*/&*2((N:*(64#-(7:%&@?(4/$#*"7*
%&'.&'("7(@%/C("7(-"#C4/"@(#*5*/&*(*E$**?7(-"#C4/"@($%7'J("/?(#*?&$*(%&'.&'(46
!"#$%&#'()#"$*(+(,%-."/0
14-1

-"#C4/"@(#*5*/&*(47(@*77(':"/(-"#C4/"@($%7'2((I#%64'7("#*(-"E4-4K*?(9:*/(-"#C4/"@
#*5*/&*(*L&"@7(-"#C4/"@($%7'2
R2

N:*(64#-P7(.#4$*(*L&"@7(':*(-4/4-&-(%6("5*#"C*('%'"@($%7'(%/@0(4/(':*(@%/C(#&/2((Q/(':*
7:%#'(#&/J(.#4$*(-"0(>*(C#*"'*#(':"/("5*#"C*('%'"@($%7'J(4/(9:4$:($"7*(':*(64#-(47
-"84/C(.#%64'7J(%#(.#4$*(-"0(>*(@*77(':"/("5*#"C*('%'"@($%7'J(4/(9:4$:($"7*(':*(64#-(47
-"84/C(@%77*72(()&'(':*(74'&"'4%/(47(?466*#*/'(4/(':*(@%/C(#&/2((Q6(64#-7("#*(-"84/C
.#%64'7J(%':*#(64#-7(94@@(*/'*#(':*(4/?&7'#0J(9:4$:(94@@(@%9*#(':*(.#4$*(%6(':*(C%%?2((Q6
64#-7("#*(-"84/C(@%77*7J(':*0(94@@(*E4'(':*(4/?&7'#0J(9:4$:(94@@(#"47*(':*(.#4$*(%6(':*
C%%?2((S/'#0(%#(*E4'($%/'4/&*(&/'4@(64#-7("#*(-"84/C(/*4':*#(.#%64'7(/%#(@%77*72((3'(':"'
.%4/'J(.#4$*(*L&"@7("5*#"C*('%'"@($%7'2

;'1<=&./(#0>(:$$=-?#%-10/+((:0/9&'/
12

3($%-.*'4'45*(-"#8*'(47(%/*(4/(9:4$:;((<1=(':*#*("#*(-"/0(>&0*#7("/?(-"/0(7*@@*#7(4/
':*(-"#8*'A(<B=(':*(C%%?7(%66*#*?(>0(':*(5"#4%&7(7*@@*#7("#*(@"#C*@0(':*(7"-*A("/?(<D=
&7&"@@0(64#-7($"/(6#**@0(*/'*#(%#(*E4'(':*(-"#8*'2((T6(':*7*(C%%?7J(>%''@*?(9"'*#(47
.#%>">@0(':*($@%7*7'('%("($%-.*'4'45*(-"#8*'2((N".(9"'*#(47("(/"'&#"@(-%/%.%@0(>*$"&7*
':*#*P7(%/@0(%/*(7*@@*#2((,%@"("/?(>**#("#*/P'(.*#6*$'@0($%-.*'4'45*(>*$"&7*(*5*#0(>#"/?
47(7@4C:'@0(?466*#*/'2

B2

U4/$*("(/*9($&7'%-*#(47(%66*#4/C('%(."0(VDWW(6%#(%/*(?%7*J(-"#C4/"@(#*5*/&*(>*'9**/
BWW("/?(BW1(?%7*7(47(VDWW2((U%(9*(-&7'(64/?(%&'(46(-"#C4/"@($%7'(47(C#*"'*#(':"/(%#(@*77
':"/(VDWW2((N%(?%(':47J($"@$&@"'*('%'"@($%7'(6%#(BWW(?%7*7("/?(BW1(?%7*7J("/?($"@$&@"'*
':*(4/$#*"7*(4/('%'"@($%7'2((X&@'4.@04/C(L&"/'4'0(>0("5*#"C*('%'"@($%7'J(9*(64/?(':"'('%'"@
$%7'(#47*7(6#%-(VGWJWWW('%(VGWJGW1J(7%(-"#C4/"@($%7'(47(VGW12((U%(0%&#(#%%--"'*
7:%&@?(/%'(-"8*(':*("??4'4%/"@(?%7*2

D2

"2

Y*-*->*#4/C(':"'(.#4$*(*L&"@7(-"#C4/"@($%7'(4/(*L&4@4>#4&-J(9*(8/%9(':*
-"#C4/"@($%7'(-&7'(>*(DW($*/'7J(74/$*(':"'P7(':*(.#4$*2

>2

N:*(4/?&7'#0(47(/%'(4/(@%/CH#&/(*L&4@4>#4&-(74/$*(.#4$*(*E$**?7("5*#"C*('%'"@
$%7'2

G2

T/$*(0%&P5*(%#?*#*?(':*(?4//*#J(4'7($%7'(47(7&/8J(7%(4'(?%*7/P'(#*.#*7*/'("/(%..%#'&/4'0
$%7'2((37("(#*7&@'J(':*($%7'(%6(':*(?4//*#(7:%&@?/P'(4/6@&*/$*(0%&#(?*$474%/(">%&'(7'&664/C
0%&#7*@62

O2

"2

F4C&#*(1GHB(7:%97(':*(7:%#'H#&/(*66*$'(%6(?*$@4/4/C(?*-"/?(6%#(>**62((N:*(7:46'
%6(':*(4/?&7'#0(?*-"/?($&#5*(6#%-(Z ('%(Z (#*?&$*7(':*(L&"/'4'0(6#%-(M ('%(M
"/?(#*?&$*7(':*(.#4$*(6#%-(I ('%(I 2((N:47("66*$'7(':*(64#-J(#*?&$4/C(4'7(L&"/'4'0
6#%-(L ('%(L 2(()*6%#*(':*(?*$@4/*(4/(':*(.#4$*J(':*(64#-(9"7(-"84/C(K*#%(.#%64'7A
"6'*#9"#?7J(.#%64'7("#*(/*C"'45*J("7("5*#"C*('%'"@($%7'(*E$**?7(.#4$*2
!"#$%&#'()#"$*(+(,%-."/0
14-2

Industry

Firm
Marginal
cost

Price, Costs, Revenue

Price

Supply

P1
P2

D2

Average
total
cost

D1

Q2 Q1
Quantity

F4C&#*(1GHD(7:%97(':*(@%/CH#&/(*66*$'(%6(?*$@4/4/C(?*-"/?(6%#(>**62((U4/$*
64#-7(9*#*(@%74/C(-%/*0(4/(':*(7:%#'(#&/J(7%-*(64#-7(@*"5*(':*(4/?&7'#02((N:47
7:46'7(':*(7&..@0($&#5*(6#%-(U ('%(U 2((N:*(7:46'(%6(':*(7&..@0($&#5*(47([&7'
*/%&C:('%(4/$#*"7*(':*(.#4$*(>"$8('%(4'7(%#4C4/"@(@*5*@J(I 2((37("(#*7&@'J(4/?&7'#0
%&'.&'(6"@@7(7'4@@(6&#':*#J('%(M 2((F%#(64#-7(':"'(#*-"4/(4/(':*(4/?&7'#0J(':*(#47*(4/
':*(.#4$*('%(I (#*'&#/7(':*-('%(':*4#(%#4C4/"@(74'&"'4%/J(.#%?&$4/C(L&"/'4'0(L ("/?
*"#/4/C(K*#%(.#%64'72

Price

Industry
S3

Firm
S1

Price, Costs, Revenue

>2

P1
P2

D2
Q3 Q2 Q1
Quantity

R2

q2 q1
Quantity

Marginal
cost
Average
total
cost

D1
q2 q1
Quantity

F4C&#*(1GHG(7:%97(':"'("@':%&C:(:4C:(.#4$*7($"&7*("/(4/?&7'#0('%(*E."/?J(*/'#0(4/'%(':*
4/?&7'#0(*5*/'&"@@0(#*'&#/7(.#4$*7('%(':*(.%4/'(%6(-4/4-&-("5*#"C*('%'"@($%7'2((Q/(':*
64C&#*J(':*(4/?&7'#0(47(%#4C4/"@@0(4/(@%/CH#&/(*L&4@4>#4&-2((N:*(4/?&7'#0(.#%?&$*7(%&'.&'
M J(9:*#*(7&..@0($&#5*(U (4/'*#7*$'7(?*-"/?($&#5*(Z J("/?(':*(.#4$*(47(I 2((3'(':47
!"#$%&#'()#"$*(+(,%-."/0
14-3

.%4/'(':*('0.4$"@(64#-(.#%?&$*7(%&'.&'(L 2((U4/$*(.#4$*(*L&"@7("5*#"C*('%'"@($%7'("'(':"'
.%4/'J(':*(64#-(-"8*7(K*#%(*$%/%-4$(.#%64'2
\%9(7&..%7*("/(4/$#*"7*(4/(?*-"/?(%$$&#7J(94':(':*(?*-"/?($&#5*(7:46'4/C('%(Z 2(
N:47($"&7*7(]7'#%/C(.#4$*7](4/(':*(4/?&7'#0J("7(':*(.#4$*(#47*7('%(I 2((Q'("@7%($"&7*7(':*
4/?&7'#0('%(4/$#*"7*(%&'.&'('%(M 2((^4':(':*(:4C:*#(.#4$*J(':*('0.4$"@(64#-(4/$#*"7*7(4'7
%&'.&'(6#%-(L ('%(L J("/?(/%9(-"8*7(.%74'45*(.#%64'7J(74/$*(.#4$*(*E$**?7("5*#"C*('%'"@
$%7'2
!%9*5*#J(':*(.%74'45*(.#%64'7(':"'(64#-7(*"#/(*/$%&#"C*(%':*#(64#-7('%(*/'*#(':*
4/?&7'#02((N:*4#(*/'#0J(]"/(*E."/74%/(4/("/(4/?&7'#0J](@*"?7(':*(7&..@0($&#5*('%(7:46'('%
U 2((N:*(/*9(*L&4@4>#4&-(#*?&$*7(':*(.#4$*(>"$8('%(I J(]>#4/C4/C("/(*/?('%(:4C:(.#4$*7
"/?(-"/&6"$'&#*#7P(.#%7.*#4'0J](74/$*(/%9(64#-7(.#%?&$*(L ("/?(*"#/(K*#%(.#%64'("C"4/2(
N:*(%/@0(@%/CH@"7'4/C(*66*$'(47(':"'(4/?&7'#0(%&'.&'(47(M J("(:4C:*#(@*5*@(':"/(%#4C4/"@@02

Marginal
cost Average
total cost
P2
P1

S1

S3

D1 D2
q1 q2
Quantity

_2

Industry

Price

Price, Costs, Revenue

Firm

Q1 Q2 Q3
Quantity

N:*(#47*(4/(':*(.#4$*(%6(.*'#%@*&-(4/$#*"7*7(.#%?&$'4%/($%7'7(6%#(4/?454?&"@(64#-7("/?
':&7(7:46'7(':*(4/?&7'#0(7&..@0($&#5*(&.J("7(7:%9/(4/(F4C&#*(1GHO2((N:*('0.4$"@(64#-P7
4/4'4"@(-"#C4/"@H$%7'($&#5*(47(X, ("/?(4'7("5*#"C*H'%'"@H$%7'($&#5*(47(3N, 2((Q/(':*
4/4'4"@(*L&4@4>#4&-J(':*(4/?&7'#0(7&..@0($&#5*J(U J(4/'*#7*$'7(':*(?*-"/?($&#5*("'(.#4$*
I J(9:4$:(47(*L&"@('%(':*(-4/4-&-("5*#"C*('%'"@($%7'(%6(':*('0.4$"@(64#-2((N:&7(':*
'0.4$"@(64#-(*"#/7(/%(*$%/%-4$(.#%64'2
N:*(4/$#*"7*(4/(':*(.#4$*(%6(%4@(7:46'7(':*('0.4$"@(64#-P7($%7'($&#5*7(&.('%(X, ("/?
3N, J("/?(7:46'7(':*(4/?&7'#0(7&..@0($&#5*(&.('%(U 2((N:*(*L&4@4>#4&-(.#4$*(#47*7(6#%I ('%(I J(>&'(':*(.#4$*(?%*7/P'(4/$#*"7*(>0("7(-&$:("7(':*(4/$#*"7*(4/(-"#C4/"@($%7'(6%#
':*(64#-2((37("(#*7&@'J(.#4$*(47(@*77(':"/("5*#"C*('%'"@($%7'(6%#(':*(64#-J(7%(.#%64'7("#*
/*C"'45*2
Q/(':*(@%/C(#&/J(':*(/*C"'45*(.#%64'7(@*"?(7%-*(64#-7('%(*E4'(':*(4/?&7'#02((37(':*0(?%
7%J(':*(4/?&7'#0(7&..@0($&#5*(7:46'7('%(':*(@*6'2((N:47($%/'4/&*7(&/'4@(':*(.#4$*(#47*7('%
*L&"@(':*(-4/4-&-(.%4/'(%/(':*(64#-P7("5*#"C*H'%'"@H$%7'($&#5*2((N:*(@%/CH#&/
!"#$%&#'()#"$*(+(,%-."/0
14-4

*L&4@4>#4&-(%$$&#7(94':(7&..@0($&#5*(U J(*L&4@4>#4&-(.#4$*(I J(4/?&7'#0(%&'.&'(M J("/?
64#-P7(%&'.&'(L 2((N:&7J(4/(':*(@%/C(#&/J(.#%64'7("#*(K*#%("C"4/("/?(':*#*("#*(6*9*#(64#-7
4/(':*(4/?&7'#02
Firm

Industry
S3
S2
S1

MC1
ATC2
ATC1

P3
P2
P1

Price

Price, Costs

MC2

Demand
q2 q3 q1
Quantity

"2

F4C&#*(1GHR(4@@&7'#"'*7(':*(74'&"'4%/(4/(':*(a2U2('*E'4@*(4/?&7'#02((^4':(/%
4/'*#/"'4%/"@('#"?*J(':*(-"#8*'(47(4/(@%/CH#&/(*L&4@4>#4&-2((U&..@0(4/'*#7*$'7
?*-"/?("'(L&"/'4'0(M ("/?(.#4$*(VDWJ(94':("('0.4$"@(64#-(.#%?&$4/C(%&'.&'(L 2
Firm

Industry
Supply

Average
total cost
$30
$25

Price

Marginal
cost

Price, Costs

`2

Q3 Q 2 Q 1
Quantity

Demand
q2 q1

Q1
imports

Quantity

>2

Quantity

N:*(*66*$'(%6(4-.%#'7("'(VBO(47(':"'(':*(-"#8*'(7&..@0($&#5*(6%@@%97(':*(%@?
7&..@0($&#5*(&.('%("(.#4$*(%6(VBOJ(':*/(>*$%-*7(:%#4K%/'"@("'(':"'(.#4$*2((37("
#*7&@'J(?*-"/?(*E$**?7(?%-*7'4$(7&..@0J(7%(':*($%&/'#0(4-.%#'7('*E'4@*7(6#%%':*#($%&/'#4*72((N:*('0.4$"@(?%-*7'4$(64#-(/%9(#*?&$*7(4'7(%&'.&'(6#%-(L ('%(L J
4/$&##4/C(@%77*7J(74/$*(':*(@"#C*(64E*?($%7'7(4-.@0(':"'("5*#"C*('%'"@($%7'(94@@(>*
-&$:(:4C:*#(':"/(':*(.#4$*2

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