CH 7 Econ

02/23/2015

Price from(buyers)- Price to(sellers)= amount of tax to government

Economic Surplus= Cost surplus+ Price surplus + govt revenue
Govt revenue (excise tax)= amount of the good transacted to amt of
tax(per unit)
Govt raises tax by 10% so that means the price of the good will go up
10cents and the quantity demand will go down and we have a surplus
Because we raise the price of the good there will be a less demand for
it
P(buyer)-P(seller)= amt of tax

With tax
Change in consumer surplus goes down--- bad
Change in producer surplus goes down----bad
Govt revenue goes up----good
Economic surplus goes down---bad
Inelastic- insensitive to a change of price of a good
% burden by the seller= Elasticity of buyer
x 100
E(buyer) + E(seller)
% burden by the buyer= Elasticity of seller
E(buyer)+E(seller)

x 100

E(b)=2
E(s)=3
1) % of burden borne by buyer? 60%
2) % of burden borne by seller? 40% the seller less sensitive
3) Change in Price(buyers) pay? Increase by 60 cents
4) Change in Price(sellers) receive? Decrease by 40 cents
P(buy)-P(sell)= change in amount of tax
Profit= benefit-cost
Marginal revenue/cost is the change in total revenue/cost from
selling/producing one more unit of the good or service
MR= TR (total revenue)
MC= TC
Q (quantity)
Q
Marginal Revenue (MR)
Total Revenue= benefit= Profit x Quantity
Total Cost= cost
A) Explicit= $ out= accounting cost
B) Implicit $ not in
Marginal Cost (MC)
Accounting Profit= TR- Explicit
Profit=Economic Profit
Economic Profit= Acct Profit Implicit Cost
From what your doing Acct profit from the best
alternative
Maximizing rule: Q* where MR=MC
Normal Profit: Econ Profit=0 actually good because we have a + Acct
Profit

Costs
TC= Fixed Cost + Variable Cost
Fixed Cost: independent of Q
Variable Cost: function of Q
Marginal Cost=at the top of page^
Average
Profit= TR- TC
Profit= (P-AVG TC) x Q
Suppose Danielle is considering opening her own beauty salon. She
anticipates the following costs per year:
Furniture:
Equipment:
Rent:
Coloring Products:
Styling Products:
Danielle is withdrawing 70,000 from her savings account that pays 2
percent interest per year to purchase the furniture and equipment and is
quitting her current job that pays 28,000. She expects the her new job and
the total revenue would be 125,000
Profit= (Price-ATC)
Price=Marginal Revenue
P=MC (since its profit maximizing) ATC= 16$ AVC=15$ MC=17$
Profit= (17-16) so profit is greater than 0
Positive Profit= increase # of sellers
Sellers Increase= price goes down and quantity transacted goes up