2:20 CH
CHAP 1 - Economist study
CHAP 1 - What is economics?
The study of how society manages its scare resources
The "scarcity": limited nature of society's resource
If resources are unlimited --> no economics
Economist study: how to make decision
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Principle 1: trade-offs
• Efficiency: society getting the maximum benefits from its scare resources; the size of the
economics pie
• Equality: Distributing economic prosperity uniformly among the members of society
The trade-offs between efficiency and equality
Principle 2: the cost of sth is what you give up to get it
Facing trade-offs, making decision:
- Compare cost with benefits of alternatives
- Include opportunity costs
Opportunity cost:
- sth have to be given up to obtain sth
- only opportunity can help you make decision
Principle 3: Rational people think at the margin
Rational people:
- systematically and purposefully do the best to achieve their objectives
- Given the available opportunities
Marginal changes
- Small incremental adjustments to the plan
Rational decision maker
- Make decision by comparing marginal benefits and marginal costs
- Only happen when: Marignal benefits > Marginal costs
Principle 4: People respond to incentive
Incentive: sth that induce you to act
- Higher price: buyer consume less; seller produce more
- Public policy
Principle 5: Trade can make everyone better off
Trade
Principle 6: Markets are usually a good way to organize economic activity
Communist countries with central planning system (1975)
- Government officials allocate economy's scare resources
○ What goods and services were produced
○ How much was produced
○ Who produced and consumed goods and services
Market economy, allocation of resources - (maximize the benefit of the society)
- Decentralized decisions of many firms and households
- Interact in markets for goods and services
- Guided by prices and self-interest
Principle 7: Government can sometimes improve market outcomes
- Rules to maintain institution that are key to a market economy
- Property rights: ability to own and exercise control over scarce resources
- Promote efficiency, avoid market failure
○ Situation: market being left on its own fail to allocated resources efficiently
○ Externalities: protect environment, control pollution
○ Market power: monopoly --> high prices --> unaffordable --> need to be controlled/lowered
price by government --> maximize benefit of the society
- Promote quality, avoid disparities
 4:11 CH

CHAP 2 - Assumption
Assumptions: simplify complex world to understand it easier
Different assumption
Economic model
- Diagram
○ Circular flow
- The production possibilities frontier: show the total output that the economy can produce given
the available factors of production
The PPF is bowed outward --> the inequality between available factors of production
○ Everything on the curve are efficient
○ Everything insider the curve are inefficient
○ Everything outside the curve are impossible

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CHAP 3
Absolute advantages
Specialize in one advantages --> More efficiency
Comparative Advantages
The advantages you better at than doing others, you specialize in that advantages
Ex: Vietnam has lower output of crop than USA, however we still export rice rather than high-technology
devices --> rice is Vietnamese comparative advantages
Opportunity cost:
- Number of quantity per 1 hour: thing you give up on/thing you want to get
- Number of hour per 1 quantity: thing you want to get/thing you give up on
--> The product of country A has lower opportunity cost than other of country B--> that product is the
comparative advantages of country A

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CHAPTER 4 SUPPLY AND DEMAND
1:53 CH

Supply and demand are the interaction of behaviors between

customers and brands What is the competition?
Competitive market: so many buyers and so many sellers that they have inconsiderable effect on the
market price
Market: group of buyers and seller of products and services, the place Perfectly competitive: the highest form of competitive market
where the exchange of goods happening - The product are the same
- So many customers and brands that the price remains constant
--> they have to accept the price given by the market (called price takers)
Monopoly: the only seller in the market to set the price
Other market: lying between competitive and monopoly

DEMAND: relationship between the price of a good and quantity demanded

• The quantity demanded: the amount of goods that customers is willingly able to pay for it
• Law of demand: the law to indicate the relationship between the quantity demanded and the its
prices. The amount will decrease if the price increase and vice versa
• The demand schedule: the table that display the interaction between the quantity demanded and
its prices whenever neither of factors is changing in its amount
• Demand curve: --> a lower price --> a greater demand of good --> tbe curve is always slope
downward

Market demand: the sum of all the demand of goods on the market
Market demand curve: the variation in price --> the variation in demanded goods, other affected
factors remain unchanged
Demand curve shift to right --> increase in demand and price
Demand curve shift to left --> decrease in demand and price

Normal goods: increase in income --> increase in demand

Inferior goods: increase in income --> decrease in demand;
Substitutes: 2 goods that a decrease in price of one will lead to the decrease in demand of the other.
Complements: 2 goods that a fall in price will lead to an increase in demand of the other since both are
best used together.

Taste: the criteria of a customer when choosing a product, heavily influenced by culture and history
Expectation: the belief you holding in the future might affect your demand, expect a raise in salary next
months --> buy more wine this week to celebrate your job promotion
Number of buyers: affect the market demand and price

SUPPLY
The quantity supplied: the amount of goods that the seller willing to sell
Law of supply: the quantity supplied increases when the price of goods increases and vice versa
Supply schedule: the table show the quantity supplied at each price --> the relationship between the
amount of a good and its price
Higher price --> higher quantity supplied --> the slope upward (from the lowest to the highest)
Supply curve: the line/graph shows the interaction between price and supply

Market supply: the total of available goods can be supplied by the seller
Market supply curve: the variation in price --> the variation in supply, other affected factors remain
unchanged
Supply curve shift to the right --> increase in supply
Supply curve shift to the left --> decrease in supply

Input price: price of ingredients, labors, costs … an increase in input price --> decrease in supply
Technology: decrease the cost of manufacturing (input price) + increase efficiency in production -->
increase the supply
Expectation: if the selling price is expected to increase in the future ---> more profitable than now --->
decrease the supply at this time ( until the price goes up in the future --> increase the supply --> more
profit)
Number of sellers: the more sellers, the more supply

Equilibrium: the intersection of market demand curve and market supply curve
At this point: the price: equilibrium price; quantity: equilibrium quantity
At this point, the price is the market-clearing point --> buyers bought all the goods they want, sellers sold all the goods
they want
Surplus: situation where the quantity supplied is greater the quantity demanded --> excess supply --> sellers is unable to
sell all the goods they want
==> cut prices --> increase the quantity demanded --> decrease the quantity supplied --> reach equilibrium
Shortage: situation where the quantity demanded is greater than the quantity supplied --> excess demand --> buyers are
unable to buy all the goods they want
==> seller increase the price --> decrease the quantity demanded --> increase the quantity supplied --> reach equilibrium
Law of supply and demand: price of any good adjusts to balance the quantity demanded and quantity supplied of that
good ( in free market, surplus and shortage is temporary bc of law of supply and demand)

3 steps for analyzing changes in market equilibrium

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==> seller increase the price --> decrease the quantity demanded --> increase the quantity supplied --> reach equilibrium
Law of supply and demand: price of any good adjusts to balance the quantity demanded and quantity supplied of that
good ( in free market, surplus and shortage is temporary bc of law of supply and demand)

3 steps for analyzing changes in market equilibrium

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CHAPTER 5 ELASTICITY
10:25 SA

Elasticity: a measure of the change in size of quantity demanded/quantity supplied resulting from the changing in one of
the affected factors
Price elasticity of demand: measure how much the quantity demanded react to a change in price
- Elastic demand --> demand have a strong relationship with price
- Inelastic demand --> demand have a weak relationship with price When calculating revenue, we use the demand curve
Good with close/similar/identical substitutes --> elastic quantity demanded of that good Because R = Price x Quantity Demanded ( not quantity supplied)
Necessities: basic goods that everybody need --> more inelastic
Luxuries: indispensable in some situation --> more elastic
Definition of the market:
- Narrowly defined market --> more elastic --> small, specific category with many substitutes alike
- Broadly defined market --> inelastic --> wide-range of products, many categories, difficult to recognize the
substitutes
Time horizon: longer time --> more elastic demand --> changes takes long time to have a clear effect on the demand

Midpoint method: use to calculating the elasticity between two point

Calculating the elasticity from point A to point B can be different from calculating elasticity from B to A
--> Using the midpoint between A and B to avoid the difference

Variety of demand curve

Elasticity > 1: Demand is elastic
Elasticity < 1: Inelastic
Elasticity = 1: unit elasticity
The flatter the demand curve --> the greater price elasticity of demand
The stepper the demand curve through a point --> the smaller the price elasticity of demand

In business, determine the price --> understand the price elasticity of demand --> make good decision
When the demand curve is inelastic --> increase the price --> increase the revenue
When the demand curve is elastic --> decrease the price --> increase the revenue

In the next session, case study/graph --> give explanation, identical example, solution
Why the in the long run, demand
more elasticity?

Search for the reason why the comparative advantages are no longer up to date currently --> country
need to shifting to industrialization process

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CHAP6
4:02 CH

Why government intervene the market Price control

Maintain the equality for the needy Price ceiling: the good must be sold at the price below that
Raise revenue for public facilities --> create shortage if the equilibrium is above
Effective if only there is an oil crisis --> to keep the price affordable for consumers and manufacturers

Price floor: the good must be sold at the price above that
--> create surplus if the equilibrium is below

Tax incidence
The buyer pay more tax only when the demand is more inelastic than the supply (necessities)
The seller pay more tax only when supply is more inelastic than the demand (luxuries)

No matter who was levied by the tax, the result is both sellers and buyers have to
share the burden

Effective price:
- Buyer: the price after adding all the taxes
- Seller: the money after subtracting all the taxes

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TUTORIAL
1:21 CH

Revision
Opportunity cost
Ex: Interest rate = the opportunity cost of your money

Types of economics
Centrally-planned: the government decide anything in the market and control the market --> Socialism
(property and goods are equally dive/Communism
Free market/ Market economy: the economy where the buyers and the seller interact with each other
to decide the price and create equilibrium
--> the theory of the invisible hand: where the price is too high/ above the equilibrium --> surplus -->
reduce the price ==> go back to the equilibrium
(no intervention of the government --> the interaction has already correctified the equilibrium

Vietnam: communist country with capitalist economy

Capitalism: US

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 Content
CHAP 7 7.1 Consumer surplus
2:13 CH 7.2 Producer surplus
7.3 Market Efficiency
7.4 Conclusion: Market Efficiency and Market Failure

Welfare economics: the study of how the allocation of resources affects the economic well-being (the
effect on the society/ people participating the market) by examining
- the benefits that buyers and sellers receive from engaging in market transactions
- how the society make this benefit as large as possible

---> Guide the publics policy toward that to maximize the benefits or use to evaluate economic policies
in terms of their effects on the well-being of the community - according to Britannica Encyclopedia

In any market, the equilibrium of supply and demand maximizes the total benefits received by all buyers
and sellers combined
--> the seller can sell all the goods they want and the buyers can buy all the goods they want
--> welfare economics explain more fully the theory that markets are usually a good way to organize
economic activity (market economy)

Ex:

What benefit the consumers can receive from the market

Consumer surplus Using the Demand Curve to Measure Consumer Surplus
Willingness to pay
- The maximum price that the buyer could possible buy Consumer surplus has a close relation to demand curve
- The value that buyer consider that good is worthy
Ex: at an auction, to sell an album by Adele Look at the demand schedule --> the y axis is the price of the album and the x axis is the quantity of
album demanded

If the price is above $100, the quantity demanded in the market is 0 because no buyer is willing to pay
that much. If the price is between $80 and $100, the quantity demanded is 1 because only Taylor is
willing to pay such a high price. If the price is between $70 and $80, the quantity demanded is 2 because
both Taylor and Carrie are willing to pay the price.
--> Demand schedule derive from the willingness to pay of the possible buyers ( in this case 4 possible
buyers)

At any quantity, the price given by the demand curve shows the willingness to pay of the marginal
buyer - the buyer who would leave the market first if the price were any higher

The initial price is 10 --> everyone is all willing to pay for it
--> You start to raise the price up --> when the price over 50, Gaga is no longer want to buy it
--> the price is above 70, Rihanna went home to sell Fenty Beauty cuz the price of the album is
above her willingness to pay
The auction will eventually stop when the price is slightly above 80. Carrie In the Country no
longer want to buy the album
--> the deal is made for Thuy Loan with only 80 bucks and she brought home the album
-------> TL's WTP is 100 --> she values the album at the price of 100 --> but she only paid 80 -->
a bargain for her
At the price 50 --> Lady Gaga ( bc if the price is above 50, she would refuse to accept that price)
At the price 70 --> Rihonda
At the price 80 --> Carrie OntheWood
the demand curve reflects buyers’ willingness to pay --> use it to measure consumer surplus
The area below the demand curve and above the price measures the consumer surplus in a market
the height of the demand curve represents the value buyers place on the good --> the willingness to pay
difference between this willingness to pay and the market price --> consumer surplus

==> 100 (the price valued by TL) minus 80 (the paid amount) = 20 (consumer surplus)
Consumer surplus can use to measure the benefit of the customer receiving from the
market
TL has a benefit of 20$ when participating the market
--> others don’t have the customer surplus because they didn’t obtain the album they want
and didn’t pay anything ( not participating the market)
How a Lower Price Raises Consumer Surplus
buyers always want to pay less for the goods they buy --> a lower price makes buyers of a good better
off.
(In a market with many buyers, the resulting steps from each buyer dropping out are so small that they
form a smooth curve) --> the straight line indicate the demand curve

- the price falls from P1 to P2, as shown in panel

What Does Consumer Surplus Measure?
- It measure the benefit that can only be perceived by the buyers
- Consumer surplus reflect economic wellbeing
--> the authority respect the preference of the buyers --> free market
--> buyers are rational when they make decisions
--> Rational people do the best they can to achieve their objectives, given their
opportunities --> maximize the benefit of the buyers themselves
EXCEPT: Illegal Drug
- The authority disregard the preference of this product
- Buyers willingly accept the higher price to buy it --> lower price play no effect in
their decision --> they receive no benefit from lower price --> there is consumer
surplus
==> when comparing the benefits vs the externalities
Political Economy of Illegal Drugs
Bởi Pierre Kopp
From <https://books.google.com.vn/books?id=RoWBAgAAQBAJ&pg=PA126&lpg=PA126
&dq=why+there+is+no+consumer+surplus+in+illegal+drug&source=bl&ots=2wGgMd_
3Mq&sig=ACfU3U0U_i9QIm_5e61Tsn0-J-QnlSJqRQ&hl=vi&sa=X&ved=
2ahUKEwjBqMWcmZDqAhXFAYgKHXazDDQQ6AEwAHoECAoQAQ#v=onepage&q=why%20there%20is%
20no%20consumer%20surplus%20in%20illegal%20drug&f=false>
those buyers who were already buying Q1 of the good at the higher price P1 are better off because now
they pay less.
==> some new buyers enter the market because they are willing to buy the good at the lower price
==> increase the quantity demanded --> increase area ( longer x, longer y) --> increase the consumer
surplus
Market efficiency
Everyone in the market all have the benefit when they join the market
Equality
Everyone all have the equal benefit in the market
Market outcome
Free market allocate the supply of goods to the buyers who value them the most
highly
--> the customer who willingness to pay higher --> their need are more serious
The good produced by the efficient producer --> good use of scare resources -->
stay in the market

Market equilibrium
Social planner --> cannot increase the economic wellbeing by intervene the
THE PRODUCER SURPLUS allocation
Cost: the value of everything a seller must give up to produce a good --> the lowest price he would Changing quality wont increase the economics wellbeing ???

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 Market equilibrium
Social planner --> cannot increase the economic wellbeing by intervene the
THE PRODUCER SURPLUS allocation
Cost: the value of everything a seller must give up to produce a good --> the lowest price he would Changing quality wont increase the economics wellbeing ???
accept for his work, cost is a measure of his willingness to sell his services

Producer surplus is broader than profit --> benefit is always broader than the profit ( profit is included in
the producer surplus) Free market produce the adequate quantity of goods that maximized the total
surplus --> at the equilibrium price
Producer surplus doesn’t only contain profit, it also include the happiness, the value

Marginal supplier: the supplier that will leave the market if the price get any lower

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CHAP 8
2:15 CH

Content
8.1 The Deadweight Loss of Taxation
8.2 The Determinant of Deadweight Loss
8.3 Deadweight Loss and Tax revenue as taxes vary
8.4 Conclusion

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CHAP 9
2:19 CH

Content
9.1 The Determinant of Trade
9.2 The Winners and Losers from Trade (nhieu)
9.3 The Arguments for Restricting Trade
9.4 Conclusion

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CHAP 7
2:39 CH

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CHAP 8
2:39 CH

Welfare economics can be understood as the benefit of the buyers and the sellers

How benefit of buyers and seller being affected by the tax revenue

Using welfare economics - the study on how to allocation scare resources- to analyze the effect of tax
revenue on the wellbeing of the economics

The B part is the loss of consumer surplus of consumer who are still in the market --> the C part is the
loss of consumer surplus of the marginal buyers

The D is the loss of the producer surplus of seller who are still in the market --> the E part is the loss of
producer surplus of the marginal seller

The B + D are loss of consumer surplus --> the tax revenue will be used as investment for public school,
hospital, infrastructure ---> improve the welfare of the sellers and buyers eventually

DEADWEIGHT LOSS
The loss of consumer surplus and producer surplus of both marginal buyers and sellers

The source of a deadweight loss: the total surplus is smaller than the tax
The tax enacted --> increase the perfect price --> some customers have to leave the market
--> The lost gain from trade
Tax prevent the gain from trade to be realized

Determinant of deadweight loss

Price elasticities

Inelastic supply --> deadweight loss is smaller

Elastic supply --> deadweight loss is greater
--> the more elastic, the greater deadweight loss

Inelastic demand --> deadweight loss is smaller

Elastic supply --> deadweight loss is greater
--> the more elastic , the greater deadweight loss

==> government should impose tax on inelastic supply/inelastic demand to minimize the deadweight
loss

Big government may serve better but the tax will be higher --> tax more to have more money to
function the government

Economists disagree --> tax on labor

Marginal tax rate:

Deadweight loss and tax revenue

Tax increase --> deadweight loss increase

Why
The tax is too high might lead to the fact that the producer receive less --> many leave the market --> no

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The tax is too high might lead to the fact that the producer receive less --> many leave the market --> no
supply --> the government cannot collect any tax + the deadweight loss is increase

Optimal tax size: the tax size that help the government collect the highest tax revenue

Laffer curve --> the curve indicating that tax revenue can be increase by decreasing the tax

GENERAL LESSON: change in tax revenue from a tax change --> depend on how the tax change affects
people behavior

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Next session
3:48 CH

CHAPTER 9

REVIEW SESSION
REVIEW ON QUESTION FROM PROBLEM SET 1 2 3

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Preparation
2:03 CH

9.1 The determinant of trade

The equilibrium without trade

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REVISION
1:07 CH

If you can pick up an appropriate

Option Utility Utility: level of satisfaction

A 100
B 120
C 40
D 60

You will choose B cuz it gives the highest level of satisfaction

The opportunity cost here will be the value of the option of that you would choose - the second best
option - if the best option is not available

The point move inside the curve

- The economy utilize all the available resources but they are using those inefficiently
- The economy has not utilize all the available resources

Absolute advantage is only used when one country is good at this good, the other is good at other good
Comparative advantages is when 2 countries are good at everything --> need to specialization to be both
better off

--> Comparative advantages is the driving force of specialization ---> applied on international trade

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CHAP 9
3:02 CH

Other benefits of international trade

The world price is determined by the supply and demand in the world market Increase the variety of goods --> more brands and items to choose --> more consumer surplus
The domestic price is determined by the supply and demand in the domestic market Lower costs through economies of scale --> more production to export --> lower price

QUOTA and Tariff have the same effect --> Both a tariff and an import quota raise prices, restrict trade,
and cause deadweight losses, but at least the tariff produces revenue for the government rather than Job argument
profit for foreign producers.

Tariff is more prefer --> it is more flexible if the price of the foreigner lower --> still can import more
good based on the domestic need

Tariff create tax revenue for the government

Quota create surplus for the one got the license to import the good at the world price
--> who can have license ---> the risk of having corruption
Can create the waste for the resources

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CHAP 13 COSTS OF PRODUCTION
1:08 CH

Industrial organization
The study of how firm's decisions about prices and quantities depend on the market conditions they face
The ultimate goal of a firm is to maximize the profit = Total revenue - total cost
Market condition: the number of firms/sellers in the market --> the competition, the number of products/ the
difference of products (identical or different) --> market structure (monopoly, competitive,…) --> decision

Revenue: what the firm gains from the sale of output

Costs as opportunity costs: the cost to produce something = not have the chance to produce another thing else

Explicit cost: the cost that can be seen/recognized/measured - resources from the market

Implicit cost: the cost that cannot be seen/unrecognized as money - resources from the owner (saving/previous salary/ )
---> why we should consider implicit cost ---> allocation of scare resources --> being efficient

Profit is nothing if you don’t compare with opportunity cost

Economic profit might be zero, but you still earn the implicit cost when comparing with the accounting profit
When making decision, you must take the implicit cost into consideration

Production function: the relationship between the quantity of inputs used to make a good and the
quantity of output of that good

Marginal product: the increase in output that arises from an additional unit of input, holding all other
inputs constant
MP = change in output/change in input

THE LAW of DIMINISHING marginal product: the number of input increase --> the marginal product
decreased

The more input --> the more output but the marginal output is diminishing

The Average total cost will tell us the typical cost of producing one unit

Marginal cost: change in total cost/change in quantity

Efficient scale: the intersection of MC and ATC ---> the minimum point of ATC
Minimum ATC = MC --> efficient scale
FIGURE 5 important to remember the shape of types of cost shape When MC < ATC --> ATC falling
MC > ATC --> ATC rising
In short run ---> fixed cost ---> cannot expand the size of the company
In long run --> no fixed cost/ no fixed input --> can expand the size of the company GPA example
ATC in long run and short run

The ATC in short run --> the size of the company

The ATC in long run: at first --> first ATC go down as output increase --> company become efficient -->
ECONOMIES of scale
The constant return to scale --> the company is following the strategies to keep the lowest of ATC

After long time--> ATC go up --> company become inefficient as output increase--> DISECONOMICS of
scale --> coordination problems ---> in the long run --. The company got problems --> more labor, more
subdivision ---> management problems ---> ATC high

In Vietnam ---> diseconomies of

In the long run --> you must expand the company to low down the ATC
The long run of ATC ---> the gather of lowest point of short run ATC

How many size of factory are there ---> many size of company

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CHAP 14: Company in a competitive market
2:55 CH

Competitive market

Many buyers and sellers --> identical product --> price taker ---> accept the market price ---> cannot influence the price --> no market
power
Can freely enter or exit the market ---> no barrier to enter and exit the market

AR = P
MR = P
--> the P - price is constant --> no one in competitive market can change the price

Maximize profit is the ultimate goal of firm

Compare MR with MC
MR > MC: increase production
MR < MC: decrease production
Profit is maximized when MR = MC

MC curve is also the supply curve bc when the price increase ---> firms supply more --> the law of supply
==> why firms supply more when price is higher --> maximize the profit

Short-run decision
Shutdown: produce nothing but still stay in the market --> still pay the fixed cost
If TR < VC or P < AVC
Fixed cost in the short run is the sunk cost ---> cannot be changed or recovered
If TR cannot pay VC --> it can't pay for FC --> need to shutdown --> otherwise --> larger loss

When firm facing the lost --> firm don’t need to shutdown

If the price P > VC --> in short run ---> company should produce --> able to pay all the VC and cover a part of FC --> minimize the loss
than when shutdown ( the loss < FC) --> pay all the fixed cost = LOSS

Long-run decision
Exit: close the business --> no more paying fixed cost

Exit the market

TR < TC
--> don’t compare with VC --> in the long run the VC is variable and changing --> the market condition can change --> VC can change

Enter the market

TR > TC
Measuring profit
If P > ATC ==> Profit = TR - TC = (P - ATC) x Q
Measuring loss
If P < ATC ==> Loss = TC - TR = (ATC - P) x Q

If there is an increase in the demand --> the demand curve shift to the right --> higher price --> firm produce more --> existing firm
makes profit ---> new firms enter ---> supply demand shift to right ---> reduce the price back to equilibrium price

Economics profit is zero but firms still stay in the market --> Economics profit include the Implicit cost ---> still got what you want -->
earn the implicit cost

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 CHAP 15 MONOPOLY
2:33 CH
a competitive firm is a price taker, a monopoly firm is a price maker
--> They set the price --> quantity supplied does not depend on price --> no supply curve

Monopoly: a firm that is the sole seller of a product without any close substitutes
How Monopolies Make Production and Pricing Decisions
The fundamental cause of monopoly is barriers to entry: A monopoly remains the only seller in its
market because other firms cannot enter Monopoly versus Competition
- Monopoly resources: A key resource required for production is owned by a single firm. A competitive firm is small relative to the market in which it operates and, therefore,
- Government regulation: The government gives a single firm the exclusive right to produce some has no power to influence the price of its output
good or service. A monopoly is the sole producer in its market, it can alter the price of its good by
adjusting the quantity it supplies to the market.
○ Patent and copyright
- The production process: A single firm can produce output at a lower cost than can a larger
number of firms A Monopoly’s Revenue
○ natural monopoly a type of monopoly that arises because a single firm can supply a good or Monopoly increases the amount it sells, this action has two effects on total revenue
service to an entire market at a lower cost than could two or more firms. Becomes a (P x Q):
monopoly over time due to market conditions and without any unfair business practices - The output effect: More output is sold, so Q is higher, which tends to increase
○ Examples of natural monopolies: public goods and common resources: railroad company, total revenue.
utility company such as electricity, gas, bridge, lighting, social media platforms, search - The price effect: The price falls, so P is lower, which tends to decrease total
engines, and online retailing revenue

Economies of scale as the cause of monopoly

Economies of scale: the ATC decrease as the quantity of output increase
The monopolist’s profit-maximizing quantity of output is determined by the
The first mover of advantage: the first enter the market can enjoy the low ATC and become a intersection of the marginal- revenue curve and the marginal-cost curve
natural monopoly
In competitive markets, price equals marginal cost. In monopolized markets, price
exceeds marginal cost.
In monopoly --> no supply curve --> there're only one supplier that can choose any quantity
supplied

They can set the price in the market but the consumer can react to that price by leaving the
market --> increase/decrease quantity demanded ---> demand curve downward slopping

Why there are competitive quantity in t No market power --> the price will in the equilibirum --> intersection of demand curve and marginal cost
curve

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CHAP 17 OLIGOPOLY
9:27 SA

There are only a few seller in the market --> selling similar or identical product
Each firm can affect each other by its decision and be affected by others' decision ==> INTERDEPENDENT

Game theory ---> how to behave in strategic situation

A small group of seller --> tension between cooperation and self-interest
Best off when cooperating and act as a monopolist NASH EQUILIBRIUM

Economic actors interacting with one another

DUOPOLY Each choose their best strategy
Oligopoly with only two member Given the strategies that all the other actors have chosen

Oligopoly outcome --> instead of choosing the monopoly outcome --> NASH EQUILIBRIUM WITH Cooperation
➢ Tension and self-interest --> higher the quantity --> oligopoly outcome --> NASH EQUILIBRIUM WITHOUT Cooperation
If the tension is high --> trade-war --> competitive outcome (competitive market) --> price low down until = Marginal cost and
Profit = 0

The size of the oligopoly affects he market outcome

The more sellers --> the more competitive market --> price lower as
when firms in an oligopoly individually choose production to maximize profit quantity increasing
--> produce a quantity of output > the level produced by monopoly, < the level produced by perfect competition.
The oligopoly price < the monopoly price, > than the competitive price (which equals marginal cost).

WHEN make decision in strategic situation --> game theory

PRISIONERS' DILEMMA
find the dominant strategic: strategy that is the best for the player regardless of others' strategies
Rational people will always choose the dominant strategy --> can be worse off rather than better off
Choose the better off strategy ONLY WHEN they maintain the cooperation

Noncooperative equilibrium may be bad or good for society

The noncooperative equilibrium will create deadweight loss for the society but the DWL will smaller than the one caused by monopoly

REPEATED GAME of Prisoners' Dilemma --> can allow the players have agreement and choose the better off strategy --> once you break the
agreement to earn the profit in the short run --> other will break it too --> incentive for players to keep their promise

PE session 6 Page 23
CHAP 16 MONOPOLIST COMPETITION
12:57 CH

PE session 6 Page 24
CHAP 21
12:57 CH

The theory of consumer choice

Indifference curve: show consumption bundles that give the consumer the same level of satisfaction
Budget constraint Combination of goods on the same curve
Limit on the consumption bundles that a consumer can afford
The tradeoff of goods 4 Properties of indifference curve
High indifference cur
Consumption bundle: the combination of goods and services that you can buy Indifference curves are downward slopping: the more you consume one good, the less you will
consume the other one
Slope of budget constraint: relative price of the two goods Indifference curves don’t cross each other:
Indifference curves are usually bowed inward

Perfect substitute
Ex
The consumer optimum Dime: 10 cents coin
The point where indifference curve and budget constraint touch Nickel: 5 cents coin
Best combination of goods available for the consumers
Perfect complements
Higher income Ex: right shoes and left shoes --> the amount of consumption of both goods must be equally
---> Afford more
Indifference curve shift to the right parallelly --> the reference for the bundles do not change,
only the income changed
---> if the new optimum --> the decrease in quantity of a good --> that good is the inferior Real income: the
good
--> if the new optimum --> the unchanged in proportion of quantity of 2 goods --> 2 goods are
normal goods
Marginal utility: change in utility/ change in quantity of output

A change in price Utility: use to measure the level of satisfaction

New optimum -->
When you use consume sth more and more --> the total utility higher --> the marginal utility
decrease
Income effect --> ?
Substitution effect --> buy more one good when its price fall and buy the other good less

The net effect = income effect + substitution effect

When the income effect > the substitution effect ---> demand curve upward .

Effect change in price must combine those two effect LEGITIMACY

Why when price fall you buy more ? --> you want to maximize your satisfaction when the price
is lower

The marginal cost curve is also the supply curve --> when the price higher --> firm produce
more --> maximize the profit

Those two mentioned --> explain more the LAW OF SUPPLY AND DEMAND

Giffen goods are inferior goods for which the income effect dominates the substitution effect.
--> e demand curves slope upward

WHEN WAGE INCREASE

If the substitution effect is greater than the income effect --> more consumption and less leisure time --> works more --> more hours of labor --> labor-supply curve upward-slopping
If the income effect is greater than the substitution effect --> more consumption and more leisure time --> works less --> less hours of labor --> labor supply backward-sloping

PE session 7 Page 25
CHAP 1
5:18 CH

The word economy comes from the Greek word oikonomos, which means “one who manages a
household.”
--> households and economies have much in common

A society faces many decisions --> Once society has allocated people (as well as land, buildings, and
machines) to various jobs, it must also allocate the goods and services they produce

The management of society’s resources is important because resources are scarce

PE MIDTERM REVISION Page 26