Opportunity Cost and Production/Consumption: Opportunity cost of ...
Opportunity Cost and Production/Consumption: Opportunity cost of product 1 (OCP1) = loss P2/gain P1 Agent 1’s OC P1 (specialiser) ≤ Price P1 ≤ Agent 2’s OC P1 *Low hanging fruit principle: to increase production of a good, utilise resources which have the next lowest opportunity cost. PPC changes with: infrastructure, population, technology Perfectly Competitive Market (pareto efficient at equilibrium): price takers, homogenous goods, no externalities, goods are excludable and rival, full information, free entry and exit. Consumption possibility curve is a tangent to the efficient point in an open economy.
Costs and Operating: Short run: a period of time during which at least one factor of production is fixed. -‐ Shut down in short run if costs are below the AVC (average variable costs). -‐ Shut down in long run if costs are between the AVC and ATC (average total cost) -‐ Economic profit = 0 at intersection of ATC and MC (marginal cost) – perfectly competitive markets are in equilibrium at this point (pareto optimal point -‐ impossible to make one individual better off without making someone worse off) -‐ Economic profit > 0 above ATC -‐ Economic profit < 0 below ATC Profit = TR – TC AVC = VC/Q ATC = (VC + FC)/Q
Supply and Demand: Factors that affect supply: technology, input price, expected future prices, changes in pricing of similar goods, number of suppliers. Factors that affect demand: consumer preferences, complements, substitutes, changes in income for normal and inferior goods, expectations of future prices, population. Aggregate demand = sum of individual demand curves horizontally.
Costs and Operating: Short run: a period of time during which at least one factor of production is fixed. -‐ Shut down in short run if costs are below the AVC (average variable costs). -‐ Shut down in long run if costs are between the AVC and ATC (average total cost) -‐ Economic profit = 0 at intersection of ATC and MC (marginal cost) – perfectly competitive markets are in equilibrium at this point (pareto optimal point -‐ impossible to make one individual better off without making someone worse off) -‐ Economic profit > 0 above ATC -‐ Economic profit < 0 below ATC Profit = TR – TC AVC = VC/Q ATC = (VC + FC)/Q
Supply and Demand: Factors that affect supply: technology, input price, expected future prices, changes in pricing of similar goods, number of suppliers. Factors that affect demand: consumer preferences, complements, substitutes, changes in income for normal and inferior goods, expectations of future prices, population. Aggregate demand = sum of individual demand curves horizontally.
