Learning Objectives Neo
By the end of this chapter, students should understand 0 what characteristics make a market competitive. 0 how competitive firms decide how much output to produce. 0 how competitive firms decide when to shut down production temporarily. 0 how competitive firms decide whether to exit or enter a market. 0 how firm behavior determines a market's short-run and long-run supply curves. Chapter 14 is the second chapter in a five-chapter sequence dealing with firm behavior and the organization of...
Figure 6 Ghk
1. Example a market with 1,000 identical firms. 2. Each firm's short-run supply curve is its marginal cost curve above average variable cost. 3. To get the market supply curve, we add the quantity supplied by each firm in the market at every given price. B. The Long Run Market Supply with Entry and Exit Figure 7 1. If firms in an industry are earning profit, this will attract new firms. a. The supply of the product will increase the supply curve will shift to the right . b. The price of the...
Figure 3 1
b. When the Mexican orange market is opened to trade, the new equilibrium price is PW, the quantity consumed is Q the quantity produced domestically is Q, and the quantity imported is Qd - Q. Consumer surplus increases from A to A B D E. Producer surplus decreases from B C to C. Total surplus changes from A B C to A B C D E, an increase of D E. 9. a. Figure 10 shows the market for grain in an exporting country. The world price is Pw. b. An export tax will reduce the effective world price...
Figure 5 Ljc
7. a. Costs are shown in the following table 7. a. Costs are shown in the following table b. If the price is 50, the firm will minimize its loss by producing 4 units. This would give the firm a loss of 40. If the firm shuts down, it will earn a loss equal to its fixed cost 100 . c. If the firm produces 1 unit, its loss will still be 100. However, because the marginal costs of the second and third unit are lower than the price, the firm could reduce its loss by producing more units. 8. a. The...
Figure 31
Because cream cheese is a complement to bagels, the fall in the equilibrium price of bagels increases the demand for cream cheese, as shown in Figure 32. The result is a rise in both the equilibrium price and quantity of cream cheese. So, a fall in the price of flour indeed raises both the equilibrium price of cream cheese and the equilibrium quantity of bagels. yi What happens if the price of milk falls Because milk is an ingredient in cream cheese, the fall in the price of milk leads to an...
Problems and Applications Bhi
1. a. Figure 9 shows the effects of the minimum wage. In the absence of the minimum wage, the market wage would be wi and Q1 workers would be employed. With the minimum wage wm imposed above wu the market wage is wm, the number of employed workers is Q, and the number of workers who are unemployed is Q3 - Q. Total wage payments to workers are shown as the area of rectangle ABCD, which equals wm times Q. b. An increase in the minimum wage would decrease employment. The size of the effect on...
Problems and Applications Yie
1. a. The externality is noise pollution. Ringo's consumption of rock and roll music affects Luciano, but Ringo does not consider that in deciding how loud he plays his music. b. The landlord could impose a rule that music could not be played above a certain decibel level. This could be inefficient because there would be no harm done by Ringo playing his music loud if Luciano is not home. c. Ringo and Luciano could negotiate an agreement that might, for example, allow Ringo to play his music...
Figure 7 Ead
1. If the government requires the buyer to pay a certain dollar amount for each unit of a good purchased, this will cause a decrease in demand. 2. The demand curve will shift down by the amount of the tax. 3. The quantity of the good sold will decline. 4. Buyers and sellers will share the burden of the tax buyers pay more for the good and sellers receive less because of the tax . D. Case Study Can Congress Distribute the Burden ofa Payroll Tax 1. FICA Social Security taxes were designed so that...
at different prices to different customers
1. Example Readalot Publishing Company 2. The firm pays an author 2 million for the right to publish a book. Assume that the cost of printing the book is zero. 3. The firm knows that there are two types of readers. a. There are 100,000 die-hard fans living in Australia of the author willing to pay up to 30 for the book. b. There are 400,000 other readers living in the United States who are willing to pay up to 5 for the book. 4. How should the firm set its price a. If the firm sets its price...
Figure 4 1
a. If the price floor is lower than or equal to the equilibrium price, it is not binding and has no effect on the price or quantity sold. b. If the price floor is higher than the equilibrium price, the floor is a binding constraint and a surplus is created. a. The market for labor looks like any other market downward-sloping demand, upward-sloping supply, an equilibrium price called a wage , and an equilibrium quantity of labor hired. b. If the minimum wage is above the equilibrium wage in the...
Problems and Applications 1
1. a. Reduced police efforts would lead to an increase in the supply of drugs. As Figure 26 shows, this would cause the equilibrium price of drugs to fall and the equilibrium quantity of drugs to rise. On the other hand, cutbacks in education efforts would lead to a rise in the demand for drugs. This would push the equilibrium price and quantity up, as shown in Figure 27. On the other hand, cutbacks in education efforts would lead to a rise in the demand for drugs. This would push the...
Problems and Applications
1. As the president, you would be interested in both the positive and normative views of economists, but you would probably be most interested in their positive views. Economists are on your staff to provide their expertise about how the economy works. They know many facts about the economy and the interaction of different sectors. So you would be most likely to call on them about questions of fact positive analysis. Since you are the president, you are the one who has to make the normative...
Quick Quizzes
1. Economics is like a science because economists devise theories, collect data, and analyze the data in an attempt to verify or refute their theories. In other words, economics is based on the scientific method. Figure 1 shows the production possibilities frontier for a society that produces food and clothing. Point A is an efficient point on the frontier , point B is an inefficient point inside the frontier , and point C is an infeasible point outside the frontier . The effects of a drought...
Figure 5
7. a. A family's decision about how much income to save is related to microeconomics. b. The effect of government regulations on auto emissions is related to microeconomics. c. The impact of higher saving on economic growth is related to macroeconomics. d. A firm's decision about how many workers to hire is related to microeconomics. e. The relationship between the inflation rate and changes in the quantity of money is related to macroeconomics. 8. See Figure 7. The shape and position of the...