economics pt 3

capital

money or assets used to produce goods + further income

excludability

when access to a good can be restricted (ex. paid streaming services) (nonexcludable ex: fresh air)

rival in consumption

one persons use of a good reduces another persons ability to enjoy it. (ex: sold out concert) (nonrival ex: streetlamps)

private goods

excludable and rival.

ex. concert tickets

club goods

excludable, non-rival

ex. netflix subscription

common resources

non excludable, rival

ex: deer in a public forest

public good

non-rival, non excludable

free rider

person who recieves the benefit of a good without paying for it

tragedy of the commons

economic theory where individuals overuse a shared, unregulated resource, eventually depleting it for everyone. (ex: deer hunting in public forest)

private incentives (getting free deer meat) outweigh social incentives (being polite and leaving some for others)

cost-benefit analysis

study that estimates and compares the total costs and benefits of a project that provides a public good to society.

total revenue

price x quantity 9the amount a firm receives for the sale of its output)

explicit costs

input costs that require an output of money by the firm (ex: rent, materials, wages)

implicit costs

input costs that don’t require an output of money by the firm (ex; owners time)

accounting profit

TR - total explicit costs

economic profit

TR — total costs (explicit and implicit)

MPL (marginal product of labor)

increase in output that arises from an additional unit of input

slope of the production function

change in Q / change in L

Diminishing Marinal Product

marginak product of input declines as the quantity of the input increases. production function gets flatter, slope decreases

Fixed Costs (FC)

don’t vary w/ the quantity of output, existent even with 0 production (ex. rent payments)

Variable costs (VC)

vary with the amount of output produced. (ex: amount of yarn bought to make scarves)

FC / Q

Average Fixed Cost (AFC)

VC / Q

Average Variable Cost (AVC)

Average Total Cost (ATC)

TC / Q OR AFC + AVC

Marginal Cost (MC)

The increase in total cost that arises from an extra unit of production

change in TC / change in Q

Short run

some inputs are fixed (ex: factories, land). cost of these inputs = FC

Long run

all inputs are variable (ex: firms can build more factories)

economies of scale

ATC falls as Q increases

constant returns to scale

ATC remains constant as q increases

diseconomies of scale

ATC rises as q decreases

average revenue (AR)

the revenue a firm recieves for one unit sold

TR / Q

marginal revenue

the additional revenue a firm recieves if it sells 1 more unit

change in TR / change in Q

MC curve

firms supply curve, determines the firms Q at any price

Shutdown

short run decision to not produce anything due to market conditions. still pays fc

Shutdown if TR < VC or P < AVC

Exit

long run decision to leave a market. 0 costs.

Exit if TR < TC (same as P < ATC). opposite for entering

profit

TR - TC

(P - ATC) X Q

firms earn economic positive profit

SR market supply shifts right, p falls

firms incur losses

SR market supply shifts left, p rises

competitive markets

P = MR = MC

market equilibrium: P= MC, maximizing TS

monopolist

p > MR = MC
monopoly equilibrium: P > MR = MC, DWL

monopoly

a firm that is the sole seller of a product without close substitutes. has market power (price maker)

occurs b/c of barriers to entry