Economics Exam Notes

Market Structures

  • Cournot Model: Two firms in an industry.
  • Kinked Demand Curve Model: Competitors follow price decreases but not increases. Applicable to Oligopoly.

Trade and Advantage

  • Theory of Comparative Advantage: Specialization and free trade benefit all participants.
  • Comparative Advantage: Producing at a lower opportunity cost.
  • Absolute Advantage: Producing with fewer resources.

Market Issues

  • Market Failure: Inefficient resource allocation leading to waste.
  • Externalities: Costs or benefits to third parties not involved in a transaction.
  • Public Goods: Non-excludable and non-rivalrous goods.

Demand Elasticity and Total Revenue

  • Elastic Demand:
    • Price decrease: Total revenue increases.
    • Price increase: Total revenue decreases.
  • Inelastic Demand:
    • Price decrease: Total revenue decreases.
    • Price increase: Total revenue increases.

Macroeconomics

  • Inflation: Increase in the general price level.
  • Aggregate Supply: Total output produced by an economy.
  • Aggregate Demand: Total products purchased in an economy.

Firm Numbers in Market Structures

  • Monopoly: One firm.
  • Monopolistic Competition: Many firms.
  • Oligopoly: Few large firms.
  • Perfect Competition: Many small firms.

Collusion

  • Collusion Model: Firms agree to fix prices and output to increase profits.

Goods

  • Complements: Goods consumed together.
  • Substitutes: Goods that satisfy the same need.
  • Inferior Good: Consumption decreases as income increases.
  • Normal Good: Consumption increases as income increases.

Supply and Demand

  • Shortage: Quantity demanded exceeds quantity supplied.
  • Surplus: Quantity supplied exceeds quantity demanded.

Characteristics of Market Structures:

  • Perfect Competition: Many firms, homogenous products, perfectly elastic demand.
  • Monopolistic Competition: Many firms, differentiated products, relatively elastic demand.
  • Oligopoly: Few interdependent firms, kinked demand.
  • Monopoly: One firm, unique product, relatively inelastic demand.

Economic Concepts

  • Efficient Markets: Opportunities for profit are easily achieved.
  • Sunk Costs: Unavoidable costs.
  • Opportunity Cost: Value of the next best alternative.
  • Marginalism: Analysis of additional costs and benefits of a decision.