This is the summary that covers the literature for the midterm & final exam of Microeconomics. The summary is made from the book 'Microeconomics, second edition' of Goolsbee, Levitt and Syverson. I passed the course only studying with this summary, I hope you do too.
Chapter 1
Microeconomics: the branch of economics that studies the specific choiches made by consumers.
emperical: using data analysis and experiments to ecplore phenomena
Chapter 2
Commodities: products traded in markets in which consumers view diggerent varieties of the good
as essentially interchangeable. (like homogeneous products)
Four key assumptions fort he Supply and Demand model:
- We focus on supply and demand in a single market
- All goods sold in the market are identical
- All goods sold in the market sell fort he same price, and everyone has the same information
- There are many producers and consumers in the market
Factors that influence Demand:
- Price
- The number of consumers
- Consumer income or wealth
- Consumer tastes
- Prices of other goods
Substitute: A good that can be used in place of another good
Complement: a good that is purchased and used in combination with another good
Demand curve: the relationship between the quantity og a good that consumers demand and the
good’s price, holding all other factors constant
Demand chocke price: The price at which no consumer is willing to buy a good and quantity
demanded is zero; the vertical intercept of the inverse demand curve.
Inverse demand curve: A demand curve written in the form of price as a function of quantity
demanded.
Change in quantity demanded: a movement along the demand curve that occurs as a result of a
change in the good’s price
Change in demand: a shift of the entire demand curve caused by a change in a determinant of
demand other than the good’s own price.
Factors that influence Demand:
- Price
- Suppliers’ cost of production
- The number of sellers
- Sellers’ outside options
Production technology: The processes used to make, distribute, and sell a good.
Supply curve: the relationship between the quantity supplied of a good and the good’s price, holding
all other factors constant.
Supply choke price: the price at which no firm is willing to produce a good and quantity supplied is
zero; the vertical intercept of the inverse supply curve.
Inverse supply curve: a supply curve written in the form of price as a function of quantity supplied.
Change in quantity supplied: a movement along the supply curve that occurs as a result of a change
in the good’s price.
Changy in supply: a shift of the entire supply curve caused by a change in a determinant of supply
other than the good’s own price.
Market quilibrium: the point at which the quantity demanded by consumers exactly equals the
quantity supplied by producers
Equelibrium price: the only price at which quantity supplied queals quantity demanded.
Excess supply: the price is higher than the equilibrium price. To get equilibrium; drop price till
equilibrium price.
, Excess demand: the price is lower than the equilibrium price. To get equilibrium; consumers will bid
up the price, so producers will make more. Till equilibrium is reached.
Elasticity: the ratio of the percentage change in one value to the percentage change in another
Price elasticity of demand: the percentage change in quantity demanded resulting from a given
percentage change in price.
E = % change in quantity / % change in price
Elasticities and time horizons: the price elasticities of demand and supply for most product are larger
in magnitude in the long run than in the short run (more options to change)
Elastic: a price elasticity with an absolute value greater than 1
Inelastic: a price elasticity with an absolute value less than 1
Unit elastic: a price elasticity with an absolute value equal to 1
Perfectly inelastic: a price elasticity that is equal to zero; there is no change in quantity demanded or
supplied for any change in price
Perfectly elastic: a price elasticity that is infinite; any change in price leads to an infinite change in
quantity demanded or supplied.
E = (Q2-Q1/Q)/(P2-P1/P) = (Q2-Q1)P/(P2-P1)Q
E = (1/slope) x (P/Q)
Slope = (P2-P1)/(Q2-Q1)
Elasticity of a linear demand curve: the price elasticity of demand changes from -infinity to zero as
we move down and to the right along a linear demand curve.
Elasticity of a linear supply curve: starts at +infinity then it falls as we move up the supply curve.
Perfectly inelastic demand or supply curve: it slope is infinite; any change in price will result in a 0%
change in quantity. The curve is vertical.
Perfectly elastic demand or supply curve: it slope is zero; any change in price will result in an
infinitely large change in quantity demanded or supplied. The curve if horizontal. (competitive
industries, the supply curve)
Income elasticity of demand: the percentage change in quantity demanded associated with a 1%
change in consumer income
Inferior good: a good for which quantity demanded decreases when income rises.
Normal good: A good for which quantity demanded rises when income rises.
Luxury good: a good with an income elasticity greater than 1
Cross-price elasticity of demand: the percentage change in the quantity demanded of one good
associated with a 1% change in the price of another good.
Own-price elasticities of demand: the percentage change in quantity demanded for a good resulting
from a percentage change in the price of that good.
Positive cross-price elasticity: it is a substitute for the other good
Negative cross-price elasticity: it is a complement for the other good.
Chapter 3
Consumer surplus: the difference between the amount consumers would be willing to pay for a good
or service and the amount they actually have to pay.
Producer surplus: the difference between the price producers actually receive fort heir goods and
the price at which they are willing to sell them.
Price ceiling: a price regulation that sets the highest price that can be paid legally for a good or
service
Excess demand: the difference between the quantity demanded and the quantity supplied at a price
ceiling
Transfer: surplus that moves from producer to consumer, or vice versa, as a result of a price
regulation
Deadweight loss (DWL): the reduction in total surplus that occurs as a result of a market inefficiency
With a price-contral rule the DWL will be larger with more elastic supply and demand
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