'Introductory Economics Cheatsheet\r'

'Problems by predominate 1. Information collection 2. Principal-agent 3. Disagreement among multiple decision-makers. Arrows’ impossible action theorem. Paradox of voting. 4. En soak upment Coordination by Market Princes as signals of scarcity/abundance Induces coordination Requires much less info No enforcement bells No principal-agent origin No problem with multiple decision makers Qualification: some see outlines exist within a market (eg firms) man Good Has free-rider problem due to non-excludability. Can still be provided by a coercive say-so that can force users to pay for these goods. Taxes. Collective GoodsProvide benefits for a group. Cartels and Unions Has free riding problem. Prevent by sanctions familiar Resources Non-excludable but exhaustible Natural imaginations goods Lack of light property rights encourages overuse. The tragedy of the commons. Solve by insist ownership rights over common resources. Coarse theorem Markets bring forth themselves for property transfer that internalize externalities. Adverse cream & Moral hazard Market cost base on expected quality Reward masses for non maintaining quality High quality sellers surrender give away Cycle continues Market collapse FDI promotes engineering transfer with come out of the closet moral hazard.Equilibrium †no one has an fillip to mixture their behavior. order ceiling Cause a shortage due to excess conduct Leads to confine or preferential allocation, long queues, inefficiency. Those who do do result benefit from the lower bells. Price traumatize Eg Minimum wage Only those usageers who don’t lose their jobs benefit from the higher wages. Consumer surplus When outlay goes down, CS affix due to 2 reasons. actual buyers pay less. more than(prenominal) buyers ar able to usher in market. Producer surplus Markets select low cost suppliers. Only those whose costs of production are down the stairs the market price enter.When price goes d own, ‘ borderline seller’ drops out. When price goes up, PS increases due to 2 reasons. active producer get a higher price. More producers can enter. Total welfare = CS + PS Govt intervention decreases this Factors of ask Income & substitution effect transport in tastes Expectation of prospective prices Change in number of buyers Factors of supply Change in technology Change in input prices Expectation of future prices Change in number of sellers Elasticity Price rubberyity of contend for a good is the % change in demand when the good’s price falls by 1%. Elasticity on a linear demand crease decreases with a decrease in price.Factors affecting elasticity of demand Number of substitutes/whether the good is a necessity/ snip frame/broadness of category Income elasticity of demand is the % increase in its demand for a 1% rise in income. Indifference curve Non-lexicographic and non-satiation helmet-shaped to origin †preference for variety Cant cr oss each other due to consistency and transitivity Marginal rate of substitution(MRS) Negative of an indifference curve’s slope at any storey Equal to the dimension of marginal utilities of the 2 goods at that point Slope of budget line is the interdict of the relative prices of the 2 goods.At tangent, slope of budget line and slope of indifference curve must be equal. MRS=relative prices at this point The ratio of marginal utility to price is equal for both goods at the point chosen (equimarginal principle) Income and substitution effect be curve AFC=TFC/Q, AVC=TVC/Q, ATC=AFC+AVC AFC declining with Q. AVC first falls then rises. U shaped. Rising marginal cost. When MCMC. No supply curve. MC Pricing P=MC, lead to losses for indispensable monopoly, which govt can subsidize. But tax has its own deadweight loss. P=ATC , zero profit. Alternative, public ownership Price discriminationIncrease monopolizer profits First degree †extract completed CS, socially optimal but unlikely irregular degree †Charge buyers based on discernable characteristics Third degree †separated markets Quantity discounts disputable Market No barrier to origination allege monopoly only due to the fact that it entered first P=MC, zero economic profits Durable Goods Monopoly MC=0 Compete against its future price Cartels and tacit consent Incentive that monopoly profits are higher for each one has an incentive to sell more than the agreed amount, resulting in a collapse of the agreement. Bertrand duopoly Assumption constant MC.Equilibrium at AC=MC. Naive thinking and no efficacy constraint and price easily adjusted Sweezy poser all(prenominal) firm assumes that if it cuts its price, this go forth be matched by all its rivals while if it increase its price, it will not be matched. Perceive demand curve to be very inelastic below the alive price and very elastic above existing price. proceeds in price rigidity Reverse construction Each firm assumes that its price increases will be matched by all rivals, while its price cuts will not. Demand curve becomes elastic below the existing price as the cut speedily increases the demand for this firm’s product.Inelastic above the existing price. issue in price instability. Likely during depression. Competition in output Cournet Model Supposes wrongly that other firms will not react to its own output decisions. go away not result in zero-profit outcome. MR=MC. Monopolistic competitor Large number of sellers with differentiated products No barriers to entry Each firm faces a downward diagonal demand curve Short run, try to easy lay profits by MR=MC. Due to free entry, more firms enter in long run as long as positive economic profits are made. Shifts demand curve to the less are market share reduced. Long run proportion, P=AC.Not at minimum of AC curve, thus inefficiency as each firm has excess capacity. Provide more variety though. Game theory Dominant dodge equilibrium No incent ive to deviate as none of the actors can do better by choosing a different strategy. Nash Equilibrium Each player has no incentive to deviate by himself. Each guess what other player choose. Coordination problem threefold equilibrium Solve by convention central point †higher payoff for 1 equilibrium Zero-sum games Solve by maximin rule †maximize his minimum payoffs. Repeated games Grim trigger strategy cannot work if the game is repeated a known finite number of times.If infinitely, can sustain if they do not discount the future heavily(sufficient weight to future punishments). tax write-off factor > 1/3. Sequential game inverse induction †work backwards to solve Subgame thoroughgoing(a) Nash equilibrium †additional property of ruling out empty threat gross domestic product †the market shelter of all final goods and services produced within a country in a given layover of time Relies on market prices Includes market value of the stream of service s from durable goods Miss out value of non market services Excludes transfer payments role + Investment + Government spending + Net exportY=C+I+G+NX GDP deflator = (Nominal GDP/ touchable GDP)*100 GDP per capita flawed as a welfare measure as it excludes value of leisure, calorie-free environment, and safety. CPI measures the cost of a fixed handbasket of goods bought by a typical consumer. Overstates cost of reinforcement because of substitution bias. Introduction of new goods and thus change magnitude living standards is not reflected. Quality changes is not measure. GDP deflator includes goods not bought by typical consumer. CPI includes imports. unfeigned interest=nominal interest †inflation productiveness is a key to rapid outgrowth. Physical not bad(p)Human capital Natural resources Technology Y= AF(L, K, H, N) Productivity is given by Y/L = AF(1, K/L, H/L, N/L) Technology progress continuously expands the resource frontier. Phases of rapid growth have occurred whe n a scientific innovation opens up a new elastic supply source. Eg Industrial revolution, Railway boom, IT. Policies to promote growth Encourage savings and investment. Diminishing marginal productivity of capital implies that high saving will no longer lead to fast growth beyond a point. Convergence effect. Encourage FDI. Builds up sensual and human capital accumulation.Has learning effects finished tech transfer and positive externalities. Education. Secure system of property rights Lack of corruption or policy-making instability Pursuing free trade world growth can lead to lower capital-labor ratio which might decrease productivity Also inefficiency in human capital accumulation as kindred educational facilities spread thinly Large families may keep woman out of labor force which reduces total productivity C and IM tend to increase as national income rise. So C= C+cY, IM=IM+mY where c and m are marginal desire to consume and import. An increase in GDP of $1 increases C b y c and IM by m. c,m\r\n'