Eco102: Microeconomics Theory and Practice

Middle Term

Response of demand and l

Responsiveness - the way they react

Elasticty - is the rise or decrease of price

Price elasticity - it is a measure of responsiveness of the quantity of a product demanded by consumers

when the product price changes.

Elastic demand - product demand for which price changes cost relatively larger changes in quantity
demanded.

Inelastic demand - means products demand for which price changes cost relatively smaller changes in
quantity demanded.

Unit elasticity - product demand for which relative price changes and changes in quantity demanded are
equal.

price elsaticity of supply - a measure of responsive of a quantity of a product supplied by sellers when
the product price changes.

income elasticty of demand a measure of responsiveness of the quantity of a product demanded to

changes in consumer income.

public goods - you can use it any time you want for free or without paying
private goods- goods that people individually purchase and consume and kee people who do not pay
from receiving the benefits.

public goods are intended to be used by everybody

externality - it occurs when some of the cost or he benefits of a good are pass on or steal over to
someone other than the imediate buyer or seller

two kinds of externality

# negative

# positive

Negative externality - spill over production or consumption cost impost on third parties without
compensation to them. the benefit is negative.

Positive externality - spill over production or consumption benefits conferred on third parties without
compensation from them.

businesses and their cost

it is usefull if we can distinguish some buseness words

plant is an establish a factory a farm or a store that performs the function of fabricating and distributing
goods and services.

firm is an organization that employs resources to produced goods and services for profits and may
operate 1 or more plants.
industry - group of firms that produce the same or similar products.

corporation is a judicial body its look like corporation is assign to be an artificial person it has a chsracters
and personality of a person.

capital of corporation is divided into shared of stock

corporation are businesses that are bound to produce product or services

economic cost - are the goods that indicates the raw materials and the things that uses to produce it.

if you buy the materials it is called explicit costs

if i own the materials it is called implicit costs

Vertical Integration if you manufacture your own materials or raw materials.

Explicit cost - the monetary payment a firm must make to an outsider to obtain a resource.

Implicit cost - the monetary income a firm sacrifices when it uses a resource it owns rather than
supplying the resource in the market.

Normal profit is a payment that must be made by a firm to obtain and retain entrepreneurial ability. why
profit? because i am assuming and anticipating to earn profit.

Total revenue = less cost - profit

law of diminishing returns- the principle that a succesive units of a variable resource are added to affix
resource the marginal product of the variable resource will eventually decline.

what are the cost of making a product

two kinds of cost

#variable cost

#fixed cost

fixed cost are cost that do not change in total when the firm changes its output

variable cost - cost that increase or decrease with the firms output.

economies of scale - reductions in the average total cost of producing a product as the firm expands the
size of each operations in the long run.

four market models

Pure competition

monopoly

oligopoly

monopolistic competition

Pure competition - it involves a very large number of standardized product. it is called pure competition
bdcause there are so many players that compete.

4 characteristic of pure competition

#very large numbers

#standardize product - newly produce a standardize or homogeneous product.

#price takers - individual firms do not exert over product price or cannot change the market price but
can only accept it as give and a just to it.

#free entry and exit - new firms can freely enter and existing firms can freely leave purely competitive
industry

Pure monopoly - an industry in which one firm is the sole producer or seller of a product or service for
which no close substitutes. There is only one business operating in a place.

like electric company and rail ways.

four characters of pure monopoly

#single seller - which means an indistry in which a single firm is the sole producer or supplier of good or
service.

#no close substitutes - there are no other that can subsitute or offer the same line of product.

#price maker - it controls the total quantity supply and has a considerable control over price.

#blocked entry - certain barriers keep potential competitors for entering industry.

Barriers to entry - any condition that prevent the entry of firms in to a industry.

OLIGOPOLY- is a market structure dominated by a few large producers or sellers of homogenous or

differentiated products.

In oligopoly there are only few it means 1 2 3 or 4 company they would have competition to each other.
They monopolize certain product but they have competition.

Why does not accept pure competition in oligopoly because it would make harm not a benefit.

Product differentiation - a form of non price competition in which a firm tries to distinguish thr product
or service from all competing once on the basis of attributes such as design and quality.
Collution is a situation in which firms act together and in agreement to fix prices or divide markets or
restrict competition.

Cartel is a formal agreement among producers to set the price and the individual firms output levels of a
product.