ECON 101 Lecture Notes - Lecture 1: Monopolistic Competition, Oligopoly, Human Capital
Economics 101
Lori Leachman
Part 1 • Lecture
• Definition of Economics: study of how individual & society choose among alternative uses of scarce
resources to produce & consume goods & services
o Scarce resources: unlimited wants - not enough resources
▪ Scarcity necessitates choice
o Individuals: con
o sumers, firms, labor - Microeconomics
o Society: consumers, business, government, foreign sector - Macroeconomics
o Resources
▪ Land: raw material (acreage & natural resources from land)
▪ Labor: human input (physical and mental labor (human capital))
▪ Capital: tools, machines, equipment used to produce something else - production
resources
▪ Entrepreneurship: innovation & risk taking (human capital)
o Microeconomics: focus on individuals, firms & their interaction in markets
▪ Individuals are consumers or labor (input resources) - always want max utility
(satisfaction)
▪ Firms combine & process inputs to create outputs - always want max profit
• Bottom line firm - maximizes profit
• Double bottom line firm - maximizes profit & sustainability (environmental)
• Triple bottom - maximizes profit & sustainability & social consciousness
▪ Can maximize
• Profit - revenue minus costs
• Social welfare - social consciousness
• Market share - user base; eyeballs
• Revenue - all money brought in
o Markets - interaction between firms and individuals
▪ Perfect Competition: (construct & ideal; doesn’t really exist)
• No barriers to entry/exit - easy to join market, no large requirements
• Large # of small firms - no one really influences market
• Homogenous product - everyone’s product is the same, no consumer preference
• Price takers - market sets price
▪ Monopolistic Competition: (real competitive markets - ads)
• No barriers to entry/exit
• Large # of small firms
• Heterogeneous Product - product differentiation; branding & ads
• Price setter - ability to set price due to branding
▪ Oligopoly: entertainment, pharmaceutical... etc
• High barriers to entry/exit - copyrights & patenting & large capital requirements
(startup costs); gov. won’t let them exit or merge b/c can lead to monopoly
• Small # of big firms - dominant firms, few large ones that matter
• Heterogeneous product
• Price setter
▪ Monopoly: (one dominant firm)
• High barriers to entry/exit - can sustain large profits/losses
• One dominant firm
• Homogenous product - only one product
• Price setter
o Competition comes from outside industry (electric to solar)
▪ Very high limits - can set high limits
▪ Regulated by government (technically illegal)
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