Textbook Notes (368,449)
Canada (161,886)
ECON 230D1 (30)
Chapter 9

ECON 230D1 Chapter 9: Summary

2 Pages
Unlock Document

Economics (Arts)
ECON 230D1
Irakli Japaridze

Chapter 9: Applying the competitive model Zero profit for competitive firms in the long run - The firm may be willing to operate in the LR even tho it is making 0 economic profit because by looking at the opportunity cost, it may be making the normal business profit - - A firm could therefore shutdown if it was making 0 business profit When entry is limited because of a scare resource, firms make 0 eco profit because they are driving up the price of the rare input by all bidding for it - A firm has to maximise their profit if they want to survive, otherwise lose money and risk shutdown Consumer Welfare - Consumer welfare from a good is the benefit a consumer gets from consuming that good minus what the - consumer paid for the good The D curve reflects an individual’s marginal willingness to pay, meaning the max amount they will pay for an extra unit and depends on marginal value - Consumer surplus: the monetary diff between what a consumer is willing to pay and what the good costs • CS= marginal willingness to pay - what the consumer actually pays • It is the area under the D curve and above the market p up to the Q that the consumer buys • Utility is hard to compare and hard to measure - Effects of a p change: If S curve shifts upwards, equilibrium rises and reduces consumer surplus. • if D curve is relatively inelastic, individuals still buy that good, even when p goes up, so less surplus Producer Welfare - Producer surplus: the difference between the amount for which a good sells and the min amount necessary for the seller to be willing to produce the good - PS= R-VC, and graphically is the area above the S curve and below the market p up to the Q produced - PS-π=(R-VC) - (R-VC-F) = F. If F=0, then PS=π - PS can be used to measure the effect of a shock on all firms in a market Competition maximises welfare - Welfare=CS+PS - Deadweight loss: the net reduction in welfare from a loss of surplus by one gp that is not offset by a gain to another gp from an action that alters a market equilibrium - Happens because consumers value extra output by more tan the marginal cost of producing it - The DWL is also the opportunity cost of giving up some of this good to buy more of another good - It reflects a market failure: inefficient production or consumption, often cus of price exceeds MC Policies that shift S and D curves - Restricting the number of firms: causes a shift of the S curve to the left and raises eq P and lowers eq Q - Such regulations raises the earnings of the firms in the market - Permit owners are the only ones who benefit from restrictions, because unusual profit/rent paid forces AC to rise, hence = market P and therefore having no economic profit. - Raising entry and exit costs: by raising the cost to enter/exit, indirectly restricting entries - barrier to entry: an explicit restriction or a cost that applies only to potential new firms. (sunk costs) NB not costs of entry, which apply to everyone. - exit restrictions can exist, like laws that protect workers jobs, etc. mea
More Less

Related notes for ECON 230D1

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.