ECON 25100 Lecture Notes - Lecture 3: Allocative Efficiency, Marginal Utility, Economic Equilibrium

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27 Jun 2016

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Allocative efficiency: resources are used where they are most highly valued. If mb > mc, increase quantity in this market. If mb < mc, decrease quantity in this market. If mb = mc, no change in the quantity in this market. At this point, equilibrium is attained and allocative efficiency is reached. Demand curves show marginal benefit, while supply curves reflect marginal cost. Demand equation: qd = -1/2p + 6 (qd = quantity demanded) Supply equation: qs = 2p - 4 (qs = quantity supplied) Q* = 4 -> quantity at which allocative efficiency is reached. Consumer surplus: value consumers receive, over and above the price paid. Consumer surplus(cs) = (mb - price) summed across all quantities. Cs is area below demand and above supply. Producer surplus: value that producers receive over and above the price of production. Producer surplus(ps) = (price - mc) summed across all quantities. Ps is the area below price and above supply curve.

Related Questions

Suppose the local crawfish market is perfectly competitive, with the following market demand and supply: Market Demand: QD = 6500 - 100P Market Supply: QS = 1200P, where market quantity demanded (QD) and market quantity supplied (QS) are measured in pounds and price (P) is measured in dollars per pound. Assuming all firms have identical costs, suppose the typical firm in the market has the following short-run total cost (TC) and marginal cost (MC), with q being the quantity produced by the firm: Total Cost: TC=722+q²/200 Marginal Cost: MC=2q/200

A. What is the price at which a firm is indifferent between producing in the short-run and shutting down production?

B. Determine the market equilibrium price and quantity of crawfish, the output supplied by each firm, and the profit of each firm. How many firms must currently be in this market?

C. Based on your answer to B, would you expect to see entry or exit in the long-run? How would this impact the price of crawfish over time, ceteris paribus?

raspberryjackal666

Who bears the primary costs of a rent control program?

landlords

renters that get rent-controlled apartments

taxpayers

the wealthy

Assume the demand for sushi is Qd = 180 - 3P, where Qd is quantity demanded and P = price in dollars. The supply of sushi is Qs = 80 + 5P, where Qs is quantity supplied (and P is, again, price in dollars). A price of $20 would result in:

	A.	Excess supply of 60
	B.	Excess supply of 120
	C.	Excess supply of 140
	D.	Excess demand of 140

US agricultural price supports are politically popular because

They have no adverse impacts

The US would have food shortages without them

The benefits accrue to a large number of voters and the costs are paid by a small number of voters

The costs are spread out among millions of people

	A.	$15.50
	B.	$12.50
	C.	$10
	D.	$15

Price floors and ceiling prices:

cause the supply and demand curves to shift until equilibrium is established.

both cause surpluses.

interfere with the rationing function of prices.

A change in the price of a good leads to a change in ________, which leads to a ___________

quantity supplied; shift of the supply curve

supply; shift of the supply curve

quantity supplied; movement along the supply curve

When the supply of a product increases, this implies that

the price of the product first declined

more will be purchased at the same price

producers will be willing to accept a lower price for each unit sold

demand for the good must have increased

producers will offer less for sale at each possible price

If there is a excess demand for product X:

fewer resources will be allocated to the production of this good.

the price of the product will rise.

the supply curve will shift to the left and the demand curve to the right, eliminating the shortage.

the price of the product will decline.

Which of the following will occur when there is a simultaneous decrease in demand and a decrease in supply?

B and D both necessarily occur

An increase in equilibrium quantity

A and C both necessarily occur

An increase in price

A and D both necessarily occur

A decrease in price

A decrease in equilibrium quantity

Velcro is becoming more and more popular for a variety of uses, including as fasteners for shoes. What should happen to the equilibrium price and quantity for shoelaces as a result?

Both price and quantity should decrease.

Price should increase and quantity decrease.

Both price and quantity should increase.

Price should decrease and quantity increase.

Nothing.

If the government imposes a ceiling price on apartment rents, we would expect to observe all of the following except one. Which is the exception?

	A.	conversion of some apartment complexes to condos
	B.	a shortage
	C.	an increase in the number of new apartment complexes being built
	D.	lower maintenance of existing apartments
	E.	long waiting lists for apartment seekers

supply; movement along the supply curve

both cause shortages.

chocolatebadger640

Suppose that each firm in a competitive industry has the following costs:

Total Cost: TC=50+1/2 q2

Marginal Cost: MC=q

where q is an individual firm's quantity produced.

The market demand curve for this product is:

Demand QD=140-2P

where P is the price and Q is the total quantity of the good.

Each firm's fixed cost is $__________

What is each firm's variable cost?

_______ 50+1/2q

_______1/2q

_______q

_______1/2q2

Which of the following represents the equation for each firm's average total cost?

_____ 50/q

_______ 50/q+1/2q

_______1/2q

_______50+1/2q

Complete the following table by computing the marginal cost and average total cost for from 5 to 15.

5
6
7
8
9
10
11
12
13
14
15

The average total cost is at its minimum when the quantity each firm produces (q) iquals ________

Which of the following represents the equation for each firm's supply curve in the short run?

_______1/2q2

______q

_____50-q

_____120-1/2q2

In the long run, the firm will remain in the market and produce if________

Currently, there are 8 firms in the market.

In the short run, in which the number of firms is fixed, the equilibrium price is__________ In the short run, in which the number of firms is fixed, the equilibrium price is

________units. Each firm produces ________ nits. (Hint: Total supply in the market equals the number of firms times the quantity supplied by each firm.)

In this equilibrium, each firm makes a profit of _______ . (Note: Enter a negative number if the firm is incurring a loss.)

Firms have an incentive to EXIT/ENTER the market.

In the long run, with free entry and exit, the equilibrium price is _______and the total quantity produced in the market is__________units. There are ________

firms in the market, with each firm producing _________units.

orchidbadger835

ECON 25100 Lecture Notes - Lecture 3: Allocative Efficiency, Marginal Utility, Economic Equilibrium

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