Supply & Demand
Where do markets tend to move towards?
Equilibrium
Give an example of something with low price elasticity of supply.
Beachfront property
(scarce resources)
How do monopolies form?
Barriers to entry or government action
Explain deadweight loss
Less consumer and producer surplus, so a loss in social welfare
What is scarcity?
The idea that there are limited resources that can't fulfill humanity's unlimited wants.
How do substitutes affect elasticity?
A good with more substitutes likely has a higher price elasticity of demand.
Why are property rights important and what problem occurs when there's a lack of them?
Property rights form the basis of commerce, and without them we run into the Tragedy of the Commons
Perfect competition has identical goods
Monopolistic competition has similar but slightly different goods.
Comparative vs Absolute advantage
Comparative - lowest opportunity cost
Explain rationality
The idea that people intuitively try to choose the most beneficial option.
Show consumer surplus on a graph.
(see whiteboard)
Example of a positive and negative externality.
Positive - concert increases nearby hotel sales
Negative - water pollution increases water treatment costs
What's a cartel? Give an example
When oligopolies agree to set a price together, like with OPEC.
FOLLOW UP: Why can cartels fail?
Explain pork barrel politics
The idea to support your own interest, which can lead to wasteful spending.
Ex. politicians diverting funds to their community, wasting money
An example of a (nearly) vertical demand curve.
ex. insulin
An example of a good with a (nearly) vertical demand curve
insulin
Roshan will draw a graph on the board for the scenario. Figure out the revenue and explain what happens in the second part:
Franky is selling straw hats at a market value.
Then, someone else begins selling pirate hats, what happens to Franky's revenue?
2. Franky loses customers, now his revenue is lower
Which key law began government regulation of monopolies and trusts?
Sherman Anti-Trust act
Why wouldn't you produce inside a PPF and why wouldn't you produce outside a PPF?
You can't produce outside a PPF by yourself.
Producing inside a PPF means you're not utilizing your full production capabilities.
Example of a situation that's Pareto efficient but very unequal.
1 person gets $91 and 9 people get $1
End of the year bonuses just dropped and sellers expect clothing prices to increase in a few months. Will the amount of clothes bought increase or decrease?
I don't know, could be either.
Chart of 4 types of goods
Private, Common, Collective, Public
Private - rival + excludable
Common - rival + not excludable
Collective - not rival + excludable
Public - not rival + not excludableExplain why natural monopolies can be useful and give an example.
They can offer a good at a lower price than would be possible with multiple other firms, so governments like to use them.
Ex: PG&E
An example of logrolling.
Bob wants to pass a bill for $100 for his community, but he needs support from other reps. So Bob agrees to vote for Joe with his bill later, in exchange for Joe voting for Bob's bill.
"It is not from the benevolence of the butcher,
the brewer, or the baker, that we expect our
dinner, but from their regard to their own
interest."
Who said this and explain the meaning.
Adam Smith explaining how commerce is based on self-interest (supply/demand).