KINH TẾ VI MÔ
Chapter 6: Supply, Demand, and government policies
Controls on prices
- Price ceiling
- Price floor
Rent control
- Landlords “nickel and dime” tenants with fees to increase revenue
- Decrease in long-term investment in the building of new units
- Policy often ends up hurting the very people it was supposed to help
Price gouging
- Price-gouging laws:
+ Temporary price ceilings imposed during emergencies
Minimum wage
- Minimum wage
+ The lowest hourly wage rate that firms may legally pay their workers
- Rationale for minimum wage
+ Provide a “living wage”
+ Help the working poor who are often unskilled
Labor markets: A review
- In the market for goods and services, households demand goods, firms supply goods
- In the market for labor, household supply labor, firms demand labor
+ The demand curve for labor is downward-sloping
+ The supply curve for labor is generally upward-sloping
Nonbinding minimum wage
- The government might impose a nonbinding minimum wage for politically motivated
reasons – by increasing the minimum wage, politicians win support from voters
- But by making it nonbinding, the government avoids the negative consequences
- Increases in minimum wage tend to lag increases in the market wage
Binding minimum wage
Taxes
- The govt levies taxes on many goods & services to raise revenue to pay for national
defense, public schools, etc.
- The govt can make buyers or sellers pay the tax
- The tax can be a percentage of the good’s price, or a specific amount for each unit sold
+ For simplicity, we analyze per-unit taxes only
Chapter 7: Consumers, producers, and the efficiency
Willingness to pay
- A buyers willingness to pay for a good is the maximum amount the buyer will pay for
that good
- WTP measures how much the buyer values the good
Consumer surplus (CS)
- Consumer surplus is the amount a buyer is willing to pay minus the buyer actually pays
CS = WTP – P
Cost and supply curve
- Cost is the value of everything a seller must give up to produce a good
- Includes cost of all resources used to produce good, including value of the seller’s time
Product surplus
PS = P – cost
- Product surplus (PS): the amount a seller is paid for a good minus the seller’s cost
What do CS, PS, and total surplus resources
CS = Value to buyers – Amount paid by buyers
PS = Amount received by sellers – cost to sellers
Total surplus = CS + PS
Total surplus = Value to buyers – cost to sellers
Efficiency
- An allocation of resources is efficient if it maximizes total surplus. Efficiency means:
+ Raising or lowering the quantity of a good would not increase total surplus
+ The goods are being produced by the producers with lowest cost
+ The goods are being consumed by buyers who value them most highly
Chapter 8: The cost of taxation
The effect of tax
Chapter 13: The costs of production
Cost: Explicit vs. Implicit
- Explicit costs – require an outlay of money
- Implicit costs – do not require a cash outlay
Economic profit vs. Accounting profit
- Accounting profit = total revenue minus total explicit costs
- Accounting profit ignores implicit costs, so it’s higher than economic profit
The production function
- A production function shows the relationship between the quantity of inputs used to
produce a good, and the quantity of output of that good.
- It can be represented by a table, equation, or graph
Marginal product
Fixed and variable costs
- Fixed costs (FC) – do not vary with the quantity of output produced
e.g. cost of equipment, loan payments, rent
- Variable costs (VC) – vary with the quantity produced
e.g. cost of materials
- Total cost (TC) = FC + VC
Chapter 14: Firms in competitive markets
Characteristics of perfect competition
- Many buyers and many sellers
- The goods offered for sale are largely the same
- Firms can freely enter or exit the market
The revenue of a competitive firm
- Total revenue (TR): TR = P x Q
TR
- Average revenue (AR): AR = =P
Q
- Marginal revenue (MR): The change in TR from selling one more unit
∆ TR
MR =
∆Q
Profit maximization
Shutdown vs. exit
- Shutdown: A short-run decision not to produce anything because of market conditions
- Exit: A long-run decisions
A firm’s short decision to shut down
- If firm shuts down temporarily,
+ Revenue falls by TR
+ Costs fall by VC
- So, the firm should shut down if TR < VC
- Divide both sides by Q: TR/Q < VC/Q
- So we can write the firm’s decision as:
Shut down if P < AVC