Chapter 14

Chapter 14 expands and adds on to previous theories and concepts in the previous chapter. The chapter focuses on the actions firms take in competitive markets. Competitive markets are markets in which there are many buyers and sellers trading identical products, making each buyer and seller to be a price taker and an increase in competition. The chapter also introduces two new kinds of revenue, average revenue and marginal revenue. Average revenue is the total revenue divided by the quantity sold. Marginal revenue is the change in total revenue from an additional unit sold. Firms also make short and long run decisions based on their state and the state of the market. The short run decision to shut down is the decision to not produce anything during a specific period due to market conditions. The long run decision is exiting the market. The difference between the two is that firms can avoid fixed costs in the long run, but not in the short run. The chapter also discusses sunk costs. These are costs that once the action is committed, the cost cannot be recovered. Using this term, it can be observed that since the short term solution of shutting down does not get rid of fixed costs, then those costs are sunken costs. Lastly, changes in demand have different effects over the time horizons. In the short run, an increase in demand leads to an increase in prices and profits, while a decrease in demand lowers prices and leads to losses. However, in the long run the number of firms adjusts to shift the market back to the zero-profit equilibrium.

Chapter 13

Chapter 13 breaks away from previous chapters, focusing on costs and cost analysis. Total revenue is the amount the firm receives for the sale of its output. Total cost is the market value of the inputs a firm uses in production. Total profit is calculated by subtracting the total cost from the total revenue. In other words, total profit is how much the company makes after accounting for the costs of producing the good or service. The opportunity cost is the total amount of things forgone to get that item. Explicit costs are the input costs that need an outlay of money. While implicit costs do not require an outlay. Both of these types of costs are important in calculating the firm's cost. Economic profit is the total revenue minus the total cost, which includes both explicit and implicit costs. Accounting profit is the total revenue minus the total explicit cost. Profit is important because it motivates the firm to supply the good or service. The relationship between the quantity of inputs and the amount of output is known as the production function. The marginal product is the increase in output that comes from an additional unit of input. However, often the marginal input decreases as the amount of the input goes up. This concept is known as diminishing marginal product. Finally, there are 2 types of costs; fixed and variable. Fixed costs do not change as the quantity produce changes. However, variable costs on the other hand change as the amount of output produced changes.

Chapter 11

Chapter 11 builds off of the previous chapter by diving deeper into how government intervention can help keep a market from failing. The chapter also introduces 4 categories of goods. Those being private, public, common resource, and natural monopoly goods. Public goods are provided by the government and common resource goods are not excludable, but are rival and consumption. A good is excludable if it is possible to prevent someone from using it. On the other hand, a good is rival in consumption if a person's ability to consume the same good is hindered by another person. However, markets are best with private goods. Private goods are both excludable and rival in consumption. Although, markets do not work as well for other goods as private goods. Public goods are not rival in consumption or excludable. As public goods are not charged for, people have the incentive to free ride. A free rider is a person who receives the benefit of a good, but avoids paying for it.Therefore, public goods are provided by the government that makes the quantity of each good based on cost analysis. Cost benefit analysis is a study that compares the costs and benefits to society of providing a public good. Common resources on the other hand, are rival in consumption, yet not excludable. Since people are not charged for their use of common resources, they tend to use them excessively Thus, governments often use various means to limit the usage of common resources.

Chapter 10

Chapter ten focuses on externalities and how they can positively or negatively affect the market. Externalities are the impact that activities between two people or businesses have during a transaction on a third party person. Positive externalities cause a shift in the demand curve to the right, increasing the amount demanded. While negative externalities shift the supply curve to the left, displaying a reduction in the quantity supplied. In some cases the government can intervene to improve negative externalities by taxing. This use of tax is known as internalizing the externality as it alters incentives so people take account of their external affects of their actions. They can also subsidize positive externalities. Subsidies shift the supply curve down based on the size of the subsidy, which increases the equilibrium for the market. This intervention in a market is called industrial policy.Command and control policies can help a market by regulating or forbidding behaviors. In market based policy, the government can align private incentives with social efficiency. Taxes that help control negative externalities are called corrective taxes that aim to change a persons decisions. The tax is a negative incentive to stop the negative externality. However, the governemnt does not always have to intervene, as problems with externalities can be solved with moral codes and social sanctions because if buyers do not buy a good due to an externality the company create, the company will not survive. The coase theorem is the concept that if a private party can trade without a cost for allocating resources, they can remedy the externality by themselves.  Transaction costs  are the prices that parties receive in agreeing to and following through on a bargain.

Chapter 8

Chapter 8 directly adds to the concepts brought up in Chapter 7 by delving into a deeper analysis of consumer and producer surplus. Taxes cause a buyer to buy less and a consumer to produce less. They reduce welfare for both buyers and sellers of a good. If a government enforces a tax on a market it creates a deadweight loss. The government takes a large portion of the total surplus, leaving the consumer surplus and producer surplus much smaller than it was. However, when the government takes part of the total surplus, some of the surplus disappears. This surplus that disappears is called deadweight loss. Due to the loss in surplus, the market becomes inefficient.  One question I have is where does the deadweight surplus go? Does it just stay in the buyer's pockets until it is used on another purchase? Also, the size of deadweight loss grows faster than the government's tax as the tax is increased. This is due to the deadweight loss being a triangle and the tax being a square. Therefore the smaller the tax, the smaller the deadweight loss. However, if a tax is too large, it becomes  too taxing on a market and therefore tax revenue begins to decrease. The chapter then shifts to talk about how the price elasticity of supply and demand control the size of dead weight loss. The larger the elasticity, the greater the deadweight loss. Greater elasticity means that taxes distort the market more.

Chapter 7

Chapter 7 switches the view on supply and demand from positive to normative. In other words, where it is and where is should be. Consumers have an amount they are willing to pay, which is called willingness to pay. How does consumer surplus not apply to drug addicts, after all if they receive drugs for less money than they wanted to spend, it is still a consumer surplus? On the other hand buyers have a minimum price they are willing to receive, known as the cost. If a buyer spends less than intended, it is called a producer surplus. A decrease in the price of a good increases consumer surplus, while an increase in the price of a good causes producer surplus to rise. Total surplus is the addition of both consumer surplus and producer surplus. For both the demand and supply curve, an increase in inelasticity would mean an increase in surplus, respectively to each one right? So does that mean for inelastic goods, depending on the price, both the consumer and producer are better off than an elastic good? As learned in Chapter 4, the only place for the market to be balanced is at the equilibrium. To the left of the equilibrium, the value of the product is higher to buyers because it is cheaper, while the cost to sellers is below their necessary cost. To the right of the equilibrium, the value to the buyers is less due to the higher price, while the sellers is higher.