Senior Economics英文版笔记.doc

A1 Production Possibilities CurvePPC definition: PPC shows the maximum attainable combinations of two outputs that can be produced with the amount of resources and given state of technology.Shape of PPC: Straight lineConstant opportunity cost- Resources are equally suited for producing both goods.Bowed outwardsIncreasing opportunity cost- Resources are not equally suited to the production of both goods.Production efficiency: All resources must be employed efficiently using the best available technology.Allocative efficiency: where the total benefit to society is maximised and it only occurs at one point on the PPC. The combination of goods produced best satisfies the needs and wants of all of society.Economic growth- If a country produces more capital goods now, it will be able to produce more of both capital goods and consumer goods in the future.( An increase in productive capacity)A2 Demand and UtilityMarginal Utility- The extra satisfaction gained from consuming an extra unit of a good or service.Law of diminishing return: As more of a good is consumed, the additional satisfaction gained from each unit consumed decreases. Q: Why are consumers willing to buy more of a good only at a lower price? (Why does the demand curve slope downwards?)A: As more of a good is consumed, the additional satisfaction gained from each unit consumed decreases. Consumers only buy goods at P=MU. They will be willing to pay less for less extra utility they gain.A3 Elasticity of demandPED=%change in QD/ %change in PPED=0 perfectly inelasticPED1 elasticPED1 luxury goodYED1 Necessity goodsYED0 Inferior goodsCED=%Change in Qb/%change in Pa CED0 substitutesA4 Costs of the firmAccounting costs- the actual monetary cost of producing goods and services.Economic costs- the total cost of producing goodsNormal profit is the level of profit that is enough to keep the producer in the present activities in the long run.Supernormal profit is the level of profit that is more than enough to keep the producer in the present activities in the long run.Subnormal profit is the level of profit that that is less than enough to keep the firm in the present activity in the long run.Economic profit= revenue- accounting costs- opportunity costs =accounting profit- opportunity costsMC=TC2-TC1AC=TC/QFixed costs- Costs that do not change as the volume of output changes.Variable costs- Costs that change as the volume of output changes.ATC (AC) =AVC+AFCAVC=VC/Q AFC=FC/QShort run- Period of time where at least one input in the process of production is fixed.Long run- Period of time where all inputs in the production process are variable.Marginal cost- The additional cost of producing one more unit of output changes.Law of diminishing returns (only in the short run): As more of a variable input is added to a fixed input, the resulting additional output first increases and then decreases. Q: Why does marginal output first increases and then decreases?A: As more of a variable input is added to a fixed input the resource combination first becomes more efficient and then less efficient.Q: Why are producers willing to produce more of a good only at a higher price? (Why does supply curve slope upwards?)A: As more of a good is produced the additional cost of producing each extra unit of output (MC) increases. Producers will produce more only at a higher price to be able to cover the high cost and maintain the profit margin. Market supply is the horizontal summation of all the individual firms supply in the market at each price.Individual supply is the quantity of a commodity a firm is willing and able to provide at different prices over a period of time.Q: Are consumers better off with maximum?A: Some consumers will be better off because they could buy the good at a lower price. Most of consumers will be worse off because there is a shortage they cannot buy this good. Consumer surplus is the extra utility consumers gain over and above what they actually pay for.Producer surplus is the difference between the price the seller receives for the commodity and the cost of producing it.Allocative efficiency refers to the allocation of resources in a way that society maximises the net benefit attained through their use. Requirements for allocative efficiency: 1. Production efficiency2. All markets must be in equilibrium and goods are priced at P=MU.Deadweight loss is the loss of consumer or producer surplus that is not transferred to another party.Subsidy is the amount of money paid by the government to the producers to decrease the cost of production and encourage production and consumption of some goods.A6 Analysis of factor and commodity marketsInternational tradeExport: Better off- producers Worse off-consumersImport：Better off-consumers Worse off-producersLabour MarketSupply curve slope outwards:1. Workers are more willing to supply their labour to the market at higher wage rates.2. People are more likely to sacrifice their leisure time if the financial rewards are attractive enough.Nominal wage is the amount of money received by the wage and salary earners in the work force in current year dollars. Real wage is the nominal wage adjusted for change in the price level and showing purchasing power of nominal wage.Real wage rate= nominal wage rate/price level CPIA7 Market StructuresPerfect competitionMonopolistic competitionOligopoly DuopolyMonopolyB1 Government interventionAdam Smith-invisible hand: Price system that tells producers what to produce. That is how to allocate the scarce resources.For free market 5 conditions:Consumer sovereignty, perfect competition, perfect information, perfect mobility, no externalities or public goodsMarket failure occurs when the price system does not allocate resources efficiently and/or the market outcome is not fair (equitable).Types of government interventionTaxes, subsidies, regulations, transfers, public provision, the direct provision of services, establishment of the property rightsEconomic roles of government1. Regulatory role: legal framework, promoting competition, correcting for externalities2. Allocation role3. Distributory role4. Stabilisation roleB2 ExternalitiesExternalities are the costs or benefits to the third party from producing or consum