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Monday, August 22

Thursday, August 11

  1. page market failure 3.3 edited ... Characteristics of Private Goods Private good; a good or service that is individually consume…
    ...
    Characteristics of Private Goods
    Private good; a good or service that is individually consumed and that can be profitably provided by owned firms (i.e. automobiles, clothing, personal computers, etc)
    Rivalry (inRivalry(in consumption):
    When one person buys and consumes a product, it is not available for another person to buy and/or consume.
    Ex. When Adam purchases and drinks a bottle of water, the same bottle of water Adam has is not available for Benson to purchase and consume.
    Ex. If Linda buys and uses a Wii, it is not there for Jason to buy and use.
    Ex. If I buy a BMW car, you cannot buy the same car I bought.
    Excludability (byExcludability(by a seller):
    Only those who can afford a product may obtain its benefits.
    Ex. Person A may have the means and will to pay for a t-shirt for $20. Person B may not wish to pay $20 or may not be able to; person B would not be able to purchase the good.
    ...
    A competitive market also allocates society's resources efficiently to the particular product (no under/over production or under/overallocation). It produces at the point where P=MC.
    Firms can profitably "tap market demand" for private goods, and will produce and offer them for sale.
    ...
    the horizontal summation ofsummationof individual demand
    Consumers fully express their personal demands for private goods in the market.
    Characteristics of Public Goods
    Non-rivalry (inNon-rivalry(in consumption):
    One person's consumption of a good does not prevent the others from consuming it.
    Ex. Everyone can simultaneously obtain the benefit from a public good such as national defense, street lighting, public toilets, a global positioning system, or environmental protection without exerting any extra effort than the effort that is being put forth in a normal day without taking the benefit's costs into account.
    Non-excludability (byNon-excludability(by a seller):
    There is no effective way of excluding individuals from the benefit of the good once it comes into existence.
    Ex. Once in place, one cannot exclude another from benefiting from national defense, street lighting, a global positioning system or environmental protection.
    Ex. There is no way to exclude people from looking at a public statue in the park. Say that Ana paid her taxes (that paid for the statue) and Alan didn't. They are both allowed to view the statue. Alan doesn't have to wear blindfolds every time he walks by.
    Note: PublicNote:Public goods are
    Examples:
    Street lighting / Lighthouse Protection, Police services, Air defence systems, Roads / motorways, Terrestrial television, Flood defence systems, Public parks & beaches Because of their nature the private sector is unlikely to be willing and able to provide public goods. The government therefore provides them for collective consumption and finances them through general taxation.
    ...
    If demand is not fully expressed in market, it is impossible for firms to gather together resources and profitably provide the good.
    Solution: government provision of public goods through taxation. However, the free rider problem may still exist if illegal immigrants do not pay taxes and still enjoy the benefits of the goods in question.
    Note: ControversyControversy often arises
    Example: Highways with tollbooths: these roads are charged but one person driving on a highway does not usually reduce the usefulness of the highway to others.
    Example: You cannot exclude someone from fishing in a public lake, but once a fish is caught it cannot be caught by any other fishermen.
    User pay means the user has to pay for a good or service, e.g. bridge toll, this is considered inefficient because it leads to a loss of welfare
    ...
    public good
    MB (society's marginal benefit) = MC (government's marginal cost).
    Marginal benefit is defined as the collective willingness of costumers to pay for a public good, as best as it can be determined.
    Demand is expressed by survey or public votes → compare it with the MC-MB-Analysis → Gov considers the extent to which the project will be constructed.
    Adhering to the MB=MC rule, government can provide the right/ efficient amount of public good.
    ...
    public good
    Demand for Public Goods (i.e. Collective Demand) is represented through price-quantity schedules, showing the price someone is willing to pay for the extra unit of each possible quantity.
    This is much different than the market demand schedule we previously learned; before it was how many goods for said price, but now the consumer can state what they want the price to be
    ...
    MC rises as Q of good produced increases due to the law of diminishing returns.
    Upward slope : law of diminishing returns + fixed plant + fixed resources + variable resource = diniminshing total product.
    ...
    marginal cost
    Remember, Demand

    Remember,Demand
    curve= MB
    Optimal quantity of good occurs where MB = MC or where the two curves intersect.
    When MB = MC, the firm has achieved allocative efficiency.
    If MC cannot equal MB, then you could take the closest quantity and price where MB>MC.
    Cost-benefit analysis
    Used to decide whether to provide a particular public good and how much of it to provide by comparing the marginal costs and marginal benefits.
    Can also help the government decide on the extent to which a project should be pursued.
    ...
    Collective goods (or social goods) are defined public goods that could be delivered as private goods, but are usually delivered by the government for various reasons, including social policy, and finances from public funds like taxes.
    A mixed good has unclear price signals because of externalities of consumption/production.
    ...
    featured page
    {http://image.wetpaint.com/image/1/t4qcCSpfV2IK5R7w6jeeVA31404/GW335H295}

    {http://image.wetpaint.com/image/1/t4qcCSpfV2IK5R7w6jeeVA31404/GW335H295}
    Externalities - Welker'sWikinomics Page ExternalitiesPageExternalities (spillover)- costs
    Market failure must make some reference to externalities. What are the potential market failures arising from externalities? The social optimum output or level of consumption diverges from the private optimum. Main problem is the absence of clearly defined property rights for those agents operating in the market. When property rights are not clearly defined, market failure is likely because producers & consumers may not be held to account. Don't forget that positive externalities can also justify intervention if goods are under-consumed (social benefit > private benefit).
    Negative Externalities
    ...
    Causing the biggest market failure: global warming
    {http://image.wetpaint.com/image/1/XlredWu7DpuUpRlXunRW-g30228/GW347H299} Externalities - Welker's Wikinomics Page
    Positive Externalities
    When production or consumption of a product creates external benefits for society (underproduction), resources are underallocated.(Positive externality is a market failure becuase the resources are underallocated.)
    The market demand curve D (D= MPB) is to the left of (below) the full-benefit demand curve (D= MSB) due to the spillover benefits that all of society receives.
    ...
    Shift the production to a socially optimal point, and this will increase quantity and price.
    A Market-Based Approach to Negative Externalities
    ...
    the Commons
    Public lands (i.e. parks, streets, rivers, lakes, etc.) are all subject to pollution as the rights to use these resources are held "in common" by society. {http://image.wetpaint.com/image/1/RmO7SBs-Q3Cw4riWjpQ7Tg44023/GW373H342} Externalities - Welker's Wikinomics Page
    Commonly owned land/resources are not maintained or used as carefully as privately owned goods because no one is responsible for them.
    ...
    In this note we evaluate the costs and benefits of businesses with industry muscle, monopoly pricing power in markets. The standard economic and social case against monopolistic businesses is no longer straightforward. Markets are changing all of the time and so are the conditions in which businesses must operate regardless of whether they have any noticeable market power.
    The economic case against monopoly
    ...
    and society.
    The

    The
    standard case
    ...
    being under-consumed.
    The higher average cost of production if there are inefficiencies in production also means that the firm is not making optimum use of its scarce resources. Under these conditions, there may be an economic case for some form of government intervention to limit or reduce the scale of monopoly power, for example through the rigorous application of competition policy or by a process of market deregulation (liberalisation).
    X Inefficiencies under Monopoly
    ...
    cost savings.
    Comparison between Monopoly and Perfect Competition
    A competitive industry will produce in the long run where market demand = market supply. Consider the diagrams below. Equilibrium output and price is at Q1 and Pcomp on the left hand diagram and Pcomp and Q1 on the right hand diagram. At this point, Price = MC and the industry meets the conditions for allocative efficiency.
    ...
    {http://tutor2u.net/economics/revision-notes/a2-micro-monopoly-economic-efficiency_clip_image004.gif} Economies of Scale
    Monopoly Profits, Research and Development and Dynamic Efficiency
    ...
    dynamic efficiency.
    Monopoly power can be good for innovation, according to research by Professor Federico Etro, published in the April 2004 edition of the Economic Journal. Despite the fact that the market leadership of firms like Microsoft is often criticised, their investments in research and development (R&D) can be beneficial to society because they expand the technological frontier and open new ways to prosperity. Many technological innovations are developed by firms with patents on the leading-edge technologies. These firms perpetuate their leadership and their market power through innovations. Etro's research argues that providing that a market is characterised by free entry, then the market leader will actually have more incentives than any other firm to invest in R&D.
    Baumol – Oligopoly and Innovation
    William Baumol an economist from Princeton University in the USA published a book in 2002 “The Free Market Innovation Machine” in which he analysed the conditions best suited for markets and countries to achieve a faster pace of innovation. Baumol argues that the structure that fosters productive innovation best is oligopoly. The Baumol hypothesis is that oligopolists compete by making their products differ slightly from their rivals. Highly innovative firms are often quick to license new technology or to become members of technology-sharing consortia.
    Natural Monopoly
    ...
    productive efficiency.
    The major utilities such as gas, electricity and water are often put forward as examples of industries with strong "natural tendencies" towards being a natural monopoly in part because of the huge fixed costs of building and maintaining nationwide networks** of cables and pipes. In fact we can make an important distinction between the supply and distribution of services such as gas and electricity. The retail market for the supply of gas and electricity to homes and businesses is also fully competitive. However, the businesses which transport gas and electricity to the final consumer are closer to being natural monopolies. The industry regulator Ofgem regulates these companies through price controls and monitoring of quality of service.
    The natural monopoly through the exploitation of economies of scale can in theory undercut any actual or potential rivals purely on the grounds of cost. If the monopolist loses market share (for example by the competition authorities acting to split up an existing monopoly) there is the risk that smaller-scale suppliers will produce at higher average total cost which would represent a waste of scarce resources. Forcing such a company to price at marginal cost would also inflict inevitable losses and threaten the long term financial viability of the supplier.
    ...
    In the case of the telecommunications industry in the UK, British Telecom has faced increasing levels of competition from new telecommunications service providers during the 1990s - not least the rapid expansion of mobile and cable services. This has led to a change in the role of the industry regulator (OFTEL). Its main role now is not necessarily the introduction of even more competition into the telecommunications industry - but a policing role to ensure fair competition between service providers.
    In the United States, the debate continues to rage over whether Microsoft can be considered a natural monopoly!
    ...
    less efficient.
    Natural

    Natural
    monopolies are
    ...
    same grid.
    To prevent utilities from exploiting their monopolies with high prices, they are regulated by government. Typically, they are allowed a fixed percentage of profit above cost. But this type of regulation can lead to inefficient high costs, since the monopoly is guaranteed a profit. Economists call this a "lazy monopoly." To get around this problem, some municipalities and government districts own the local utility and provide the service at cost. Another way to handle the natural monopoly is to periodically put the delivery service up for bidding, with the lowest cost firm getting the contract.
    Equality and Equity
    ...
    In 2006 the distribution of income among individuals had a similar pattern to that in previous census years. The greatest number of the adult population were in the $10,000 to $15,000 per annum range. Many in this category would be on New Zealand superannuation or a social security benefit. The unemployment benefit in that year was $8,800.
    There were a few people with losses of income (typically self-employed and investors) and some (such as students or stay-at-home mothers) had zero or very low incomes. One-tenth adults made less than $280. The bottom half of the population had only about a sixth of the total income.
    ...
    only $24,500.
    Changes in income distribution
    1951–1981
    ...
    Since 1981
    After 1981 social security benefits and pensions were included in the statistics. The distribution of income continued to become more equal until the mid-1980s, but reversed after that. The earnings of capital rose, and margins for skill began to increase (especially at the top end of the market for managerial and professional occupations). By the 1980s and 1990s most women were already in the paid workforce, so there was no further reduction in those without incomes. The 1991 cuts in many social security benefits reinforced the increasing inequality.
    ...
    the workforce.
    International comparison
    ...
    the difference.
    In terms of poverty rates in 2004 New Zealand was in the middle of the OECD.
    The distribution of wealth is a comparison of the wealth of various members or groups in a society. It differs from the distribution of income in that it looks at the distribution of ownership of the assets in a society, rather than then current income of members of that society.
    ...
    Lorenz curves are an effective way of showing inequality of income within and between countries. The cumulative percentage of population is plotted along the horizontal axis whilst the cumulative percentage of income is plotted along the vertical axis. The curve shows the actual relationship between the percentage of income recipients and the percentage of income that they did in fact actually receive.
    The 45 degree line shows the situation when there is a even distribution of income i.e. 20% of the population earns 20% of the income and 50% of the households earn 50% of the income and so on. This is called the line of absolute equality.
    {http://www.bized.co.uk/virtual/dc/diagrams/lorenz.gif} Lorenz curveThe{http://2.bp.blogspot.com/-3OmikvRer8c/TbTjcfcooDI/AAAAAAAAAC4/M3zL-dnqvkk/s1600/lorenz_curve.jpg}
    {http://450.aers.psu.edu/images/gini.gif}
    The
    closer the
    ...
    be one.
    The closer the Gini Coefficient to one the greater the inequality of income distribution. Countries with Gini Coefficients between 0.5 and 0.7 are regarded as having unequal income distributions whilst countries having Gini Coefficients between 0.2 and 0.35 are considered to have relatively equitable.
    One use of Gini coefficient is to examine how the distribution of income varies between sectors of the population. In Zambia the Gini Coefficient differs between the rural and urban populations. The table below shows that the distribution of income in rural areas is more unequal than urban areas.
    ...
    49.8
    Whilst level of GDP per capita is a measure of economic growth one should also keep an eye on the Gini Coefficient. A country showing evidence of economic growth, but with an increasing Gini Coefficient, means that income is becoming less evenly distributed indicating that development and poverty are not necessarily improving.
    {http://www.physics.ucla.edu/%7Echester/GINI/ratioIsIndex.jpg}{http://www.physics.ucla.edu/~chester/GINI/ratioIsIndex.jpg} area ratio
    {http://www.physics.ucla.edu/%7Echester/GINI/Gini.jpg}

    {http://www.physics.ucla.edu/~chester/GINI/Gini.jpg}
    Lorenz curves
    The further away the curve is away from the 45 degree line of absolute equality the more unequal the distribution of income is.
    {http://lithosphere.lithium.com/t5/image/serverpage/image-id/571i5E76AE21051C8CC6/image-size/original?v=mpbl-1&px=-1} Lorenz_Gini_Coefficient_resize.png
    New Zealand’s Tax system
    You must pay tax if you stay in New Zealand for more than 6 months (183 days ) in any 12-month period, even if you’re a student. Employers will deduct PAYE (pay as you earn) tax from your wages or salary.
    ...
    amount increases. "Progressive""Progressive" describes a
    ...
    tax rate. ItIt can be
    The financial year
    The financial year runs from 1 April to 31 March. Tax is payable by 7 February, or 7 March if an accountant or tax agent helps you with your tax return.
    ...
    No-notification rate
    45%
    ...
    student loan).
    In New Zealand, the income is taxed by the amount that falls within each tax bracket. For example, if a person earns $70,000, they will only pay 33% on the amount that falls between $48,001 and $70,000 rather than paying this on the full $70,000. Consequently, the corresponding income tax for that specific income will accumulate to $16,150 or about 23% of the entire amount.
    New Rates from October 2010
    ...
    Government announced newnew income tax
    ...
    economic emigration.
    Income
    Tax rate
    ...
    45%
    Tax credits
    ...
    for families.
    Tax deducted at source
    In most cases employers deduct the relevant amount of income tax from salary and wages prior to these being paid to the individual. This system, known as Pay-as-you-earn, or PAYE, was introduced in 1958, prior to which employees paid tax annually.
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Thursday, April 14

  1. page 3.4 Aggregate Economy edited This achievement standard involves describing the aggregate level of economic activity and how the…
    This achievement standard involves describing the aggregate level of economic activity and how the aggregate demand and aggregate supply model is used. It also requires describing influences on New Zealand’s aggregate economic activity.
    Description of how the aggregate demand and aggregate supply model is used will involve a selection from:
    · reasons for the downward slope of the aggregate demand curve
    · shifts of the aggregate demand curve as a result of changes in consumption, investment, government revenue and spending, exports and imports
    · reasons for the aggregate supply curve becoming steeper as the economy approaches capacity output
    · shifts of the aggregate supply curve as a result of exogenous changes in nominal wages, imported factor costs and productivity
    · aggregate demand/aggregate supply equilibrium in terms of price level, employment and national income (= output = real GDP).
    Description of influences on New Zealand’s aggregate economic activity will involve a selection from:
    · Monetary Policy
    Ø the roles of the Reserve Bank (Reserve Bank of New Zealand Act 1989 and the Policy Target Agreement)
    Ø the effect of a change in the official cash rate on market interest rates
    Ø the effects of interest rate changes on consumption, investment, exchange rates and net exports.
    · External Influences
    Ø supply and demand analysis of the foreign exchange market
    Ø impact of exchange rate changes on the balance of payments (current, capital and financial accounts)
    Ø terms of trade
    Ø other factors that impact on trade.
    · Fiscal Policy
    Ø changes in tax rates (direct or indirect)
    Ø government revenue and expenditure, and the operating balance
    Ø major components of the government’s budget (reference: Current Economic Fiscal Updates)
    Ø constraints imposed on government by the Public Finance Amendment Act 2004.
    Fully explain influences on New Zealand’s aggregate economic activity will involve a further selection from:
    · a full analysis of the effects of policy changes on components of Aggregate Demand and Aggregate Supply and, therefore, on the level of aggregate economic activity
    · a thorough understanding of the interrelationships in the macroeconomy.
    What is Aggregate Economics?
    Aggregate economic analysis is concerned with issues related to macroeconomic issues such as gross domestic product, national income, inflation, unemployment rates and economic fluctuations (known as business cycles). Contrast this with microeconomics, which focuses more on consumers and firms rather than nation's economy as a whole. Many college courses in intermediate macroeconomics deal with aggregate economic measures.
    Identification
    Aggregate demand and supply are key issues in aggregate economic analysis. Aggregate demand and supply measure the total demand and supply of goods and services across an entire economy. This contrasts with microeconomics, which is more concerned with supply and demand for specific goods. An example is the supply and demand for oil.
    Benefits
    Aggregate economic analysis helps government leaders determine the state of the overall economy, setting their monetary and fiscal policies accordingly.
    Features
    Because governments use fiscal and monetary policies to stimulate or curb aggregate demand and supply, aggregate economic analysis is concerned with the impact of fiscal and monetary policy on macroeconomic indicators such as the inflation rate or the unemployment rate.
    Effects
    Under aggregate analysis, when aggregate demand rises faster than aggregate supply, inflation rises. Lagging aggregate demand, meanwhile, may be a sign of an economic recession.
    Considerations
    Economists often differ on the proper role of government in promoting stable prices, economic growth and low levels of unemployment.
    Leading Indicators
    Read more: Aggregate Economic Analysis | eHow.com http://www.ehow.com/facts_5312128_aggregate-economic-analysis.html#ixzz1JXnTutzN
    What is macroeconomics?
    Macroeconomics (from Greek prefix "macr(o)-" meaning "large" + "economics") is a branch of economics dealing with the performance, structure, behavior, and decision-making of the entire economy. This includes a national, regional, or global economy.[1[[http://en.wikipedia.org/wiki/Macroeconomics#cite_note-blaug1985-0|]]][2[[http://en.wikipedia.org/wiki/Macroeconomics#cite_note-1|]]] With microeconomics, macroeconomics is one of the two most general fields in economics.
    Macroeconomists study aggregated indicators such as GDP, unemployment rates, and price indices to understand how the whole economy functions. Macroeconomists develop models that explain the relationship between such factors as national income, output, consumption, unemployment, inflation, savings, investment, international trade and international finance. In contrast, microeconomics is primarily focused on the actions of individual agents, such as firms and consumers, and how their behavior determines prices and quantities in specific markets.
    While macroeconomics is a broad field of study, there are two areas of research that are emblematic of the discipline: the attempt to understand the causes and consequences of short-run fluctuations in national income (the business cycle), and the attempt to understand the determinants of long-run economic growth (increases in national income).
    Macroeconomic models and their forecasts are used by both governments and large corporations to assist in the development and evaluation of economic policy and business strategy.

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  2. page marginal analysis 90629 (3.1) edited ... || MARGINAL REVENUE CURVE: === = A curve that graphically represents the relation betwe…
    ...
    ||
    MARGINAL REVENUE CURVE:
    ====
    A curve that graphically represents the relation between the marginal revenue received by a firm for selling its output and the quantity of output sold. A firm maximizes profit by producing the quantity of output found at the intersection of the marginal revenue curve and marginal cost curve. The marginal revenue curve for a firm with no market control is horizontal. The marginal revenue curve for a firm with market control is negatively sloped and lies below the average revenue curve.
    ...
    || ||
    =
    measuring profitmeasuring profit
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  3. page 3.5 internal edited ... · Number and size of firms · Kinked Demand curve (hard to measure) ... to oligopoly site…
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    · Number and size of firms
    · Kinked Demand curve (hard to measure)
    ...
    to oligopoly sites:info:
    http://tutor2u.net/economics/content/topics/monopoly/oligopoly_notes.htm
    http://www.s-cool.co.uk/a-level/economics
    www.bized.co.uk – check out the microeconomics and market structures section
    www.answers.com
    http://tutor2u.net/economics/content/topics/monopoly/oligopoly_notes.htm
    http://en.wikipedia.org/wiki/Oligopoly
    http://en.wikipedia.org/wiki/Duopoly
    www.ask.com
    http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=oligopoly
    http://www.basiceconomics.info/oligopoly-market-structure.php

    Primary sources are:
    · Surveys on people
    ...
    · a table with factors relating to the hypothesis and oligopoly, and a spectrum of very important to not very important
    The report must contain information on where, when, time and number of people you surveyed. When I have checked your final survey I will photocopy it for you.
    websites of interest:
    www.kfc.com
    www.kfc.co.nz
    www.mcdonalds.com
    www.mcdonalds.co.nz
    www.burgerking.com
    www.burgerking.co.nz
    www.subway.com
    www.subway.co.nz
    www.bp.co.nz
    www.mobil.co.nz
    www.caltex.co.nz
    www.shell.co
    www.gullpetroleum.com.au

    Professional writing and APA referencing
    Do not use personal pronouns ( I, we, me etc) in the report.
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  4. page 13 ECO tid bits edited ... market system: http://www.bized.co.uk/educators/16-19/economics/markets/presentation/demandsup…
    ...
    market system: http://www.bized.co.uk/educators/16-19/economics/markets/presentation/demandsupply_map.htm
    an excellent Eco glossary with links to diagrams: http://livingeconomics.org/glossary.asp
    China's ghost cities and ec growth: http://www.sbs.com.au/dateline/story/watch/id/601007/n/China-s-Ghost-Cities
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  5. page 3.5 internal edited ... · Number and size of firms · Kinked Demand curve (hard to measure) Links to oligopoly site…
    ...
    · Number and size of firms
    · Kinked Demand curve (hard to measure)
    Links to oligopoly sites:
    http://tutor2u.net/economics/content/topics/monopoly/oligopoly_notes.htm
    http://www.s-cool.co.uk/a-level/economics

    Primary sources are:
    · Surveys on people
    (view changes)

Thursday, March 31

  1. page marginal analysis 90629 (3.1) edited ... MU of good 2 MU/price of good 2 || || {http://media.wiley.com/Lux/76/9676.nce002.jpg} ex…
    ...
    MU of good 2
    MU/price of good 2
    ||
    ||

    {http://media.wiley.com/Lux/76/9676.nce002.jpg} external image 9676.nce002.jpg
    Read more: http://www.cliffsnotes.com/study_guide/Consumer-Equilibrium.topicArticleId-9789,articleId-9753.html#ixzz0uf6PhrC4
    ...
    ===
    A curve that graphically represents the relation between the marginal revenue received by a firm for selling its output and the quantity of output sold. A firm maximizes profit by producing the quantity of output found at the intersection of the marginal revenue curve and marginal cost curve. The marginal revenue curve for a firm with no market control is horizontal. The marginal revenue curve for a firm with market control is negatively sloped and lies below the average revenue curve.
    ...
    Answers.docx || || === ||
    =

    measuring profitmeasuring profit
    Profit = the difference between total revenue and total cost
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  2. page marginal analysis 90629 (3.1) edited ... Marginal and Total UtilityMarginal and Total Utility Marginal utility measures the extra util…
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    Marginal and Total UtilityMarginal and Total Utility
    Marginal utility measures the extra utility (or satisfaction) from consuming an additional unit of a product. Total utility is the total satisfaction from the consumption of a product. If, for example, the extra utility from consuming another unit of the product is 6 units of utility (called utils) then total utility will increase by 6 utils.
    Units
    Marginal utility
    Total utility
    1
    10
    10
    2
    8
    18
    3
    6
    24
    4
    4
    28
    5
    2
    30
    Notice in the above table that the Law of Diminishing Marginal Utility operates. This means that total
    total utility increases
    Marginal and Total Utility-The paradox of value: marginal and total utilityThe paradox of value: marginal and total utility
    Some products are widely available and are heavily consumed. This means that the extra utility from consuming one more unit is low as is the price we are willing to pay for that unit. Even though the product may be vitally important such as bread in the UK the fact it is widely available reduces the value of an additional unit. Other products, such as Ferarris, are not widely available and have limited consumption. This means the marginal utility of an extra unit is high and therefore we are willing to pay a high price for it. Even though bread is more important in terms of our survival and provides more total utility we are not willing to pay as much for it as Ferarris because of its low marginal utility. This is known as the paradox of value.
    ...
    This condition states that the marginal utility per dollar spent on good 1 must equal the marginal utility per dollar spent on good 2. If, for example, the marginal utility per dollar spent on good 1 were higher than the marginal utility per dollar spent on good 2, then it would make sense for the consumer to purchase more of good 1 rather than purchasing any more of good 2. After purchasing more and more of good 1, the marginal utility of good 1 will eventually fall due to the law of diminishing marginal utility, so that the marginal utility per dollar spent on good 1 will eventually equal that of good 2. Of course, the amount purchased of goods 1 and 2 cannot be limitless and will depend not only on the marginal utilities per dollar spent, but also on the consumer's budget.
    An example. To illustrate how the consumer equilibrium condition determines the quantity of goods 1 and 2 that the consumer demands, suppose that the price of good 1 is $2 per unit and the price of good 2 is $1 per unit. Suppose also that the consumer has a budget of $5. The marginal utility ( MU) that the consumer receives from consuming 1 to 4 units of goods 1 and 2 is reported in Table 1 . Here, marginal utility is measured in fictional units called utils, which serve to quantify the consumer's additional utility or satisfaction from consuming different quantities of goods 1 and 2. The larger the number of utils, the greater is the consumer's marginal utility from consuming that unit of the good. Table 1 also reports the ratio of the consumer's marginal utility to the price of each good. For example, the consumer receives 24 utils from consuming the first unit of good 1, and the price of good 1 is $2. Hence, the ratio of the marginal utility of the first unit of good 1 to the price of good 1 is 12.
    duffy3241c08-tbl-0001
    TABLE 1
    Illustration of Consumer Equilibrium. Price of good 1 = $2, Price of good 2 = $1, Budget = $5

    Units of good 1
    MU of good 1
    ...
    MU of good 2
    MU/price of good 2
    1
    24
    12
    1
    9
    9
    2
    18
    9
    2
    8
    8
    3
    12
    6
    3
    5
    5
    4
    6
    3
    4
    1
    1
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    {http://media.wiley.com/Lux/76/9676.nce002.jpg} external image 9676.nce002.jpg
    duffy3241c08-tbl-0001
    Read more: http://www.cliffsnotes.com/study_guide/Consumer-Equilibrium.topicArticleId-9789,articleId-9753.html#ixzz0uf6PhrC4
    Read more: http://www.cliffsnotes.com/study_guide/Consumer-Equilibrium.topicArticleId-9789,articleId-9753.html#ixzz0uf6GuPo8
    ...
    Loyalty schemes
    coffee card
    ...
    future buying.
    Product

    Product
    Variation: businesses
    ...
    to competition.
    The

    The
    two main
    ...
    product variation.
    Product modification
    Other examples include airbags, stability control, GPS in cars etc.
    ...
    Average Revenue (AR) = Price per unit = total revenue / output
    Marginal Revenue (MR) = the change in revenue from selling one extra unit of output
    The table below shows the demand for a product where demand varies inversely with the price.
    Price per unit
    (average revenue)
    Quantity Demanded
    (Qd)
    Total Revenue
    (TR)
    Marginal Revenue
    (MR)
    $s
    units
    $s
    $s
    400
    220
    88000
    370
    340
    125800
    315
    340
    460
    156400
    255
    310
    580
    179800
    195
    280
    700
    196000
    135
    250
    820
    205000
    75
    220
    940
    206800
    15
    190
    1060
    201400
    -45

    Average and marginal revenue – the important relationships
    In our example in the table above, as price per unit falls, demand expands and so too does total revenue, although because the demand curve is downward sloping, the average revenue falls as more units are sold. This causes marginal revenue to decline. Eventually once marginal revenue becomes negative, a further fall in price (e.g. from $220 to $190) causes total revenue to fall.
    ...
    ||
    MARGINAL REVENUE CURVE:
    ===
    A curve that graphically represents the relation between the marginal revenue received by a firm for selling its output and the quantity of output sold. A firm maximizes profit by producing the quantity of output found at the intersection of the marginal revenue curve and marginal cost curve. The marginal revenue curve for a firm with no market control is horizontal. The marginal revenue curve for a firm with market control is negatively sloped and lies below the average revenue curve.
    ...
    (school &ncea).
    Click
    Click on the link
    {http://c1.wikicdn.com/i/mime/32/application/x-zip.png}
    {http://c1.wikicdn.com/i/mime/32/application/x-zip.png} 90629 revision
    ...
    - Answers.docx
    Accounting and Finance[[http://tutor2u.net/sub_accounting.asp|]]
    Economics (GCSE)
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    EBusiness / E-Commerce
    English
    History
    ICT
    Law
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    People & Organisations
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    || || ===
    measuring profitmeasuring profit
    Profit = the difference between total revenue and total cost
    ...
    TYPES OF PROFIT
    In economics there is no unique definition of profit!
    ...
    normal profits.
    ABNORMAL
    where AC=AR
    SUPERNORMAL
    PROFIT -
    ...
    for themselves. Where AC < AR
    SUB-NORMAL PROFIT
    ...
    economic loss. Where AC > AR
    ILLUSTRATING PROFIT MAXIMISATION
    The firm maximises profit when marginal cost equals marginal revenue.
    It can sell output Q1 at price P. The profit per unit = P - ATC.
    Total profits are shown by the yellow shaded area. Because price exceeds average total cost (and normal profits are included in the average cost curve) we can say that the firm is earning supernormal profits in this situation
    
    Economics (ASA2)
    
    Econmis (GCSE)
    
    EBusiness / E-Commerce
    
    English
    History
    Marketing
    People & Organisations
    Politics
    Production & Operations
    Religious Studies
    Sociology
    Strategy

    measuring profit
    {http://tutor2u.net/economics/content/diagrams/profitmax1.gif} external image profitmax1.gif
    (view changes)
  3. page marginal analysis 90629 (3.1) edited || MARGINAL ANALYSISMARGINAL ANALYSIS A basic technique used in economics that analyzes small, …
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    MARGINAL ANALYSISMARGINAL ANALYSIS
    A basic technique used in economics that analyzes small, incremental changes in key variables. Marginal analysis is the primary analytical approached used in the study of markets, production, consumption, business cycles, and economic policies. It not only reflects how most economic decisions are made, it also lends itself to mathematical and graphical analysis.
    Marginal analysis is based on a simple question often posed in the study of economics: "What happens if something changes by one dollar, one unit, one person, or one whatever?" For example, what happens to the quantity demanded of hot fudge sundaes if the market price',500,400)">market price increases by one cent? Or what happens to gross domestic product if investment decreases by $1? Or what happens to the market price of computers if one more computer supplier enters the industry?===Marginal Obsession===
    ...
    Marginal benefit (MB) is the additional dollar benefit from the consumption of an additional unit of a good or service. Hence marginal benefit simply puts marginal utility in monetary terms. Marginal benefit is the change in total benefit for each one unit change in quantity. Marginal benefit also represents the maximum willingness to pay for each unit of a good or service.
    Net Benefit (NB) is the difference between marginal benefits and marginal costs. If MB is greater than MC, then net benefits are positive. IF MC is greater than MB, then net benefits are negative.
    UtilitarianismMARGINAL ANALYSIS--UtilitarianismUtilitarianism
    Economic theory is often based upon the philosophy of utilitarianism. The foundation of utilitarian philosophy is "the greatest good for the greatest number." In other words, utilitarian philosophy suggests that decisions be made with the ultimate objective of maximizing societal welfare. Sometimes this choice is easy. For example, when deciding what type of new car to purchase, a consumer should purchase the one that she likes the best given her tastes, so long as it is within her budget. In other words, a consumer can maximize utility by purchasing the things that she likes the best. Other times,the utilitarian principle is not so easy to apply. Should health care be denied to some of our elderly so that the young can have better health care? Should more education funds be devoted to the inner cities at the expense of reducing funds to children in the suburbs? The "greatest good for the greatest number" hinges directly on how we define and quantify "good." To help us answer these types of questions, we need to understand the concepts of marginal costs and marginal benefits.
    MarginalMARGINAL ANALYSIS--Marginal CostsMarginal Costs
    Marginal Costs are the additional costs imposed when one more unit is produced. If the cost of making 9 pieces of pizza is $90 and the cost of making 10 pieces is $110, the marginal cost of producing the tenth piece of pizza is $20. The table below illustrates the relationship between production, total costs,and marginal costs. Notice that total costs always rise as production increases even though marginal costs may not rise.
    Quantity
    Total Cost
    Marginal Cost
    {http://schools-wikipedia.org/images/115/11566.gif} external image 11566.gif
    Marginal costs tend to rise as production increases. One explanation for this is that when a firm grows very large, it becomes more and more difficult to manage the organization and costs rise. Another possibility is that producing more and more of a particular product becomes more difficult due to technology or resource limitations. When trying to clean up the air, for example, the first efforts are relatively inexpensive. A law can mandate, for example, that the dirtiest cars be taken off the road. But as one tries to make the air cleaner and cleaner, more expensive technology is needed. Therefore, marginal costs rise. The rise in Marginal Costs is shown in the chart above.
    MarginalMARGINAL ANALYSIS--Marginal BenefitsMarginal Benefits
    Marginal Benefits are the additional benefits received when one more unit is produced. Benefits can be expressed in terms of units of utility or satisfaction, or sometimes they can be expressed in dollar amounts.
    EconomicMARGINAL ANALYSIS--Economic EfficiencyEconomic Efficiency
    Economic efficiency in our pizza example occurs where the MB and MC curves intersect. This occurs at a quantity of six pieces of pizza.
    In general, the efficient level of output is where the Marginal Benefits just equal the Marginal Costs (point Q*). This is also the level at which the principle of utilitarianism holds. Why is this the case?
    ...
    Sometimes, the marginal benefits and costs are not "continuous"and we must make decisions about entire projects based upon cost/benefit analysis. Suppose the courts must decide whether or not to allow hundreds of acres of old-growth redwoods to be logged. One could do a cost/benefit analysis to determine what the benefits are to society for harvesting the timber versus the benefits for not harvesting the timber and preserving the forest and the ecosystems. The efficient outcome would be to cut the trees until marginal benefits equal marginal costs. This result may not be possible, however, if an all or nothing decision must be made. The recent compromise in the Headwaters Forest in which most old growth was preserved but other lands and cash were traded in return, certainly did not please either side completely, but perhaps the result was more efficient (but not necessarily more fair) than a solution that allowed the entire area to be harvested, or a decision to ban production completely.
    The example over logging demonstrates that the costs and benefits arenot always easily transferable into dollars. This makes the decisions very difficult and inherently more subjective.
    TheMARGINAL ANALYSIS--The Moral Vacuum of the Efficiency StandardThe Moral Vacuum
    Cost-Benefit analysis and the efficiency standard are extremely useful tools to approaching complex problems. However, the efficiency standard generally has nothing to say about the morality or fairness of a particular decision. Equity and efficiency are two different things. One must not use the efficiency standard indiscriminately or else he/she arrives at some ridiculus or dangerous conclusions.
    For example, suppose the law mandates that the water in a town be cleaned to the point until the marginal costs to society exceed the marginal benefits.At this level, the water is still too dirty to swim in and children who drink from the water are exposed to lead poisoning. Society may decide to clean up the water even more than the efficient level because we do not want to harm children. Even though the solution may not be efficient, it may be more fair.
    In health care, the efficient outcome may be to only provide health services to those to whom the benefits from being made healthier exceed the costs of the health care. Therefore, elderly citizens may not get the treatment they require because society sees few benefits in terms of life extension. Again, the efficient outcome is not always the fair outcome and society may decide that it is more equitable to provide quality health care to the elderly.
    ||
    Marginal utilityMarginal utility
    In economics, the marginal utility of a good or service--or, alternatively, the marginal utility of the active consumption of a good or service (see Hermann Heinrich Gossen)-- is the utility gained (or lost) from an increase (or decrease) in the consumption of that good or service. In general, preferences display diminishing marginal utility. That is, the first unit of consumption of a good or service yields more utility than the second and subsequent units. The concept of marginal utility played a crucial role in the marginal revolution of the late 19th century, and led to the replacement of the labor theory of value by neoclassical value theory in which the relative prices of goods and services are simultaneously determined by marginal rates of substitution in consumption and marginal rates of transformation in production, which are equal in economic equilibrium.
    MarginalityMarginal utility-MarginalityMarginality
    Constraints are conceptualized as a border or margin.[1] The location of the margin for any individual corresponds to his or her endowment, broadly conceived to include opportunities. This endowment is determined by many things including physical laws (which constrain how forms of energy and matter may be transformed), accidents of nature (which determine the presence of natural resources), and the outcomes of past decisions made both by others and by the individual himself or herself.
    For reasons of tractability, it is often assumed in neoclassical analysis that goods and services are continuously divisible. Under this assumption, marginal concepts, including marginal utility may be expressed in terms of differential calculus. Marginal utility can be defined as a measure of relative satisfaction gained or lost from an increase or decrease in the consumption of that good or service.
    However, strictly speaking, the smallest relevant division may be quite large. Frequently, economic analysis concerns the marginal values associated with a change of one unit of a discrete good or service, such as a motor vehicle or a haircut.
    DiminishingMarginal utility-Diminishing marginal utilityDiminishing marginal utility
    What Does Law Of Diminishing Marginal Utility Mean?
    A law of economics stating that as a person increases consumption of a product - while keeping consumption of other products constant - there is a decline in the marginal utility that person derives from consuming each additional unit of that product.
    ...
    For example, say you go to a buffet and the first plate of food you eat is very good. On a scale of ten you would give it a ten. Now your hunger has been somewhat tamed, but you get another full plate of food. Since you're not as hungry, your enjoyment rates at a seven at best. Most people would stop before their utility drops even more, but say you go back to eat a third full plate of food and your utility drops even more to a three. If you kept eating, you would eventually reach a point at which your eating makes you sick, providing dissatisfaction, or 'dis-utility'.
    The fact that a tipping point may be reached does not imply that marginal utility will continue to increase indefinitely thereafter. For example, beyond some point, further doses of antibiotics would kill no pathogens at all, and might even become harmful to the body. Simply put, as the rate of commodity consumption increases, marginal utility decreases. If commodity consumption continues to rise, marginal utility at some point falls to zero, reaching maximum total utility. Further increase in consumption of units of commodities causes marginal utility to become negative; this signifies dissatisfaction.
    Marginal and Total UtilityMarginal and Total
    Marginal utility measures the extra utility (or satisfaction) from consuming an additional unit of a product. Total utility is the total satisfaction from the consumption of a product. If, for example, the extra utility from consuming another unit of the product is 6 units of utility (called utils) then total utility will increase by 6 utils.
    Units
    ...
    30
    Notice in the above table that the Law of Diminishing Marginal Utility operates. This means that total utility increases at a diminishing rate. When marginal utility is 0 this means there is no increase in total satisfaction from the consumption of that unit (in this case the 6th unit). It is possible that you can overconsume some items (e.g. eat too much) in which case the marginal utility might be negative (the 7th unit) and total utility would then fall.
    TheMarginal and Total Utility-The paradox of value: marginal and total utilityThe paradox of
    Some products are widely available and are heavily consumed. This means that the extra utility from consuming one more unit is low as is the price we are willing to pay for that unit. Even though the product may be vitally important such as bread in the UK the fact it is widely available reduces the value of an additional unit. Other products, such as Ferarris, are not widely available and have limited consumption. This means the marginal utility of an extra unit is high and therefore we are willing to pay a high price for it. Even though bread is more important in terms of our survival and provides more total utility we are not willing to pay as much for it as Ferarris because of its low marginal utility. This is known as the paradox of value.
    Interestingly the typical example of the paradox of value is water and diamonds first outlined by Adam Smith in 1776.
    {http://www.oup.com/uk/orc/bin/9780199296378/01student/advanced/figures/fig009.jpg} external image fig009.jpg
    When TU is maximised MU will be equal to zero
    {http://wps.prenhall.com/wps/media/objects/475/486957/screencaps/16_04-05.gif} external image 16_04-05.gif
    practice test link:
    http://wps.prenhall.com/bp_ayers_micro_1/0,,487079-,00.utf8.html
    ...
    Two, the marginal utility of a good underlies the demand price that buyers are willing and able to pay for a good.
    When combined, these two propositions indicate the demand price that buyers are willing and able to pay for a good declines as the quantity demanded (and consumed) increases, which is the law of demand.
    StartingMarginal and Total Utility-The paradox of value: marginal and total utility-Starting with UtilityStarting with Utility
    Edgar Rides the Coaster
    {http://www.amosweb.com/images/MU002wp.gif} Sundae Utility
    Sundae Utility
    The graph displayed at the right is Edgar Millbottom's marginal utility curve for riding the Monster Loop Death Plunge roller coaster during a day at the Shady Valley Amusement Park. By transforming this curve ever so slightly, Edgar's demand curve for roller coaster rides can be derived.
    But first, consider the marginal utility curve itself.
    ...
    Marginal utility curve intersects the horizontal axis at 6 rides. Marginal utility is positive up to that point, then becomes negative after.
    The task at hand is to transform this marginal utility curve into a demand curve. To do this, though, a little more information is needed.
    AdjustingMarginal and Total Utility-The paradox of value: marginal and total utility-Adjusting the RuleAdjusting the Rule
    According to the rule of consumer equilibrium, people like Edgar buy goods such that the marginal utility-price ratio for each good is equal, satisfying this equation:
    marginal utility of good 1----
    ...
    price of roller coaster rides
    The beauty of this equation is that the price that Edgar is willing and able to pay for roller coaster rides (his demand price) is now connected to the marginal utility derived from those rides.
    MakingMarginal and Total Utility-The paradox of value: marginal and total utility-Making the ConversionMaking the Conversion
    The Conversion
    {http://www.amosweb.com/images/MU002wp.gif} Utility to Demand
    Utility to Demand
    In terms of the original marginal utility graph, dividing the marginal utility on the vertical axis by 2 utils per dollar transforms the marginal utility curve into a demand curve. Click the [Demand Curve] button to make this happen.
    Not much changes upon clicking the [Demand Curve] button. One change is the measurement units on the vertical axis from utils to dollars. The other change is the elimination of that part of the curve in the negative range of marginal utility and price (negative prices are not relevant). Feel fee to click the [Reset] and [Demand Curve] buttons a couple of times to confirm that not much changes.
    ...
    good link
    http://www.info-village.info/law-of-equi-marginal-utility/
    TheMarginal and Total Utility-The paradox of value: marginal and total utility-Making the Conversion-The utility-maximizing rule (also known as the “equimarginal principle”) states that total utility from the consumption of two or more goods is maximized when the marginal utility per dollar spent is the same for all goods, and all income is spent.The utility-maximizing rule
    http://ingrimayne.com/econ/LogicOfChoice/Equimarginal.html
    http://zulunotes.com/wiki/index.php/Equi-marginal_principal
    ConsumerMarginal and Total Utility-Consumer EquilibriumConsumer Equilibrium
    When consumers make choices about the quantity of goods and services to consume, it is presumed that their objective is to maximize total utility. In maximizing total utility, the consumer faces a number of constraints, the most important of which are the consumer's income and the prices of the goods and services that the consumer wishes to consume. The consumer's effort to maximize total utility, subject to these constraints, is referred to as the consumer's problem. The solution to the consumer's problem, which entails decisions about how much the consumer will consume of a number of goods and services, is referred to as consumer equilibrium.
    Determination of consumer equilibrium. Consider the simple case of a consumer who cares about consuming only two goods: good 1 and good 2. This consumer knows the prices of goods 1 and 2 and has a fixed income or budget that can be used to purchase quantities of goods 1 and 2. The consumer will purchase quantities of goods 1 and 2 so as to completely exhaust the budget for such purchases. The actual quantities purchased of each good are determined by the condition for consumer equilibrium, which is
    {http://media.wiley.com/Lux/75/9675.nce001.jpg} external image 9675.nce001.jpg
    This condition states that the marginal utility per dollar spent on good 1 must equal the marginal utility per dollar spent on good 2. If, for example, the marginal utility per dollar spent on good 1 were higher than the marginal utility per dollar spent on good 2, then it would make sense for the consumer to purchase more of good 1 rather than purchasing any more of good 2. After purchasing more and more of good 1, the marginal utility of good 1 will eventually fall due to the law of diminishing marginal utility, so that the marginal utility per dollar spent on good 1 will eventually equal that of good 2. Of course, the amount purchased of goods 1 and 2 cannot be limitless and will depend not only on the marginal utilities per dollar spent, but also on the consumer's budget.
    An example. To illustrate how the consumer equilibrium condition determines the quantity of goods 1 and 2 that the consumer demands, suppose that the price of good 1 is $2 per unit and the price of good 2 is $1 per unit. Suppose also that the consumer has a budget of $5. The marginal utility ( MU) that the consumer receives from consuming 1 to 4 units of goods 1 and 2 is reported in Table 1 . Here, marginal utility is measured in fictional units called utils, which serve to quantify the consumer's additional utility or satisfaction from consuming different quantities of goods 1 and 2. The larger the number of utils, the greater is the consumer's marginal utility from consuming that unit of the good. Table 1 also reports the ratio of the consumer's marginal utility to the price of each good. For example, the consumer receives 24 utils from consuming the first unit of good 1, and the price of good 1 is $2. Hence, the ratio of the marginal utility of the first unit of good 1 to the price of good 1 is 12.
    ...
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    duffy3241c08-tbl-0001duffy3241c08-tbl-0001duffy3241c08-tbl-0001duffy3241c08-tbl-0001
    {http://media.wiley.com/Lux/76/9676.nce002.jpg} external image 9676.nce002.jpg
    duffy3241c08-tbl-0001
    Read more: http://www.cliffsnotes.com/study_guide/Consumer-Equilibrium.topicArticleId-9789,articleId-9753.html#ixzz0uf6PhrC4
    Read more: http://www.cliffsnotes.com/study_guide/Consumer-Equilibrium.topicArticleId-9789,articleId-9753.html#ixzz0uf6GuPo8
    power point on deriving the demand curve from MU:
    {mu& demandcurve.ppt}
    Accounting
    {http://c1.wikicdn.com/i/mime/32/application/vnd.ms-powerpoint.png} mu& demandcurve.ppt
    Accounting Costs vs Opportunity CostsAccounting
    Costs vs
    Opportunity cost is the cost related to the next-best choice available to someone who has picked between several mutually exclusive choices. It is a key concept in economics. It has been described as expressing "the basic relationship between scarcity and choice." The notion of opportunity cost plays a crucial part in ensuring that scarce resources are used efficiently. Thus, opportunity costs are not restricted to monetary or financial costs: the real cost of output forgone, lost time, pleasure or any other benefit that provides utility should also be considered opportunity costs.
    The concept of an opportunity cost was first developed by John Stuart Mill.
    ExamplesAccounting Costs vs Opportunity Costs-ExamplesExamples
    A person who has $15 can either buy a CD or a shirt. If he buys the shirt the opportunity cost is the CD and if he buys the CD the opportunity cost is the shirt. If there are more choices than two, the opportunity cost is still only one item, never all of them.
    A person who invests $10,000 in a stock denies herself or himself the interest that could have accrued by leaving the $10,000 in a bank account instead. The opportunity cost of the decision to invest in stock is the value of the interest.
    ...
    If a city decides to build a hospital on vacant land it owns, the opportunity cost is the value of the benefits forgone of the next best thing that might have been done with the land and construction funds instead. In building the hospital, the city has forgone the opportunity to build a sports center on that land, or a parking lot, or the ability to sell the land to reduce the city's debt, since those uses tend to be mutually exclusive. Also included in the opportunity cost would be what investments or purchases the private sector would have voluntarily made if it had not been taxed to build the hospital. The total opportunity costs of such an action can never be known with certainty, and are sometimes called "hidden costs" or "hidden losses" as what has been prevented from being produced cannot be seen or known. Even the possibility of inaction is a lost opportunity. In this example, to preserve the scenery as-is for neighboring areas, perhaps including areas that it itself owns.
    Opportunity cost is assessed in not only monetary or material terms, but also in terms of anything which is of value. For example, a person who desires to watch each of two television programs being broadcast simultaneously, and does not have the means to make a recording of one, can watch only one of the desired programs. Therefore, the opportunity cost of watching Dallas could be enjoying Dynasty. Of course, if an individual records one program while watching the other, the opportunity cost will be the time that that individual spends watching one program versus the other. In a restaurant situation, the opportunity cost of eating steak could be trying the salmon. For the diner, the opportunity cost of ordering both meals could be twofold - the extra $20 to buy the second meal, and his reputation with his peers, as he may be thought gluttonous or extravagant for ordering two meals. A family might decide to use a short period of vacation time to visit Disneyland rather than doing household improvements. The opportunity cost of having happier children could therefore be a remodeled bathroom.
    EvaluationAccounting Costs vs Opportunity Costs-EvaluationEvaluation
    The consideration of opportunity costs is one of the key differences between the concepts of economic cost and accounting cost. Assessing opportunity costs is fundamental to assessing the true cost of any course of action. In the case where there is no explicit accounting or monetary cost (price) attached to a course of action, or the explicit accounting or monetary cost is low, then, ignoring opportunity costs may produce the illusion that its benefits cost nothing at all. The unseen opportunity costs then become the implicit hidden costs of that course of action.
    Note that opportunity cost is not the sum of the available alternatives when those alternatives are, in turn, mutually exclusive to each other. The opportunity cost of the city's decision to build the hospital on its vacant land is the loss of the land for a sporting center, or the inability to use the land for a parking lot, or the money which could have been made from selling the land, as use for any one of those purposes would preclude the possibility to implement any of the others.
    ...
    In calculating economic profit, opportunity costs are deducted from revenues earned. Opportunity costs are the alternative returns foregone by using the chosen inputs. As a result, you can have a significant accounting profit with little to no economic profit.
    For example, say you invest $100,000 to start a business, and in that year you earn $120,000 in profits. Your accounting profit would be $20,000. However, say that same year you could have earned an income of $45,000 had you been employed. Therefore, you have an economic loss of $25,000 (120,000 - 100,000 - 45,000
    {http://www.bized.co.uk/sites/bized/files/images/marketstructuremap.gif}
    Market
    external image marketstructuremap.gif
    Accounting Costs vs Opportunity Costs-Market Structures - Mind MapMarket
    Structures -
    Mind Maps have been produced to introduce topics and give students an overview of key topics being studied. The maps can be viewed as a whole page or, for those who prefer a more linear approach, as a text version.
    Perfect Competition
    ...
    Consumer choice
    Abnormal Profits
    Price and non price competitionPrice and non
    ...
    competition
    benefits of competitive marketsbenefits of competitive
    Why are competitive markets seen as beneficial for consumers and the economy as a whole?
    "Vigorous competition between firms is the lifeblood of strong and effective markets. Competition helps consumers get a good deal. It encourages firms to innovate by reducing slack, putting downward pressure on costs and providing incentives for the efficient organisation of production. As such, competition is a central driver for productivity growth in the economy.
    ...
    Sellers move along the demand curve by raising and lowering prices.
    Demand Curve
    [[code]]
    $|*
    [[code]]
    p| *
    | *
    | *
    | *
    |-----------Qty
    [[code]]
    Key
    Key concepts: loss leader
    [[code]]
    Price
    leader, price war
    Non Price competition
    Non-pricebenefits of competitive markets--Non-price competition is a marketing strategy "in which one firm tries to distinguish its product or service from competing products on the basis of attributes like design and workmanship" (McConnell-Brue, 2002, p. 437-438).Non-price competition is
    Emphasis on product features, service, quality etc. Can build customer loyalty towards the brand. Must be able to distinguish brand through unique product features.
    Customer must be able to perceive the differences in brands and view them as desirable.
    ...
    Price differences must be offset by the perceived benefits.
    Sellers shift the demand curve out to the right by stressing distinctive attributes (consumers must perceive and desire particular attributes).
    code
    code

    Product differentiation
    Products are marketed to appear to have differences, like superior qualities to competitor’s products.
    ...
    Opening Up Markets (2) - Tougher Regulation
    Privatisation and liberalisation of markets has opened many sectors to greater competition. A second strand to current government policy is to toughen up the regulation of markets through competition policy.
    profit and sales revenue maximisation using total cost and total revenue curvesprofit and sales
    Introduction
    One way of showing the differences in output that can come from different business objectives is to use total revenue and total cost curves. If we assume that a business faces a downward sloping demand curve, the total revenue curve will rise at a decreasing rate until marginal revenue = zero. The shape of the total cost curve depends on what happens to marginal cost, if we assume that diminishing returns occurs in the short run, then the total cost will eventually start to rise at an increasing rate. The profit maximising output occurs at the greatest vertical distance between the TR and TC curves. However, revenue maximization occurs at a higher output level.
    {http://tutor2u.net/economics/content/diagrams/objectives_1.gif} external image objectives_1.gif
    Shareholders might decide that a minimum level of profitability is required – so we might include in our analysis the effect of such a constraint on the output choice. This is shown in the diagram below
    {http://tutor2u.net/economics/content/diagrams/objectives_2.gif} external image objectives_2.gif
    An alternative way of showing the differences in price and output that come from varying the objectives of the firm is by using average and marginal revenue curves together with average and marginal cost curves. These are shown in the diagram below. The profit maximising output (where MC=MR) is Q1 which can be sold at a price P1, whereas a firm seeking to maximise revenue will produce at output Q2 (where MR = zero) which requires a lower market price. You can then work with the average total cost curve to show the different levels of profit that will exist at each price and output combination.
    {http://tutor2u.net/economics/content/diagrams/objectives_3.gif} external image objectives_3.gif
    Ownership and Control
    Any corporation is an organization with various groups
    ...
    >pride in lowest price
    >market share/ sales maximisation
    Businessprofit and sales revenue maximisation using total cost and total revenue curves-Business RevenuesBusiness Revenues
    income that businesses generate from selling their output of goods and services in markets – business revenues.
    The meaning of revenue
    ...
    The total revenue for any business is maximised when marginal revenue (MR) = zero. Once MR becomes negative, total revenue falls if extra units are sold. This is shown in the next diagram.
    {http://tutor2u.net/economics/revision-notes/a2-micro-business-revenues_clip_image001.gif} Elasticity of demand and total revenue
    Elasticity of demand and total revenue
    Total revenue is shown by the area underneath the firm’s demand curve (average revenue curve).
    {http://tutor2u.net/economics/revision-notes/a2-micro-business-revenues_clip_image002.gif} Total revenue is shown by the area underneath the firm’s demand curve (average revenue curve).
    Total revenue is shown by the area underneath the firm’s demand curve (average revenue curve).
    ||
    MARGINAL REVENUE CURVE:
    ...
    Hi girls here is the answers to the revision booklet. Aim to do 1-2 questions per topic in preparation for the test this term. Aim to complete the book in time for the end of year exams (school &ncea).
    Click on the link
    {90629{http://c1.wikicdn.com/i/mime/32/application/x-zip.png} 90629 revision exercises - Answers.docx}
    Accounting
    Answers.docx
    Accounting
    and FinanceFinance[[http://tutor2u.net/sub_accounting.asp|]]
    Economics (GCSE)
    Economics (AS/A2)
    ...
    Sociology
    Strategy
    measuring profitmeasuring profit
    Profit = the difference between total revenue and total cost
    Profit per unit = AR - ATC
    ...
    It can sell output Q1 at price P. The profit per unit = P - ATC.
    Total profits are shown by the yellow shaded area. Because price exceeds average total cost (and normal profits are included in the average cost curve) we can say that the firm is earning supernormal profits in this situation
    Economics (AS/A2)
    Economics (ASA2)
    
    Econmis
    (GCSE)
    

    EBusiness / E-Commerce
    
    English
    History
    ...
    Strategy
    measuring profit
    Profit = the difference between total revenue and total cost
    Profit per unit = AR - ATC
    A firm adds to profits if marginal revenue from selling an extra unit is greater than the marginal cost of production
    Break-even output occurs when AR=ATC
    Revenue maximization is when MR = zero
    Profit maximisation occurs at the output where MR = MC
    TYPES OF PROFIT
    In economics there is no unique definition of profit!
    NORMAL PROFITS - are defined as the minimum level of profit required to keep the factors of production in their current use in the long run. Normal profits are included in the ATC curve, thus if the firm covers its ATC it is making normal profits.
    ABNORMAL PROFIT - is any profit in excess of normal profit. Also known as supernormal profit or economic profit. When firms are enjoying abnormal profits in an industry there is an incentive for other producers to enter the industry to try to acquire some of this profit for themselves.
    SUB-NORMAL PROFIT - is any profit less than normal profit. In the long run a firm will leave an industry if it continues to make only sub-normal profits. Also called an economic loss.
    ILLUSTRATING PROFIT MAXIMISATION
    The firm maximises profit when marginal cost equals marginal revenue.
    It can sell output Q1 at price P. The profit per unit = P - ATC.
    Total profits are shown by the yellow shaded area. Because price exceeds average total cost (and normal profits are included in the average cost curve) we can say that the firm is earning supernormal profits in this situation
    measuring profit
    Profit = the difference between total revenue and total cost
    Profit per unit = AR - ATC
    A firm adds to profits if marginal revenue from selling an extra unit is greater than the marginal cost of production
    Break-even output occurs when AR=ATC
    Revenue maximization is when MR = zero
    Profit maximisation occurs at the output where MR = MC
    TYPES OF PROFIT
    In economics there is no unique definition of profit!
    NORMAL PROFITS - are defined as the minimum level of profit required to keep the factors of production in their current use in the long run. Normal profits are included in the ATC curve, thus if the firm covers its ATC it is making normal profits.
    ABNORMAL PROFIT - is any profit in excess of normal profit. Also known as supernormal profit or economic profit. When firms are enjoying abnormal profits in an industry there is an incentive for other producers to enter the industry to try to acquire some of this profit for themselves.
    SUB-NORMAL PROFIT - is any profit less than normal profit. In the long run a firm will leave an industry if it continues to make only sub-normal profits. Also called an economic loss.
    ILLUSTRATING PROFIT MAXIMISATION
    The firm maximises profit when marginal cost equals marginal revenue.
    It can sell output Q1 at price P. The profit per unit = P - ATC.
    Total profits are shown by the yellow shaded area. Because price exceeds average total cost (and normal profits are included in the average cost curve) we can say that the firm is earning supernormal profits in this situation
    Profit = the difference between total revenue and total cost
    Profit per unit = AR - ATC
    A firm adds to profits if marginal revenue from selling an extra unit is greater than the marginal cost of production
    Break-even output occurs when AR=ATC
    Revenue maximization is when MR = zero
    Profit maximisation occurs at the output where MR = MC
    TYPES OF PROFIT
    In economics there is no unique definition of profit!
    NORMAL PROFITS - are defined as the minimum level of profit required to keep the factors of production in their current use in the long run. Normal profits are included in the ATC curve, thus if the firm covers its ATC it is making normal profits.
    ABNORMAL PROFIT - is any profit in excess of normal profit. Also known as supernormal profit or economic profit. When firms are enjoying abnormal profits in an industry there is an incentive for other producers to enter the industry to try to acquire some of this profit for themselves.
    SUB-NORMAL PROFIT - is any profit less than normal profit. In the long run a firm will leave an industry if it continues to make only sub-normal profits. Also called an economic loss.
    ILLUSTRATING PROFIT MAXIMISATION
    The firm maximises profit when marginal cost equals marginal revenue.
    It can sell output Q1 at price P. The profit per unit = P - ATC.
    {http://tutor2u.net/economics/content/diagrams/profitmax1.gif}
    {http://tutor2u.net/economics/content/diagrams/profitmax1.gif} external image profitmax1.gif
    Total profits are shown by the yellow shaded area. Because price exceeds average total cost (and normal profits are included in the average cost curve) we can say that the firm is earning supernormal profits in this situation
    A change in marginal costs causes a change in the profit maximising level of output. In the diagram above, lower variable costs cause MC to shift from MC1 to MC2. The profit maximising output expands from Q1 to Q2. Higher costs would cause a contraction of output because of an upward shift in the marginal cost curve.
    {http://tutor2u.net/economics/content/diagrams/profitmax2.gif} external image profitmax2.gif
    Profits rise when demand for the goods or services that the business is producing increase, or when production costs fall allowing the business to increase the profit margin on their output. When the macro-economy is doing well, we expect to see rising profit levels.
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