Micro 12

2. Microeconomics

3. Opening
Prayer

4. Chapter 10
Externalities

5. Common Property
If everyone owns it, nobody
owns it.

6. Tragedy of the Commons
Resource gets wasted

7. Privatize the Commons
Resource gets valued

8. Externalities
External costs or external
bene
fi
ts, that is, costs
or bene
fi
ts, respectively,
that fall on bystanders

9. Private Cost
A cost paid by the
consumer or producer

10. External Cost
A cost paid by people other
than the consumer or the
producer trading in the
market

11. Social Cost
The cost to everyone: the
private cost plus the
external cost.

12. Social Surplus
Consumer surplus plus
producer surplus plus
everyone else’s surplus

13. Ef
fi
cient Equilibrium
The price and quantity that
maximizes social surplus

14. Ef
fi
cient Quantity
The quantity that
maximizes social surplus

15. Pigouvian Tax
A tax on a good with
external costs

16. External Bene
fi
t
A bene
fi
t received by people
other than the consumers or
producers trading in the
market

17. Pigouvian Subsidy
A subsidy on a good with
external bene
fi
ts

18. Internalizing an Externality
Adjusting incentives so that
decision makers take into account
all the bene
fi
ts and costs of their
actions, private and social

19. Transaction Costs
All the costs necessary to reach
an agreement

20. Coase Theorem
If transaction costs are low and property
rights are clearly de
fi
ned, private
bargains will ensure that the market
equilibrium is ef
fi
cient even when there
are externalities

21. Chapter 11
Costs and Pro
fi
ts Under
Competition

23. Total Revenue = Price x Quantity
TR=PQ
Total Costs = Fixed Costs + Variable Costs
TC = FC + VC
Pro
fi
t = Total Revenue - Total Costs
π = TR - TC

24. Marginal
The next unit

25. Marginal Revenue =
Change in TR ÷ Change in Q
MR
Marginal Cost =
Change in Total Cost for the next unit
MC

26. Price
Marginal Cost
Marginal Revenue
Market Price
Quantity
Qm

27. Price
Marginal Cost
Quantity
Q1
Marginal Revenue
Market Price
Q2