A market enables buyers and sellers to interact and determine prices for goods and services. This interaction allocates resources based on supply and demand. A firm aims to maximize profit by producing at the output level where marginal revenue equals marginal cost. The profit-maximizing level of output depends on the firm's cost structures and the demand for its products. Non-profit maximization goals include revenue or sales maximization, breaking even, or shutting down operations if prices fall below costs.

1. Diagrams and Definitions Section 2

4. Change in Quantity Demanded

5. Law of Demand

6. Determinants of Demand: Price

7. Determinants of Demand: Non-price

8. Determinants of Demand

9. Change in Demand

10. Movements versus Shifts Change in Quantity Demanded Change in Demand

11. Veblen Goods

12. GiffenGoods

13. Expectations

14. Supply A schedule (curve) showing how much of a product producers will supply at each of a series of prices over a specific period of time.

15. Law of Supply

16. Why Does Supply Rise when Price Rises? I can make more profit!

17. Determinants of Supply: Price

18. Change in Quantity Supplied

19. Determinants of Supply: Non-price

20. Determinants of Supply

21. Change in Supply

22. Movements Versus Shift Change in Quantity Supplied Change in Supply

23. Equilibrium

24. Consumer and Producer Surplus

25. Price Consumer Surplus A + B = Maximum Willingness to Pay for Qo What is paid D Quantity Consumer Surplus B Po A Qo

26. Price Producer Surplus What is paid Minimum Amount Needed to Supply Qo Quantity Producer Surplus S Po Qo

27. Price Quantity Consumer and Producer Surplus S Consumer Surplus Po Producer Surplus D Qo

28. Price New Consumer Surplus Original Consumer Surplus Loss in Surplus: Consumers paying more P1 Loss in Surplus: Consumers buying less Po D Qo Q1 Change in Consumer Surplus: Price Increase Quantity

29. Price Ceilings

30. Price Floor

31. Price Ceiling & Price Floor

32. Price Support/Buffer Stock Schemes Governments intervene when there are extreme price fluctuations brought about by seasons factors (agricultural products) and/or economic factors (commodities).

33. Price Lost Consumer Surplus New Consumer Surplus Lost Producer Surplus New Producer Surplus Quantity Loss in Efficiency Too High a Price (Price Floor) S PH Price Floor Po D Qo QL

34. Price Lost Consumer Surplus New Consumer Surplus Lost Producer Surplus New Producer Surplus Quantity Loss in Efficiency Too Low a Price (Price Ceiling) S Po PL Price Ceiling D Qo QL

35. Elasticities Price elasticity of demand PED Cross elasticity of demand XED Income elasticity of demand YED Price elasticity of supply PES

36. Price Elasticity of Demand (PED)

37. Range of PED values

38. Price Inelastic Demand

39. Price Elastic Demand

40. Range of PED

41. Extreme Cases

42. Perfectly Elastic Demand

43. Perfectly Inelastic Demand

44. Unit Elastic Demand

45. Determinants of PED

46. Determinants of PEDIncome

47. Determinants of PESTime

48. Determinants of PESSpare Capacity

49. Impact on Total Revenue of Firms Total revenue is the amount paid by buyers and received by sellers of a good. TR = P x Q With an inelastic demand curve, an increase in price leads to a decrease in quantity that is proportionately smaller. Thus, total revenue increases. With an elastic demand curve, an increase in price leads to a increase in quantity that is proportionately smaller. Thus, total revenue decreases.

50. Taxation Governments levy taxes to raise revenue for public projects Critics of taxation argue that: Taxes discourage market activity. When a good or service is taxed, the quantity sold is smaller.

51. Indirect Tax Specific Tax

52. Indirect Tax Ad Valorem Tax

53. Tax Incidence Tax incidence is the manner in which the burden of a tax is shared among participants in a market. How this burden is shared depends on elasticity.

54. Tax and Relatively Inelastic Demand

55. Tax and Relatively Inelastic Demand Price for Buyers = .35 Price for Sellers = .2 (150m X .35) (150m X .2) (150m X .15)

56. Tax and Relatively Inelastic Demand Before Tax Buyers paid .25 After Tax Buyers pay .35 Buyers contribute 15 m to Revenue (150 X .1) Price for Buyers = .35 Price for Sellers = .25

57. Tax and Relatively Elastic Demand

58. Summary The incidence of a tax refers to who bears the burden of a tax. The incidence of a tax does not depend on whether the tax is levied on buyers or sellers. The incidence of the tax depends on the price elasticities of supply and demand. The burden tends to fall on the side of the market that is less elastic.

59. Total Revenue and Price Elastic Demand

60. Total Revenue and Price Inelastic Demand

61. Some Practical Applications of PED With an elastic demand curve, an increase in the price leads to a decrease in quantity demanded that is proportionately larger. Thus, total revenue decreases.

63. Theory of the Firm The Goal Provide advice about the following: The best price The best output The most profit To breakeven price The shutdown price

64. Variable Costs (VC)are the focus as Fixed Costs (FC)cannot change in the short term.

65. Ways to Measure Output

66. The Total Product Curve

67. Average and Marginal Product Curves

68. Diminishing Average Returns

69. Diminishing Marginal Returns

70. Total Costs (TC) = total cost to produce a certain output. TC = TFC + TVC Total Fixed Costs (TFC) = total cost of fixed assets used in a given time period. Total Variable Costs (TVC) = total cost of the variable assets that a firm uses in a given period of time.

71. Average Fixed Costs (AFC) Average Variable Costs (AVC) Total Fixed Costs (TFC) Marginal Cost (MC) = increase in TC of producing an extra unit of output Total Costs TC Average Total Costs (ATC) Total Variable Costs (TVC)

72. TFC, TVC and TC

73. Cost Curves

74. LRAC A firm altering all its factors to meet increasing demand

75. Economies and Diseconomies of Scale

76. Economies and Diseconomies of Scale

77. Financial Savings Transport Savings Bulk Buying of Inputs Technology Economies of Scale Specialization Advertising and promotion

78. Control and Communication Alienation/work satisfaction Diseconomies of Scale

79. Total Revenue

80. Marginal Revenue

81. Revenue Curves: Perfectly Elastic Demand Price D=AR=MR 5 Output

83. Accounting Profit

84. Economic Profit

85. Determining the Shut Down Price and the Break Even Price

86. Shut Down Price

87. Profit Maximizing Level of Output

88. Profit Maximizing Level of Output with Perfectly Elastic Demand

89. Profit Maximizing Level of Output with Normal Demand

90. Profit Maximizing Level of Output with Normal Demand

91. Normal Profit Normal Demand

92. Abnormal Profit Normal Demand

93. Loss Normal Demand

94. Is it always about profit?

95. Profit, Sales and Revenue Maximization?