INTRODUCTORY MICROECONOMICS SUMMARY IN TWELVE GRAPHS

Y LAW OF DIMINISHING MARGINAL P LAW OF DEMAND: Q LAW OF EVENTUALLY P/C MC

UTILITY: the more a product is consumed higher the Price, lower the Demand DIMINISHING MARGINAL PRODUCT: Supply curve of firm
the progressively less is the marginal utility lower the Price, greater the Demand given a fixed factor, increasing the begins at shutdown
of each subsequent unit D due to Law of Diminishing Marginal variable factor leads,at some point, point (A) in short run;
to a decrease in the variable's break even (B) in ATC - AVC = AFC
U1 Utility
U = f (x, y) marginal product Q = g (K, L) long run
where: C = PkK + PlL ATC
I/Py U2 P1 - - --- -- --- - U = f (x, y)

--- - -
I = PxX + PyY & ---------> MPL = 0 B AVC
slope of PF = MPL Pb --------------- @
A: MUx/Px = MUy/Py Market Demand Curve: f, I & Py are fixed and
------- slope U1 = MUx/MUy = MRS horizontal summation of MUx/Px = MUy/Py A
Y1 PF
Income - - - - - > P2 i.e.,, Pa ----------- @ ATC, AVC & MC initially fall
slope Income Constraint --individual
-- -- --demand
-- - ----curves,
- - - -- -- -- D
Constraint at each Px how much are all slope of vector at intercepts then rise due to diminishing
= Px/Py or Price Ratio
consumers willing to demand equals APL marginal product of labour, given
I = PxX + PyY

-- -- - -- - - --
- -- - -
---------
X fixed capital
- - -- - -

Qx
----------

- - - - - - - - - - - --- - - - -
Xa I/Px Q1 Q2 IMPL DMPL NMPL Qx
Q1 Q2

-
1. Constrained Maximization 2. Demand Curve 3. Production Function 4. Average Total, Variable &
Marginal Cost
MONOPOLY
P/C LAW OF SUPPLY: P/C S P/C P/C
lower the Price, lower the Supply; Natural Scale Economies Kinked Demand
D Exclusive Input S = MCm D
higher the Price greater the Supply Firm: Curve MC1 ?
SURPLUS D IPR Firm:price maker
due to Law of Eventually S price taker MR1 ?
Diminishing Marginal Product Psur -- --- ---- -- --- -- - - -- -- --- --- -- MR Public Ownership COST Po -- -- -- -- -- --
P1 -- --- - -- -- - -- --- -- - -- - - Consumer c MC2 ?
Market Forces Pm Less Q OLIGOPOLY
Market Supply Curve: Surplus from -- - --- - -- --- --
result in stable a Higher P Few Majors
horizontal summation of Mkt Price up to D d Profit maximization
Pc = MR = MC - - - - -- -- -- ---- -- --@--- -- - -- equilibrium: if S > D Pc - -- ---- --- --- -- @-- --- Deadweight Loss Mkt Power
individual firm supply curves, i. e., firms reduce price; Appropriation of CS depends on reaction
Producer Surplus Imperfect Knowledge
at each Px how much are all firms if D> S then MC = MR MONOPOLISTIC of a few major
from Mkt Price - -- --- -- -- --- -- b Barriers to entry
P2 willing
- - - -to- supply P.C. consumers bid COMPETITION competitors resulting in
down to S MONOPOLY
where: Anonymous up price Many producers 'sticky' price &
No One Producer
Q = g (K, L) - - -Mkt
- - -Power
- -- -- --- Mkt power non-price competition:
S Psho --- - -- -- -- --Perfect Knowledge Mkt Power (product differentiation) MR2 ? product/process innovation
C = PkK + PlL with D
fixed Pk, Pl, Pn, g & K (short run) Free Entry/Exit Perfect Knowledge Perfect Knowledge & product differentiation
Supply Curve is MC at and above shutdown SHORTAGE Barriers to Entry Free Entry/Exit

-- --- -- --- -
- -- - -- - - -- -- ---- -- -- -
D
---- --------------
--------------

Qx Qx Qx
-------------- --

Qx
Q2 Q1 Qc Qm Qc Qo
5. Supply Curve 6. Perfect Competition 7. Monopoly & Monopolistic 8. Oligopoly
Competition (sr) MSC
MSC (-)
P/C P/C S = MPC P/C Social P/C New Knowledge
Optimum protected by:
optimal rate of
MPC Social Firms cannot A
Social sustainability/ P/C 1 -- -- STATUTORY LAW As a public good,
Optimum Optimum earn a profit
Pa -- - -- - -- <--------conservation
Social (unit 1) Copyright
(+) A knowledge is
Optimum given willingness Patent
Pa - -- --- -- - -- -- (-) - -- -- -- - A
Pa -- -- -- --- --- -- --- S = MPC non-excludable
to pay (D = MPB) Registered Industrial
Pb ---------- B but MSB so great Pb -- -- - --- --- - - - & non-rivalrous
B Mkt Design
C Mkt Gov't provision Equilibrium in consumption,
TOOLS Trademark
Pc - -- - --- -- --- -- - - -- Equilibrium
MSB (+) Lowest cost required i.e., easily copied
(+) Subsidies to Market Quotas
Consumers &/or firm Prohibition CONTRACT LAW
P2 - - - - - - - no Mkt
Producers MSB Property Rights Know How
equilibrium TYPES

/
(-) Mkt Quotas, Prosecution D = MPB Non-Disclosure & Non-Compete
MPB Non-excludable Renewable
Property Rights Regulation Trade Secrets

--------- ---
Non-rivalrous (sustainability) P/C 2 - - -
Regulation, Costs/Benefits Tax/Fine
Tax/Fine not reflected in Non-Renewable all subsequent units ATC
Producers mkt price
D = MPB (conservation)

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- - - - -- - - -- - - -- -- -- -- -

Qx Qx Qx Qx
Qb Qc Qa Q1 Qa Qb Q1
9. (+) & (-) Externalities 10. Public Good 11. Common Natural Resource 12. Knowledge-Based Good
9. Drafting Error:
Ignore equilibrium and vertical
from intercept MSC (-) & MSB (+) Non-Graphic Content
Concepts
Economics of Democracy/Rational Choice Theory Compiler Press (c) 2019