Unit 2

• Market power


  The ability to manipulate quantity supplied
• Price taker


  Someone without market power who simply has to accept the given price
• Monopoly


  Exercising market power to maximize profit
• Marginal revenue


  Marginal benefit in terms of cash
• Low price


  High quantity
• Low quantity


  High price
• Those with monopolies can produce the quantity where marginal revenue equals marginal cost
• As you gain market power, marginal revenue becomes its own curve at half the quantity at any given price
• The more limited an item is, the easier it is to find people willing to pay a high price for it
• Marginal revenue


  The change in overall revenue because of the sale of an additional quantity
• The ideal selling point is when marginal revenue equals marginal cost (regardless of your market power)
• Market monopolies do not decrease the amount of activity, they increase it
• All monopolies have deadweight loss
• Deadweight loss


  A reduction in wealth that could have been created by transactions that simply did not occur
• The government needs to be the social expression of private rights – anything beyond that undermines its purpose
• Government is the mutual expression of private rights (namely, the right to use force to protect yourself and your property)
• Once the government engages in legalized plunder, there is no justifiable reason to stop
• Taxation


  Legalized plunder according to Bastiat because it takes something from someone and gives it to someone else – it is both involuntary and coercive
• Taxation coarsens the relationships between who the wealth is being taken from and who it is being given to – it breeds resentment and apathy
• Property rights are an important piece of every sound structure of government
• when a government goes into debt, they have to pay a service on the debt - the greater the debt, the greater the service payment
• interest rates continue to grow as the (government) debt stays the same
• the government uses collected taxes to pay services on debts
• legal incidence

  who carries the legal burden for paying a particular tax (income tax, sales tax, property tax, for example)
• Economic incidence is the person burdened by the tax (ex: social security)
• Economic incidence is felt by both sides of an exchange
• economic incidence is often borne by one person/party
• tax creates a wedge between the amount the seller recieves and the amount that the consumer pays for something (sticker price + tax -> sale price)
• Price paid goes to the government and price recieved goes to the seller
• tax necessarily lowers quantity supplied in that field
• tax always reduces whatever is being taxed (the tricky part is accurately predicting how great that reduction in behavior will be)
• As sticker price rises, quantity demanded decreases
• the price tag will always favor the side the law chooses to burden with the tax (compensating for the extra expense incurred by the law)
• taxes are input costs that necessarily affect the supply curve
• when the supplier carries more legal incidence for a tax, supply decreases
• the person engaging in the behavior is hurt by the taxt (on both sides of the transaction), so you're always going to end up with less of that behavior aftre you start taxing it
• sin taxes are taxes designed to reduce bad behavior (ex: alcohol tax)
• tax has deadweight loss because society loses out on the transactions that would have been created if the tax had not been imposed
• elasticity is the shape of the supply of the demand curve - the steeper the curve, the more inelastic it is
• elasticity is the absolute value of the percent change in quantity over the absolute percent change in price