Tutorial SecA

• Monopoly


  Firm that sets the price (price maker)
• Monopoly


  • They will prevent other firms from entering the market
• Monopoly


  • Firm where: ATC = $10, P = $11, MC = $8, MR = $7
• Disposable income


  Income after taxes have been paid and transfers received
• The allocative inefficiency of nondiscriminating monopoly arises from the fact that price exceeds marginal cost
• Aggregate expenditure


  Spending by households, government, firms, and foreigners on final goods and services
• Pure monopoly


  The monopolist produces a product with no close substitutes
• Marginal propensity to consume


  The change in consumption divided by the change in income
• Barrier to entry under pure monopoly


  • Ownership of essential resources
• Marginal propensity to save

  1 minus the marginal propensity to consume
• Simultaneous consumption


  Marginal costs may fall lower due to a product's ability to satisfy a large number of

  consumers at the same time
• Long-run aggregate-supply (LRAS) curve


  • Inconsistent with the concept of monetary neutrality
  • Consistent with the idea that point A represents a long-run equilibrium but not a short-run equilibrium when the relevant short-run aggregate-supply curve is AS1
  • Indicates that Y1 is the natural rate of output
• Consumption function


  C = C0 + MPC(Yd)
• Shift of the short-run aggregate-supply curve from AS1 to AS2

  • Could be caused by an outbreak of war in the Middle East
  • Could be caused by a decrease in the expected price level
  • Causes the economy to experience an increase in the unemployment rate
  • Causes the economy to experience stagflation
• Natural monopoly


  An industry in which one firm can supply the entire market at a lower price than can two

  or more firms
• Things that would shift the long-run aggregate supply curve to the right

  • Increased immigration
  • Decrease in the minimum wage
  • Less generous unemployment insurance
  • Increase in the capital stock
  • Increase in the average level of education
  • Discovery of new mineral deposits
  • Advances in technology
  • Removal of barriers to international trade
• Actual investment


  Includes unplanned inventory changes
• Legal monopoly


  A monopoly that is protected by law from

  competition. A statutory monopoly may take the form of a government monopoly where the state

  owns the particular means of production or government-granted monopoly where a private

  interest is protected from competition such as being granted exclusive rights to offer a particular

  service in a specific region (eg: patented inventions) while agreeing to have their policies and

  prices regulated
• Aggregate demand and supply schedules

  Purpleland's potential GDP is $675 billion
• Planned investment


  Does not include unplanned inventory changes
• Types of monopoly


  • Legal monopoly
  • Natural monopoly
  • Single-price monopoly
  • Price-discriminating monopoly
• Plotting the aggregate demand curve, the short-run aggregate supply curve, and the long-run aggregate supply curve

  AD curve is AD0
• Consumption spending (C) is spending by households on final goods and services.
• Legal monopoly


  A monopoly that is protected by law from competition. Can take the form of a government monopoly or a government-granted monopoly where a private interest is protected from competition
• Investment spending (I) is planned spending by businesses on plant and equipment, as well as new home construction.
• Short-run equilibrium real GDP and price level in Purpleland


  SR equilibrium real GDP is $600 billion, and the price level is 100