Income Distribution and Labor Markets:

• What is income?
• What does your income depend on?
• What is financial capital?
• What is a capitalist?
• How does an active owner differ from a passive owner?
• First Rule of Labor Markets
• Firms demand labor because of the revenues that the firm can obtain by selling labor’s output (i.e. the marginal revenue product)
• Firms hire labor as long as MRP > w (in a competitive labor market)
• What is a perfectly competitive labor market? How does one work? [ Show and be able to use the model ]
• What is monopsony? How does one work? [ Show and be able to use the model ]
• What is a union
• What is a bilateral monopoly?
• What causes poverty?

Environmental Economics:

• What is an externality? What’s a positive/negative externality?
• Why does pollution represent a market failure? [ Show and be able to use the model ]
• What is the socially optimal level of pollution?
• Why do we have externalities?
• What is the difference between restricted and unrestricted, common and private property?
• Explain how regulation (quantity restrictions) and economic incentives (effluent charges or taxes) can reduce the amount of pollution.

Production and Costs

• Output is produced by combining inputs: Q = f[ L, K, Entrepreneurship, etc..]
• Fixed versus Variable Inputs
• Every factor of production (i.e. input) has an associated factor price.
• Explicit versus Implicit Costs
• Accounting versus Economic Profits
• Short Run Production…. Diminishing Marginal Productivity
• Long Run Production
• Marginal Average Rule
• Total, Average and Marginal Product
• Short Run Costs versus Long Run Costs
• Total, Average and Marginal Costs, Fixed versus variable costs

Mechanics of Producer Equilibrium

• Market Demand versus the Firm’s Demand
• Profit Maximization using the Total Approach
• Profit Maximization using the Marginal Approach
• MR = MC !
• Average Revenue (P) versus Average Cost
• Breakeven Point versus Shutdown Point

Firms’ Behavior in the Real World

• Value Creation vs. Exploiting Market Power
• Net Value Creation = Consumer Surplus + Producer Surplus
• Sources of Market/Monopoly Power
• Zero Economic Profits means firms are earning a “normal” accounting profit.
• Monopoly Profits = Positive Economic Profits
• Economic Rent
• Product Innovation
• Price Discrimination
• Product Differentiation and Advertising

The chapter provides an overview of the issues we will be discussing in the next topic: The theory of the firm. Once you’ve read it, please email me the answers to the following questions by Tuesday night.

Study Questions for Harford:

1. Who makes the most profit on coffee shops around the London subway? Please explain why that is the case

2. What two factors make coffee shops profitable?

3. How much profit does “the marginal firm” earn? Why? Your answer should explain clearly what a marginal firm is.

4. Why are British teachers paid so little?

5. Why are British nurses paid so little?

Set up your own account on twitter, and then search for ‘econ202′ to add as a friend.

Once I confirm you, any message you type on twitter will go to the class twitter account.