WarlockAlan

Summary

Chapter 17 is Oligopoly. This chapter introduces oligopoly, a kind of market structure.

• Oligopoly is a market structure in which only a few sellers offer similar or identical products

Prisoner Dilemma

Prisoners’ dilemma is a particular “game” between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial.

• Each player will choose the best strategy for them regardless of the strategies chosen by others.

• In this picture, each player will choose to defect although cooperation is mutually beneficial.

Nash equilibrium

• Each company will choose to produce more goods in order to get more market shares rather than producing fewer to keep the market price high.

• As the supply increases, the market price decreases.

• Each company stops producing more goods as their total revenue decreases, the quantity they produce is called Nash equilibrium.

• The quantity supplied in oligopoly is greater than that in monopoly, but smaller than that in the competitive market.

Definitions

1.Oligopoly– a market structure in which only a few sellers offer similar or identical products

2.Cartel– a group of firms acting in unison

3.Prisoners’ dilemma– a particular “game” between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial

4.Game theory– the study of how people behave in strategic situations

5.Nash equilibrium– a situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other factors have chosen

6.Dominant strategy– a strategy that is best for a player in a game regardless of the strategies chosen by the other players

7.Collusion– an agreement among firms in a market about quantities to produce or prices to charge

Review

I did all questions correctly! Excellent!

The place where I learnt something very important to my personal growth was at the A level centre where I studied my IGCSE examinations. This short essay will focus on my experience with Mathematics when I was in Grade 10.

My experience of a mock exam

According to the Cambridge Assessment International Education, Asians perform well in IGCSE Mathematic examinations. The majority of students in my class, including me, always advocate that IGCSE Mathematic examination is easier compared with the Chinese alternative because students need to in Chinese alternative. During the lesson, I used to feel extremely bored and spend the whole course session daydreaming, which caused me to omit some important formulae. After nearly one-month, we were given a mock examination. My exam result was average rather than excellent which was disappointing. Thus, I liaised with the high achieving students and found that they paid full attention to listening to the teacher during class.

From then on, I had previewed and reviewed each mathematic chapter gradually to make sure I could master mathematic formulae clearly. But I still had a problem which was I was too careless. Here is one of my stories.

My experience of Euclid Contest

Three months after the mock examination, I took part in a mathematic contest called Euclid at school which was a little bit difficult because no multiple choices in it. Due to my inattention, I even forgot that our teacher had said there were no multiple choices. In addition, I did not read the question correctly because I read so fast which meant I misunderstood some questions and answered them incorrectly. The results showed that I got 68 out of 100 and the international top 25% required 69 marks.

Summary

This contest experience taught me a number of lessons. First, it encouraged me to study harder in the mathematics field as questions in the contest were difficult. Second, I have developed a good learning habit which is reviewing and previewing. Finally, this experience made me try the best and I realized I should be more attentive and improve my concentration and motivation if I want to fulfil my potential.

Review

Chapter 16 is Monopolistic Competition. This chapter introduces monopolistic competition, a kind of market structure.

• Monopolistic competition is a market structure in which many firms sell products that are similar but not identical.

Characteristics

• Many sellers: There are many firms competing for the same group of customers.
• Product differentiation: Each firm produces a product that is at least slightly different from those of other firms. Thus, rather being a price taker, each firm faces a downward- sloping demand curve.
• Free entry and exit: Firms can enter or exit the market without restriction. Thus, the number of firms in the market adjusts until economic profits are driven to zero.

• Firms cannot earn economic profits in the long run.
• P > MC
• Profit maximization: sell goods at the quantity where MR = MC

• Efficient scale is the quantity where MC = ATC.
• Excess capacity is the difference between efficient scale and quantity produced.
• Markup is the difference between price and marginal cost.

Definitions

1.Oligopoly– a market structure in which only a few sellers offer similar or identical products

2.Monopolistic competition– a market structure in which many firms sell products that are similar but not identical

Review

There are some exercises in this book. I recorded questions I didn’t answer correctly here.

1. New firms will enter a monopolistically competitive market of_____（Correct answer: D）

a. marginal revenue is greater than marginal cost

b. marginal revenue is greater than average total cost

c. price is greater than marginal cost

d. price is greater than average total cost

My wrong answer: C

2. What is true of a monopolistically competitive market in long-run equilibrium
   (Correct answer: A)

a. Price is greater than marginal cost

b. Price is equal to marginal revenue

c. Firms make positive economic profits

d. Firms produce at the minimum of average total cost

My wrong answer: D

3. Advertising can be a signal of quality_____ (Correct answer: B)

a. if advertising is freely available to all firms

b. if the benefit of attracting customers is greater for firms

c. only if consumers are irrationally attracted to products they see advertised

d. only if the content of the ads contains credible information about the products

My wrong answer: D

Review

The chapter 15 is Monopoly. This chapter introduces the situation of monopoly.

• Monopoly is the situation when a firm that is the sole seller of a product without any close substitutes.

• Natural monopoly is a type of monopoly that arises because a single firm can supply a good or service to an entire market at a lower cost than could two or more firms

• A monopolist’s marginal revenue is less than the price of its good because of the downward-sloping demand curve.

Profit maximization

• Find the Q at which MR = MC.
• On the demand curve, find P at which consumers will buy Q.
• If P > ATC, the monopoly earns a profit.

For a competitive firm: P=MR=MC

For a monopoly firm: P>MR=MC

The deadweight loss

• A benevolent social planner maximizes total surplus in the market by choosing the level of output where the marginal cost curve and demand curve intersect.

• Because a monopoly charges a price above the marginal cost, not all consumers who value the good at more than its cost buy it. It causes the deadweight loss.

Price discrimination

• Price discrimination is the business practice of selling the same good at different prices to different customers.

• Because different consumers have different willingnesses to buy the same good, the price discrimination increases the total surplus.

Differences between Competition and Monopoly

Definitions

1.Monopoly– a firm that is the sole seller of a product without any close substitutes

2.Natural monopoly– a type of monopoly that arises because a single firm can supply a good or service to an entire market at a lower cost than could two or more firms

3.Price discrimination– the business practice of selling the same good at different prices to different customers

Review

There are some exercises in this book. I recorded questions I didn’t answer correctly here.

1. If a monopoly’s fixed costs increase, its price will_____ and its profit will_____. (Correct answer: D）

a. increase; decrease

b. decrease; increase

c. increase; stay the same

d. stay the same; decrease

My wrong answer: A

2. The deadweight loss from monopoly arises because_____. (Correct answer: B)

a. the monopoly firm makes higher profits than a competitive firm would

b. some potential consumers who forgo buying the good value it more than its marginal cost

c. consumers who buy the good have to pay more than marginal cost, reducing their consumer surplus

d. the monopoly firm chooses a quantity that fails to equate price and average revenue

My wrong answer: D

3. Antitrust regulators are likely to prohibit two firms from merging if_____. (Correct answer: C)

a. there are many other firms in the industry

b. there are sizable synergies to the combination

c. the combined firm will have a large share of the market

d. the combined firm will undercut competitors with lower prices

My wrong answer: A

Summary

This chapter 14 is the Firms in Competitive markets. This chapter introduces the nature and characteristics of competitive markets.

What it is

• Competitive market is a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker.

Characteristics

• average revenue = price
• marginal revenue = price

Profit

• Profit = TR - TC
• Profit = (TR/Q - TC/Q）* Q
• Profit = (P - ATC) * Q

Profit maximization

• marginal cost = marginal revenue
• price = marginal revenue
• produce the quantity when P = MC

Exit

• Exit means firms do not produce goods any more in the long run.
• Firms loss its revenue but do not burden the total cost of production.
• Firms exit if the total revenue is smaller than the total cost.

Shut down

• Shut down means firms do not produce goods any more in the short run.
• Firms loss its revenue but do not burden the variable cost of production.
• Firms shut down if the total revenue is smaller than the variable cost.

Supply curve in a competitive market

• In the short run

• In the long run

Price = minimum ATC in the long run

Definitions

1. Competitive market– a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker

2. Marginal revenue– the change in total revenue from an additional unit sold

3. Average revenue– total revenue divided by the quantity sold

4. Sunk cost– a cost that has already been committed and cannot be recovered

Review

There are some exercises in this book. I recorded questions I didn’t answer correctly here.

1. A competitive firm maximizes profit by choosing the quantity at which_____(Correct answer: B)

a. average total cost is at its minimum

b. marginal cost equals the price

c. average total cost equals the price

d. marginal cost equals average total cost

My wrong answer: D

Summary

Chapter 13 is the Cost of Production. This chapter introduces revenue, cost and profit.

Revenue

• Total revenue is the amount a firm receives for the sale of its output.
• Revenue = quantity * price

Cost

• Explicit cost is input cost that requires an outlay of money by the firm.
• Implicit cost is input cost that does not require an outlay of money by the firm.
• Fixed cost is cost that does not vary with the quantity of output produced.
• Variable costs is cost that varies with the quantity of output produced.

Profit

• Profit = Total revenue - Total cost
• Economic profit is total revenue minus total cost, including both explicit and implicit costs.
• Accounting profit is total revenue minus total explicit cost.
• Total opportunity cost is implicit cost pluses explicit cost.

Production function

• The relationship between the quantity of inputs used to make a good and the quantity of output of that good.

Diminishing marginal product

• The property whereby the marginal product of an input declines as the quantity of the input increases.

• Due to it, the production function gets flatter as the number of input increases.

• Due to it, the total-cost curve gets steeper as the quantity of output increases.

• Profit maximization

• Average total cost = marginal cost

Definitions

1. Total revenue– the amount a firm receives for the sale of its output

2. Total cost– the market value of the inputs a firm uses in production

TC = FC + VC

3. Profit– total revenue minus total cost

4. Explicit costs– input costs that require an outlay of money by the firm

5. Implicit costs– input costs that do not require an outlay of money by the firm

6. Economic profit– total revenue minus total cost, including both explicit and implicit costs

7. Accounting profit– total revenue minus total explicit cost

8. Production function– the relationship between the quantity of inputs used to make a good and the quantity of output of that good

9. Marginal product– the increase in output that arises from an additional unit of input

10. Diminishing marginal product– the property whereby the marginal product of an input declines as the quantity of the input increases

11. Fixed cost– costs that do not vary with the quantity of output produced

FC

12. Variable costs– costs that vary with the quantity of output produced

VC

13. Average total cost– total cost divided by the quantity of output

ATC = TC / Q

14. Average fixed cost– fixed cost divided by the quantity of output

AFC = FC / Q

15. Average variable cost– variable cost divided by the quantity of output

AVC = VC / Q

16. Marginal cost– the increase in total cost that arises from an extra unit of production

MC =

17. Efficient scale– the quantity of output that minimizes average total cost

18. Economies of scale– the property whereby long-run average total costs falls as the quantity of output increases

19. Diseconomies of scale– the property whereby long-run average total cost rises as the quantity of output increases

20. Constant returns to scale– the property whereby long-run average total cost stays the same as the quantity of output changes

Review

I did all questions correctly! Excellent!

Summary

Chapter 12 is the Design of the Tax System. This chapter introduces different tax systems and the tax system in the US.

US tax system

• The most important taxes for the federal government are personal income taxes and payroll taxes for social insurance.

• The most important taxes for state and local governments are sales taxes and property taxes.

Different tax systems

• Proportional tax is a tax for which high-income and low-income taxpayers pay the same fraction of income.

• Regressive tax is a tax for which high-income taxpayers pay a smaller fraction of their income than do low-income taxpayers.

• Progressive tax is a tax for which high-income taxpayers pay a larger fraction of their income than do low-income taxpayers.

Principles of tax

• Equity

1.It should obey the benefits principle (the idea that people should pay taxes based on the benefits they receive from government services).

2.It should obey the ability-to-pay principle (the idea that taxes should be levied on a person according to how well that person can shoulder the burden).

• Efficiency

Definitions

1. Average tax rate– total taxes paid divided by total income

2. Marginal tax rate– the amount by which taxes increase from an additional dollar of income

3. Lump-sum tax rate– a tax that is the same amount for every person

4. Benefits principle– the idea that people should pay taxes based on the benefits they receive from government services

5. Ability-to-pay principle– the idea that taxes should be levied on a person according to how well that person can shoulder the burden

6. Vertical equity– the idea that taxpayers with a greater ability to pay taxes should pay larger amounts

7. Horizontal equity– the idea that taxpayers with similar abilities to pay taxes should pay the same amount

8. Proportional tax– a tax for which high-income and low-income taxpayers pay the same fraction of income

9. Regressive tax– a tax for which high-income taxpayers pay a smaller fraction of their income than do low-income taxpayers

10. Progressive tax– a tax for which high-income taxpayers pay a larger fraction of their income than do low-income taxpayers

Review

There are some exercises in this book. I recorded questions I didn’t answer correctly here.

1. Betty gives piano lessons. She has an opportunity cost of 50 dollars per lesson and charges 60 dollars. She has two students: Archie, who has a willingness to pay of 70 dollars, and Veronica, who has a willingness to pay of 90 dollars. When the government puts a 20 dollars tax on piano lessons and Betty raises her price to 80 dollars, the deadweight loss is_____ and the tax revenue is_____. (Correct answer: C)

a. 10,20

b. 10,40

c. 20.20

d. 20,40

My wrong answer: A

Summary

Chapter 11 is Public Goods and Common Resources. This chapter divides the goods into four categories by using the definition of excludability (he property of a good whereby a person can be prevented from using it) and rivalry in consumption(the property of a good whereby one person’s use diminishes other people’s use).

Private goods

• Rival in consumption
• Excludable
• e.g ice-cream cones, clothing, congested toll roads

Club goods

• Not rival in consumption
• Excludable
• e.g satellite TV, fire protection, uncongested toll roads

Common resources

• Non-excludable
• Rival in consumption
• e.g fish in the ocean, the environment, congested non-toll roads
• The common resources tend to be used excessively.

Public goods

• Non-excludable
• Not rival in consumption
• e.g tornado siren, national defense, uncongested non-toll roads
• People who receive the benefit of a good but avoid paying for it is called free riders.

Definitions

1. Excludability– the property of a good whereby a person can be prevented from using it

2. Public goods– good that are neither excludable nor rival in consumption

3. Free rider– a person who receives the benefit of a good but avoids paying for it

4. Rivalry in consumption– the property of a good whereby one person’s use diminishes other people’s use

5. Common resources– goods that are excludable but not rival in consumption

6. Cost-benefit analysis– a study that compares the costs and benefits to society of providing a public good

7. Private goods– goods that are both excludable and rival in consumption

8. Club goods– goods that are excludable but not rival in consumption

9. Tragedy of the Commons– a parable that illustrates why common resources are used more than is desirable from the standpoint of society as a whole

Review

There are some exercises in this book. I recorded questions I didn’t answer correctly here.

1.Common resources are_____(Correct answer: C)

a. efficiently provided by the market forces

b. underprovided in the absence of government

c. overused in the absence of government

d. a type of natural monopoly

My wrong answer: B

Summary

Chapter 10 is Externalities. This chapter introduces the situation when the producers and consumers are not the only interested parties.

• Externalities include external cost and external benefit.
• Externalities make the equilibrium not the optimum.
• The use of tax or subsidy can make the equilibrium equal to the optimum if the new supply curve(private cost) coincides with the social-cost curve.

• Corrective tax and pollution permits are used for decreasing negative externality.
• Pollution permits mean the firms can buy the rights to pollute more from other firms.
• Pollution permits could be better because different kinds of firms have the different cost to avoid polluting.
• Regulation can be another way to limit the negative externality. If the negative externality is much greater than the private benefits, the regulation would be better.

Coase theorem is the proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own.

• Private parties may not solve the problem of negative externality if the process of bargain has the cost.

Definitions

1. Externality– the uncompensated impact of one person’s actions on the well-being of a bystander

2. Internalizing the externality– altering incentives so that people take into account the external effects of their actions

3. Corrective taxes– a tax designed to induce private decision makers to take into account the social costs that arise from a negative externality

4. Coase theorem– the proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own

5. Transaction costs– the costs that parties incur during the process of agreeing to and following through on a bargain

Review

I did all questions correctly! Excellent!

Backgrounds

We had three case studies on July 21st. In each 30-minute case study session, group members needed to read the whole case and chose three representatives who answer three questions respectively. The cases were in English and representatives were allowed to answer the question in Chinese.

What I did

I was a representative to answer the second question during one case study. That case introduced how Starbuck be famous all around the world. The question I needed to answer is to explain how you could see Kevin (the Starbuck CEO) is brave enough to burden the risk and how he realized Starbuck would be in trouble in 2007.

Although representatives could also speak Chinese to answer questions, I still answered the questions in English in order to strengthen my poor English-speaking skill. Except using information about introducing the situation of Starbuck from the main body, I also noticed the information (a diagram) in appendix. The diagram showed that the revenue of Starbuck increased while its net profit decreased from 2006 to 2007, which helped me to explain how the Starbuck could be in trouble.

My feelings

Thanks to my previous experience of giving a presentation, I was not so frightened of it. However, I was poor in speaking English so I thought I didn’t perform well at that time. Anyway, my friends were so kind that they encouraged me and said I was good enough. I felt lucky and impressed to meet these friends.

The ending

We finally finished the Emerging Leader Summit. Here is a photo to record this journey.

Some great contributors who were approved by the FBLA China got the certificate. I was one part of them.