Summary Notes Economics 230 Part II

Overview This section presents a picture of the perfectly competitive market economy In doing so, it examines the behavior behind demand and supply It shows how the market system coordinates the plans of consumers and firms It discusses the conditions under which the equilibrium of a market economy is socially efficient

Chapter 5 Wants, satisfaction; utility maximization The rational spending rule and the law of demand Effect of income and prices of other goods on demand Individual demands and market demand Measuring responsiveness: rate of change and elasticity Expenditure and price elasticity of demand

Chapter 6 The production decision in the short run Diminishing returns Profit maximization rule : P=MC Increasing opportunity cost and the slope of the supply curve Price elasticity of supply Determinants of supply

Chapter 7 The efficiency of a perfectly competitive market system Maximizing the economic surplus Cost of price ceilings and price floors The effect of taxes on a competitive economy

Chapter 8 Adjustment in a competitive economy Central role of economic profit The two functions of price The role of free entry and exit