《西方经济学》（英文版） Chap 6 presents the supply

Lecture15(200511.8) a Chapter 5 choices Chapter 6 p141--150 Chapter 6: Perfectly Competitive Supply Slide 1

MB MC Chapter 6: Perfectly Competitive Supply Slide 1 Lecture 15 (2005.11.8) ◼ Chapter 5 choices ◼ Chapter 6 p141----150

PERfectly Competitive Supply: The Cost Side of The Market CHAPTER MB MC

MB MC Perfectly Competitive Supply: The Cost Side of The Market

MB MC Overview a Chapter 6 presents the supply side of the market using an approach parallel to that of the demand side of the market in Chapter 5. The chapter presents the material in a way that illustrates the second core principle of the textbook, that marginal benefits should equal marginal costs Chapter 5 presents the demand curve as derived from marginal benefit and Chapter 6 presents the supply curve as derived from marginal costs These two chapters provide the details behind the principle that MC= MB and give students a solid basis for understanding and applying it in a variety of situations Chapter 6: Perfectly Competitive Supply Slide 3

MB MC Chapter 6: Perfectly Competitive Supply Slide 3 Overview ◼ Chapter 6 presents the supply side of the market, using an approach parallel to that of the demand side of the market in Chapter 5. The chapter presents the material in a way that illustrates the second core principle of the textbook, that marginal benefits should equal marginal costs. Chapter 5 presents the demand curve as derived from marginal benefit and Chapter 6 presents the supply curve as derived from marginal costs. These two chapters provide the details behind the principle that MC = MB and give students a solid basis for understanding and applying it in a variety of situations

MB MC Overview The chapter illustrates concepts using recycling as an example. First, individual supply decisions are discussed, followed by discussion of the supply decision of a perfectly competitive firm. The determinants of supply are revisited in the chapter and price elasticity of supply is presented(e.g definition, calculation, ranges, determinants) Finally, the chapter uses the production possibilities curve from chapter 3 to generate supply curves using the PPC model Chapter 6: Perfectly Competitive Supply Slide 4

MB MC Chapter 6: Perfectly Competitive Supply Slide 4 Overview ◼ The chapter illustrates concepts using recycling as an example. First, individual supply decisions are discussed, followed by discussion of the supply decision of a perfectly competitive firm. The determinants of supply are revisited in the chapter and price elasticity of supply is presented (e.g. definition, calculation, ranges, determinants). Finally, the chapter uses the production possibilities curve from chapter 3 to generate supply curves using the PPC model

M Thinking About Supply: The Importance of Opportunity Cost ■ EXample6.1 o How much time should Harry spend recycling soft drink containers Harry is choosing between washing dishes for $6/hour and collecting containers at 2 cents each Opportunity cost of collecting cans is S6/hour Chapter 6: Perfectly Competitive Supply Slide 5

MB MC Chapter 6: Perfectly Competitive Supply Slide 5 Thinking About Supply: The Importance of Opportunity Cost ◼ Example 6.1 ⚫ How much time should Harry spend recycling soft drink containers? ◼ Harry is choosing between washing dishes for $6/hour and collecting containers at 2 cents each. ◼ Opportunity cost of collecting cans is $6/hour

Thinking About Supply: The Importance of Opportunity Cost Example 6.1 Search time Total num ber of Additional num ber of (hours/day) containers found containers found 0 0 600 400 600 300 2 1,000 200 3 1,300 100 4 1,500 Chapter 6: Perfectly Competitive Supply Slide 6

MB MC Chapter 6: Perfectly Competitive Supply Slide 6 Thinking About Supply: The Importance of Opportunity Cost Search time (hours/day) 0 0 1 600 2 1,000 3 1,300 4 1,500 5 1,600 Total number of containers found Additional number of containers found 600 400 300 200 100 Example 6.1

MB MC Thinking About Supply: The Importance of Opportunity Cost Costs and Benefits 1 hour collecting cans=(600)(02)=$12 o Benefit(12)>Opportunity Cost($6) 2nd hour benefit($8)>Opportunity Cost($6) ●3 rd hour benefit(⑤$6)= Opportunity Cost($6) Chapter 6: Perfectly Competitive Supply Slide 7

MB MC Chapter 6: Perfectly Competitive Supply Slide 7 Thinking About Supply: The Importance of Opportunity Cost ◼ Costs and Benefits ⚫ 1 hour collecting cans = (600)(.02) = $12 ⚫ Benefit ($12) > Opportunity Cost ($6) ⚫ 2nd hour benefit ($8) > Opportunity Cost ($6) ⚫ 3rd hour benefit ($6) = Opportunity Cost ($6)

MM Thinking About Supply: The Importance of Opportunity Cost ■ Question What is the lowest redemption price that would induce Harry to recycle 1 hour/day? Solution o 600 containers x 1 cent=$6= opportunity cost of washing dishes Chapter 6: Perfectly Competitive Supply Slide 8

MB MC Chapter 6: Perfectly Competitive Supply Slide 8 Thinking About Supply: The Importance of Opportunity Cost ◼ Question ⚫ What is the lowest redemption price that would induce Harry to recycle 1 hour/day? ◼ Solution ⚫ 600 containers x 1 cent = $6 = opportunity cost of washing dishes

MM Thinking About Supply: The Importance of Opportunity Cost ■ Reservation Price p(△Q=6 Chapter 6: Perfectly Competitive Supply Slide 9

MB MC Chapter 6: Perfectly Competitive Supply Slide 9 Thinking About Supply: The Importance of Opportunity Cost ◼ Reservation Price p(Q) = $6

MM Thinking About Supply: The Importance of Opportunity Cost ■ Reservation Price 1 hour recycling =p(600)=$6 p=1 cent o 2 hours recycling = p(400)=$6 p=1.5 cents o 3 hours recycling = p(300)=$6 p=2 cents 4 hours recycling =p(200)=$6 p=3 cents o 5 hours recycling =p(100)=$6 p=6 cents Chapter 6: Perfectly Competitive Supply Slide 10

MB MC Chapter 6: Perfectly Competitive Supply Slide 10 Thinking About Supply: The Importance of Opportunity Cost ◼ Reservation Price ⚫ 1 hour recycling = p(600) = $6 p= 1 cent ⚫ 2 hours recycling = p(400) = $6 p= 1.5 cents ⚫ 3 hours recycling = p(300) = $6 p= 2 cents ⚫ 4 hours recycling = p(200) = $6 p = 3 cents ⚫ 5 hours recycling = p(100) = $6 p= 6 cents