Key Concepts in Microeconomics: Markets, Growth, and Pricing

Understanding Public Externalities

Public externalities are generated when an action has an effect on third parties. The externality can be positive or negative, depending on the effect generated.

• A public good is a good or service that is non-rival and non-excludable.
• For example, public education can be considered an externality. It is non-rival and non-excludable, generating a positive externality because its private cost is less than the social cost.

Real GDP and Economic Growth Measurement

Real Gross Domestic Product (GDP) measures a country's economic growth. The index indicating the annual percentage of GDP growth is the GDP deflator, which is obtained by dividing nominal GDP by real GDP and multiplying by 100.

The key difference between nominal GDP and real GDP is that real GDP accounts for inflation by using a base year.

• By observing nominal GDP, real GDP, and the GDP deflator, one can calculate and understand a country's economic growth.

Equilibrium in Oligopoly and Monopoly Markets

Market equilibrium often involves reaching a price agreement to maximize profits in oligopoly and monopoly structures.

• In an oligopoly, there are few companies. The product may or may not be differentiated, and significant entry barriers exist.

Price Discrimination and Profit Maximization

Discounts can be a mechanism that allows companies with market power to price discriminate and achieve higher profits.

• Price discrimination can be quite viable in certain markets, such as monopolistic competition, enabling companies to obtain higher profits.
• Example: A publisher is launching a new work by an author who is very important to the editorial, as this author generates significant profits. It is known that fans of this author would be willing to pay up to $30,000 to read their latest work, though these fans number no more than 500,000 people. It is also known that a significant number of people (2,000,000) would be willing to buy the book for a price not greater than $10,000. The editors realize that most of the author's fans live in Brazil. Therefore, considering both the audience and the price, they could implement price discrimination influenced by the geography of these two groups.

Diamond Market: Impact of Multiple Suppliers

If there were many diamond suppliers, what would be the extracted price and quantity?

• If there were many diamond suppliers, competition among them would increase, tending to lower prices. The price would likely equal the marginal cost, which in this case is $1,000. Consequently, approximately 12,000 diamonds would be extracted.