📖 微观综合复习

Economics

I. Lesson Focus

This review lesson integrates core microeconomic concepts including demand and supply, elasticity, firm cost structures and profit maximization, different market structures, factor markets, and the economic effects of government intervention. The focus is on applying these tools simultaneously to complex scenarios, which is a common requirement in the CFA Level I curriculum.

II. The Problem

A city’s taxi market is simultaneously hit by rising fuel prices, the entry of ride-hailing platforms, and a proposed government congestion tax per kilometer. Candidates must quickly determine: the direction of the supply curve shift from higher fuel costs, how price elasticity of demand affects driver revenue, long-run profit outcomes across market structures, and how the tax burden is shared between drivers and passengers. These questions require simultaneous recall of multiple curves, formulas, and market characteristics under time pressure.

III. Demand, Supply, and Market Equilibrium Review

The demand curve shows the quantity consumers are willing and able to purchase at different prices and is typically downward-sloping. The supply curve shows the quantity producers are willing and able to offer and is typically upward-sloping. The equilibrium price is the price at which quantity supplied equals quantity demanded; the equilibrium quantity is the amount traded at that price.

Events that increase consumer income, raise the price of substitutes, or strengthen preferences shift the demand curve to the right. Declines in production costs, technological improvements, or reduced barriers to entry shift the supply curve to the right. A government price ceiling creates a shortage; a price floor creates a surplus.

IV. Elasticity Theory: Core Formulas and Applications

Price elasticity of demand: $E_d = \frac{\% \Delta Q_d}{\% \Delta P}$
- $|E_d| > 1$: elastic demand; price increase reduces total revenue
- $|E_d| < 1$: inelastic demand; price increase raises total revenue
- $|E_d| = 1$: unit elastic; total revenue unchanged

Income elasticity: $E_I = \frac{\% \Delta Q_d}{\% \Delta I}$; normal goods > 0, inferior goods < 0
Cross-price elasticity: $E_{XY} = \frac{\% \Delta Q_X}{\% \Delta P_Y}$; substitutes > 0, complements < 0

Supply elasticity is usually greater in the long run than in the short run because firms have time to adjust all factors of production.

V. Firm Costs and Profit Maximization

Total cost: $TC = TVC + TFC$
Average total cost: $ATC = TC/Q$
Marginal cost: $MC = \Delta TC / \Delta Q$

Profit-maximizing condition: $MR = MC$
- Perfect competition: $P = MR = MC = ATC$ (long-run economic profit = 0)
- Monopoly: $P > MR = MC$; positive economic profit sustainable in the long run
- Monopolistic competition: long-run $P = ATC > MC$; excess capacity exists
- Oligopoly: outcome depends on collusion; may resemble monopoly or competition

VI. Factor Markets and Income Distribution

Labor demand is determined by marginal revenue product: $MRP_L = MP_L \times MR$
In a competitive factor market, the wage is set by the intersection of labor supply and labor demand. Unions and minimum-wage laws push actual wages above equilibrium, causing unemployment.

VII. Economic Effects of Government Intervention

An ad-valorem tax is borne by both buyers and sellers. Tax incidence depends on relative elasticities:
- The more elastic the demand, the greater the burden on producers
- The more elastic the supply, the greater the burden on consumers

A binding price ceiling creates a shortage ($Q_D - Q_S$) and deadweight loss (DWL). Subsidies shift supply rightward but also generate DWL.

Worked Cases

Case 1: Impact of Rising Fuel Prices on the Taxi Market

A city’s taxi market is initially in equilibrium at 15 yuan per kilometer and 100,000 kilometers per day. Fuel prices suddenly rise 20%, shifting the supply curve left. Demand price elasticity is –0.8 (inelastic) and supply price elasticity is 1.2.
After the shift, the new equilibrium price rises to 18 yuan and quantity falls to 92,000 kilometers.
Change in driver total revenue: original = 1.5 million yuan; new = 1.656 million yuan. Because demand is inelastic, the price increase raises total revenue.
Conclusion: Short-run driver income rises, but some drivers may exit in the long run.

Case 2: Market Structure Change after Ride-Hailing Entry

The traditional taxi market was close to perfect competition. Ride-hailing platforms increase price transparency, moving the market toward monopolistic competition. Platforms use surge pricing; peak price reaches 25 yuan per kilometer while marginal cost is 8 yuan.
In the long run, supernormal profit attracts more drivers until $P = ATC$ and economic profit returns to zero, but excess capacity (higher idle-driver rate) remains.

Case 3: Tax Incidence of a Congestion Tax

The government imposes a 2-yuan per-kilometer tax. Demand elasticity $E_d = –1.5$, supply elasticity $E_s = 0.6$.
Consumer share = $E_s / (E_s + |E_d|) = 0.6 / (0.6 + 1.5) = 28.6\%$
Producer (driver) share = 71.4%
Passengers pay an extra 0.57 yuan per kilometer; drivers receive 1.43 yuan less. Government tax revenue equals 2 yuan times the new equilibrium quantity. Deadweight loss equals the triangular area $\frac12 \times$ tax $\times \Delta Q$.

Traps

Key Formulas

• Price elasticity of demand: $E_d = \frac{\% \Delta Q_d}{\% \Delta P}$
• Profit maximization: $MR = MC$
• Perfect competition long-run equilibrium: $P = MR = MC = ATC =$ minimum $LRAC$
• Consumer share of tax burden: $\frac{E_s}{E_s + |E_d|}$
• Marginal revenue product: $MRP = MP \times MR$
• Deadweight loss (tax): usually $\frac12 \times$ tax amount $\times \Delta Q$
• Cross-price elasticity > 0 → substitutes; < 0 → complements

Practice Questions

Q1. If the price elasticity of demand for a good is –1.6 and price rises 5%, quantity demanded will:
A. Rise by 8%
B. Fall by 8%
C. Rise by 3%
D. Fall by 3%

Q2. The main reason long-run economic profit is zero in perfect competition is:
A. Government regulation
B. Free entry and exit
C. Homogeneous products
D. Marginal cost equals average cost

Q3. When demand is inelastic, an increase in price will cause the firm’s total revenue to:
A. Increase
B. Decrease
C. Remain unchanged
D. Increase then decrease

Q4. A tariff on imported automobiles is most likely to result in:
A. Increased consumer surplus
B. Increased producer surplus and government revenue
C. Reduced deadweight loss
D. A leftward shift in domestic supply

Q5. Which market structure can sustain positive economic profit in the long run?
A. Perfect competition
B. Monopolistic competition
C. Monopoly
D. Non-collusive oligopoly

Q6. If the marginal revenue product of labor is 80 yuan per hour and the market wage is 65 yuan, a profit-maximizing firm will:
A. Lay off workers
B. Hire more workers
C. Keep employment unchanged
D. Raise product price

Q7. An effective government price ceiling is most likely to cause:
A. Surplus
B. Shortage
C. Black-market price below the ceiling
D. Increased supply

Q8. With supply elasticity of 2.0 and demand elasticity of –0.5, an ad-valorem tax on the good will be borne primarily by:
A. Consumers
B. Producers
C. Both parties equally
D. The government

Answers

Takeaways

• When absolute price elasticity of demand exceeds 1, a price increase lowers total revenue; when it is less than 1, revenue rises
• Perfect competition yields zero long-run economic profit; monopoly can sustain positive long-run economic profit
• Tax incidence is determined by relative supply and demand elasticities, independent of statutory incidence
• All firms maximize profit where $MR = MC$
• Price ceilings create shortages; price floors create surpluses
• Marginal revenue is equal to price only in perfect competition; otherwise $MR < P$