CONTENTS How to Use the CFA Program Curriculum ix Background on the CBOK ix Organization of the Curriculum x Features of the Curriculum x Designing Your Personal Study Program xi CFA Institute Learning Ecosystem (LES) xii Prep Providers xiii Feedback xiv Economics Study Session 3 Economics (1) 3 Reading 8 Topics in Demand and Supply Analysis 5 Introduction 5 Demand Concepts 6 Demand Concepts 6 Price Elasticity of Demand 9 Extremes of Price Elasticity 11 Predicting Demand Elasticity, Price Elasticity and Total Expenditure 12 Elasticity and Total Expenditure 13 Income Elasticity of Demand, Cross-Price Elasticity of Demand 14 Cross-Price Elasticity of Demand 15 Substitution and Income Effects; Normal Goods, Inferior Goods and Special Cases 18 Normal and Inferior Goods 19 Supply Analysis: Cost, Marginal Return, and Productivity 23 Marginal Returns and Productivity 23 Economc Profit Versus Accounting Profit 28 Economic Cost vs. Accounting Cost 28 Marginal Revenue, Marginal Cost and Profit Maximization; Short-Run Cost Curves: Total, Variable, Fixed, and Marginal Costs 29 Understanding the Interaction between Total, Variable, Fixed, and Marginal Cost and Output 31 Perfect and Imperfect Competition, Profit Maximization 35 Profit-Maximization, Breakeven, and Shutdown Points of Production 36 Breakeven Analysis and Shutdown Decision 38 The Shutdown Decision 39 Economies and Diseconomies of Scale with Short-Run and Long-Run Cost Analysis 43 Short- and Long-Run Cost Curves 43 Defining Economies of Scale and Diseconomies of Scale 44 Summary 48 Practice Problems 51 Solutions 58 © CFA Institute. For candidate use only. Not for distribution. ii Contents indicates an optional segment Reading 9 The Firm and Market Structures 63 Introduction & Analysis of Market Structures 63 Analysis of Market Structures 64 Perfect Competition & Demand Analysis in Perfectly Competitive Markets 69 Demand Analysis in Perfectly Competitive Markets 69 Elasticity of Demand 71 Other Factors Affecting Demand 73 Consumer Surplus: Value Minus Expenditure 75 Supply Analysis & Optimal Price and Optimal Output In Perfectly Competitive Markets 77 Optimal Price and Output in Perfectly Competitive Markets 78 Factors Affecting Long-Run Equilibrium in Perfectly Competitive Markets 82 Supply, Demand, Optimal Pricing, and Optimal Ouput under Monopolistic Competition 85 Demand Analysis in Monopolistically Competitive Markets 86 Supply Analysis in Monopolistically Competitive Markets 86 Optimal Price and Output in Monopolistically Competitive Markets 87 Long-Run Equilibrium for Monopolistically Competitive Firm 87 Oligopoly & Demand Analysis and Pricing Strategies in Oligopoly Markets: Pricing Independence Portion 88 Demand Analysis and Pricing Strategies in Oligopoly Markets 89 Oligopoly & Demand Analysis and Pricing Strategies in Oligopoly Markets: The Cournot Assumption Part 91 Oligopoly & Demand Analysis and Pricing Strategies in Oligopoly Markets: The Nash Equilibrium part 93 Supply Analysis & Optimal Price and Output & Long-Run Equilibrium in Oligopoly Markets 96 Optimal Price and Output in Oligopoly Markets 97 Factors Affecting Long-Run Equilibrium in Oligopoly Markets 98 Monopoly & Demand & Supply & Optimal Price and Output in Monopoly Markets 99 Demand Analysis in Monopoly Markets 100 Supply Analysis in Monopoly Markets 101 Optimal Price and Output in Monopoly Markets 103 Price Discrimination and Consumer Surplus 104 Factors Affecting Long-Run Equilibrium in Monopoly Markets 106 Identification of Market Structure 107 Econometric Approaches 108 Simpler Measures 109 Summary 110 Practice Problems 113 Solutions 117 Reading 10 Aggregate Output, Prices, and Economic Growth 119 Introduction 120 Aggregate Output and Income 121 Gross Domestic Product 122 The Components of GDP 129