Review SlidesReview SlidesSteven J. HaiderEC201Spring 2012These review slides…These review slides… Are meant to give you the main ideas of each chapterRid h thi fitt thRemind you how things fit together Show you the repetitiveness of what we do Tips for studyingUnderstand your problem sets and previous examsUnderstand your problem sets and previous exams Your goal should be to know the whole picture (model), not just the part referred to in a specific question Usually there is 1 right answer and 3 wrong answers Start with problem sets, and then refer to your lecture notes and book to get additional detailsg Work with a partner, explaining problems to each other Work additional problems (Study Guide, end of chapter, li )online)EC201-Review-p2MidMid--term 1 specificsterm 1 specificspp Structure30 questions30 questions 10 from HW, 10 minor extensions, 10 major extensions Minor: ask about a picture in the same waypy Major: ask about a picture in a different way Material: chapters 1-6Rll lil h 1Really very little on chapter 1 A lot on chapters 2-6 Review the ExamInformation.pdf on ANGEL before the exam for many details about the examthe exam for many details about the examEC201-Review-p3MidMid--term 2 specificsterm 2 specificspp Structure30 questions30 questions 10 from HW, 10 minor extensions, 10 major extensions Minor: ask about a picture in the same waypy Major: ask about a picture in a different way MaterialCh 165 iChapters 1-6: ~5 questions Chapters 7, 12, 13: ~7 questions each Chapters 9 & 10:~4 questions totalChapters 9 & 10: 4 questions total Review the ExamInformation.pdf on ANGEL before pthe exam for many details about the examEC201-Review-p4MidMid--term 3 specificsterm 3 specificspp Structure30 questions30 questions 10 from HW, 10 minor extensions, 10 major extensions Minor: ask about a picture in the same waypy Major: ask about a picture in a different way MaterialCh 113 10 i hChapters 1-13: ~10 questions each Chapters 14: ~7 questions totalChapters 15-16:~6 questions totalChapters 1516: 6 questions total Chapters 17: ~7 questions total Review the ExamInformation.pdf on ANGEL before the exam for many details about the examEC201-Review-p5Op CostTrade/ Comp AdComp ModelSurplus/ Effi’ncyElast.MB/MCProduct/CostsMktPowerGame TheorExtern.Fact Mkts2X X3X4XXXThe material builds on5XX6XX7XXXThe material builds on itself…7XXX9X X10 X X12 X X X13 X X X14XXXX14XXXX15 X X X X16 X X X17 X X X X18 X X X X20XXXXX20XXXXXEC201-Review-p6Chapter 2Chapter 2pp Key concepts: PPF, opportunity cost, gains from trade, comparative vs absolute advantagecomparative vs. absolute advantageExample: Fig 2.5Example: Fig 2.5EC201-Review-p7Chapter 3Chapter 3pp Key concepts: the competitive model, demand and supply curves shifts vs movements along / demandsupply curves, shifts vs. movements along / demand vs. quantity demanded, equilibrium Ps and Qs Example: Fig 3.15 (drought)EC201-Review-p8Chapter 4Chapter 4pp Key concepts: producer/consumer/total surplus (gains from trade) competitive markets are efficientfrom trade), competitive markets are efficientExample: Figure 4.10Example: Figure 4.10EC201-Review-p9Chapter 5Chapter 5pp Key concepts: the effect of price and quantity controls on P/Q outcomes dead weight loss / inefficiencies /on P/Q outcomes, dead weight loss / inefficiencies / lost surplus, and redistribution of surplus Example: Figure 5.4 (price ceiling)EC201-Review-p10Chapter 6Chapter 6ppAAverageAABAverageBB/)(/)(B of ElasticityA (1)1212Elasticity: measures responsiveness of B to APrice Elasticity of DemandAAAABBBB2/)()(2/)()(122112Price Elasticity of DemandIncome Elasticity of DemandCross-price Elasticity of DemandABAA%%B of ElasticityA (2)2/)(21Cossp ce astctyo e a dPrice Elasticity of SupplyPExample: Price Elasticity of DemandP=10%Q=0%PED=0QQ=4%PED=.4Q=10%PED=1Q=20%PED=2Q=∞PED=∞EC201-Review-p11Perfectly Inelas. Inelastic Unit ElasticElasticPerfectly Elas.Chapter 7Chapter 7ppTaxes: application of elasticity and marketelasticity and market intervention Move in to make room for tax Key insights It doesn’t matter who is taxedtaxed Taxes reduce qty transacted Incidence falls on more inelastic partyEC201-Review-p12Chapter 9Chapter 9pp Not much in this chapter!Reviews/develops three principles of economic decisionReviews/develops three principles of economic decision making: (1) opportunity cost, and (2) MB vs. MC (ignore sunk costs), and (3) present value/future value EC201-Review-p13Chapter 10Chapter 10pp Not much in this chapter!chapter! Utility: how economists d ib i di id l’describe an individual’s satisfactionMarginal utility: theMarginal utility: the satisfaction for consuming one more MU is assumed to decline with consumption This basic assumption is enough for downward sloping demand curvesEC201-Review-p14Chapter 12Chapter 12pp Production SR vs. LR Product: total, marginal, diminishing marginal These curves look same as last chapter 10… Costs Two basic costs: FC & VC Other ways of looking at ygthese costs: TC, MC, AFC, AVC, ATC Relationships exist among curvesamong curves LRATC Increasing/d returns to scalescaleEC201-Review-p15Chapter 13Chapter 13--11pp SR production for firm Key assumption: MR=P because price taking firmMC is supply shutdown based on AVC profitability based on ATCMC is supply, shutdown based on AVC, profitability based on ATC Analysis in 2 steps What’s best? compare P to MC to find Q* Is it any good? At Q*, consider P, ATC, and AVCygEC201-Review-p16Chapter 13Chapter 13--22pp LR for firm/industryKe ass mption free entr /e it so profits are eroKey assumption: free entry/exit so profits are zero Example: demand shift leads to profits, which leads to entry, which leads to supply shifts, which leads to zero profitsResult: LR industry ishorizontal at min LRATCORupward slopingResult: LR industry is horizontal at min LRATC OR upward slopingEC201-Review-p17Chapter 14Chapter 14pp Lots the same Cost curves Optimal decision process (what’s best? Any good?) Differences MR<P because firm gets whole demand curve Find Q*, and then charge highest P Profitability/shutdown is same Monopolists want to pprice
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