MSU EC 201 - EC 201 Exam 3 Review (22 pages)

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EC 201 Exam 3 Review



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EC 201 Exam 3 Review

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Pages:
22
School:
Michigan State University
Course:
Ec 201 - Introduction to Microeconomics
Introduction to Microeconomics Documents
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Review Slides Steven J Haider EC201 Spring 2012 These review slides Are meant to give you the main ideas of each chapter Remind R i d you h how thi things fit ttogether th Show you the repetitiveness of what we do Tips for studying Understand 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 g get additional details Work with a partner explaining problems to each other Work additional problems Study Guide end of chapter online li EC201 Review p2 Mid term 1 specifics Mid p Structure 30 questions 10 from HW 10 minor extensions 10 major extensions Minor ask about a p picture in the same way y Major ask about a picture in a different way Material chapters 1 6 Really R ll very lilittle l on chapter h 1 A lot on chapters 2 6 Review the ExamInformation pdf on ANGEL before the exam for many details about the exam EC201 Review p3 Mid term 2 specifics Mid p Structure 30 questions 10 from HW 10 minor extensions 10 major extensions Minor ask about a p picture in the same way y Major ask about a picture in a different way Material Chapters Ch 1 1 6 6 5 5 questions i Chapters 7 12 13 7 questions each Chapters 9 10 4 4 questions total Review the ExamInformation pdf p on ANGEL before the exam for many details about the exam EC201 Review p4 Mid term 3 specifics Mid p Structure 30 questions 10 from HW 10 minor extensions 10 major extensions Minor ask about a p picture in the same way y Major ask about a picture in a different way Material Chapters Ch 1 1 13 13 10 10 questions i each h Chapters 14 7 questions total Chapters 15 16 15 16 6 6 questions total Chapters 17 7 questions total Review the ExamInformation pdf on ANGEL before the exam for many details about the exam EC201 Review p5 2 Op Cost Trade Comp Ad X X 3 Comp Model Surplus Effi ncy Mkt Power Game Theor Extern Fact Mkts X 4 X X 5 X X 6 X 7 X 9 MB Product Elast MC Costs X The material builds on itself X X X X X 10 X X 12 X X X 13 X X X X 14 X X 15 X X 16 X X X X X X 17 X X X X 18 X X X X 20 X X X X X EC201 Review p6 Chapter p 2 Key concepts PPF opportunity cost gains from trade comparative vs vs absolute advantage Example Fig 2 5 EC201 Review p7 Chapter p 3 Key concepts the competitive model demand and supply curves curves shifts vs vs movements along demand vs quantity demanded equilibrium Ps and Qs Example Fig 3 15 drought EC201 Review p8 Chapter p 4 Key concepts producer consumer total surplus gains from trade trade competitive markets are efficient Example Figure 4 10 EC201 Review p9 Chapter p 5 Key concepts the effect of price and quantity controls on P Q outcomes outcomes dead weight loss inefficiencies lost surplus and redistribution of surplus Example Figure 5 4 price ceiling EC201 Review p10 Chapter p 6 Elasticity measures responsiveness of B to A 1 A Elasticity of B Price Elasticity of Demand B2 B1 Average B A2 A1 Average A B2 B1 Income Elasticity of Demand Cross price C oss p ce Elasticity ast c ty o of Demand e a d Price Elasticity of Supply A2 A1 2 A Elasticity of B B1 B2 2 A1 A2 2 B A Example Price Elasticity of Demand P P 10 Q Q 0 Q 4 Q 10 Q 20 Q PED 0 PED 4 PED 1 PED 2 PED Perfectly Inelas Inelastic Unit Elastic Elastic Perfectly Elas EC201 Review p11 Chapter p 7 Taxes application of elasticity and market intervention Move in to make room for tax Key insights It doesn t matter who is taxed Taxes reduce qty transacted Incidence falls on more inelastic party EC201 Review p12 Chapter p 9 Not much in this chapter Reviews 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 p13 Chapter p 10 Not much in this chapter Utility how economists d describe ib an iindividual s di id l satisfaction Marginal utility the satisfaction for consuming one more MU is assumed to decline with consumption This basic assumption is enough for downward sloping demand curves EC201 Review p14 Chapter p 12 Production SR vs LR Product total marginal diminishing marginal These curves look same as last chapter 10 Costs Two basic costs FC VC y of looking g at Other ways these costs TC MC AFC AVC ATC Relationships exist among curves LRATC Increasing d returns to scale EC201 Review p15 Chapter p 13 13 1 SR production for firm Key assumption MR P because price taking firm MC is supply supply shutdown based on AVC AVC profitability based on ATC Analysis in 2 steps What s best compare P to MC to find Q Is it anyy g good At Q consider P ATC and AVC EC201 Review p16 Chapter p 13 13 2 LR for firm industry Ke Key ass assumption mption free entr entry exit e it so profits are zero ero Example demand shift leads to profits which leads to entry which leads to supply shifts which leads to zero profits Result LR industry is horizontal at min LRATC OR upward sloping EC201 Review p17 Chapter p 14 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 p want to price discriminate Charge inelastic demanders more EC201 Review p18 Chapter p 15 Basic idea for oligopoly examining duopoly 1 Duopolists would do best to act like a monopolist Illegal yes but starting place 2 Both have an incentive to cheat by producing more 3 The specifics of how firms interact matter Quantity competition Choose quantity level then price is determined Move part way towards the competitive equilibrium Price competition Choose price and then quantity demand is met Move all the way towards the competitive equilibrium New analytic tool game theory Methods to model strategic interaction Concepts payoff matrix prisoners dilemma dominant strategy q Nash equilibrium EC201 Review p19 Chapter p 16 Monopolistic competition Short run similar to monopoly in that demand curve slopes downward and MR P Long rrun similar n similar to competition in that there will be entry exit until profits are zero p We skipped many details regarding oligopoly and monopolistic competition Pay careful attention to lecture slides and problems sets so you focus on the right material EC201 Review p20 Summary y for 13 13 16 Perfect …


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