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MSU EC 201 - EC 201 Exam 3 Review

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Review SlidesReview SlidesSteven J. HaiderEC201Spring 2012These review slides…These review slides… Are meant to give you the main ideas of each chapterRid h thi fitt thRemind you how things fit together Show you the repetitiveness of what we do Tips for studyingUnderstand your problem sets and previous exams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 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 Structure30 questions30 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 1-6Rll lil h 1Really 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 Structure30 questions30 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Ch 165 iChapters 1-6: ~5 questions Chapters 7, 12, 13: ~7 questions each Chapters 9 & 10:~4 questions totalChapters 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 Structure30 questions30 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Ch 113 10 i hChapters 1-13: ~10 questions each  Chapters 14: ~7 questions totalChapters 15-16:~6 questions totalChapters 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 advantageExample: Fig 2.5Example: 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 efficientExample: Figure 4.10Example: 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 DemandAAAABBBB2/)()(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 DemandP=10%Q=0%PED=0QQ=4%PED=.4Q=10%PED=1Q=20%PED=2Q=∞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 decision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-p13Chapter 10Chapter 10pp Not much in this chapter!chapter! Utility: how economists d ib i di id l’describe an individual’s satisfactionMarginal utility: theMarginal 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 firmMC is supply shutdown based on AVC profitability based on ATCMC 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/industryKe ass mption free entr /e it so profits are eroKey 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 profitsResult: LR industry ishorizontal at min LRATCORupward slopingResult: 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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MSU EC 201 - EC 201 Exam 3 Review

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