AGEC Final Exam Review 65 questions How income and prices work together to form the budget line Budget line Know how to calculate a budget line for 2 products Indifference curve a consumer or country has a set of indifference curves o Show levels of utility How that works together with the budget line Properties of the indifference curve o Downward sloping to the right o Convex to the origin o Do not intersect Marginal rate of substitution slope of the indifference curve Setting the indifference curve tangent to the budget line is the same as the slopes Rate that one good is substituted for another on the indifference curve Change in demand o Comes from anything but price Change in quantity demanded o Movement along that curve o Change that results in the change in price Change in supply o Comes from anything but price Change in quantity supply o Movement along that curve o Change that results in the change in price 4 elasticity calculations o 2 are demand o 2 are supply o Know the equation make the calculation o Change in quantity that results from a change in price o Quantity in numerator o Price in denominator o If you have a 1 change in price what will be the percentage change in quantity o If you have an elasticity of 3 if you have a 1 change in price you will have a change in quantity Elastic o Elasticity greater than 1 Inelastic o Less than 1 Unitary elastic o Equal to 1 Total physical product curve 3 stages of production o 1 Irrational area on the left hand side where efficiency is increasing at an increasing really good o 2 Rational maximize profit somewhere but don t know for sure o 3 Irrational Reached a peak and start to go down production goes down as you put more inputs in you decrease production you re working harder but you re making output decline Intersections of marginal physical product and average physical product o Boundary between stages 1 2 of production graph Stage 2 3 o At a maximum of total physical product o Marginal physical product is 0 A and B total physical product marginal physical product is 0 Law of diminishing marginal utility o As we consume more of a product our additional utility from each additional unit tends to decline kid eating ice cream Opportunity costs o How we calculate the true cost of production o The costs of alternative opportunities that we sacrifice to produce 4 curves match them with a definition o Isocost line equal costs of production perspective of cost to one thing production o Isorevenue line shows different combos of 2 products at certain sets of prices that give you the same amount of revenue o Isoquant line a line showing all combos of inputs that result in the same quantities of outputs equal quantities Marginal rate of substitution is the slope of the isoquant amount of inputs that we trade off in order to produce the same quantity of the good On isoquant you re producing the same quantity of good on any point Calculations o Marginal rate of product substitution o Total revenue price you get for product times the quantity you produce o Total cost o Average variable cost o Average fixed cost o Average total cost Graph that had average variable cost average total cost marginal cost be familiar with this and be able to specific which line is what Supply curve with respect with marginal cost curve marginal cost is the Shutdown point in relation to supply curve where marginal cost intersects supply curve average variable cost firm o From average variable cost on up that is the supply curve of the Calculate price elasticity of supply Elastic vs inelastic vs unitary elastic Difference between pure competition and pure monopoly o Barriers to entry there ARE barriers to entry and exit with the monopoly o Monopolist is able to differentiate product but competition can t o Monopoly 1 firm o Pure competition unlimited number Oligopoly 2 3 firms in between but close to monopoly Concept of firms in a purely competitive market are PRICE TAKERS o Nothing they do will impact the price Concept that for monopolists they are able to affect the price o They are able to restrict the amount of output to maximize profit Not a price taker Effect a price by how much they product Nintendo with game systems Graphs we had about firms maximizing profit o Firm determines profit maximizing quantity where marginal revenue marginal cost o Pure competitive market o Monopolist o Determine where intersection is quantity where producer maximizes profit o At that profit maximizing quantity what is that price going to be Draw a vertical line where does it intersect demand curve o Where it intersects total cost curve total cost production o What is the price they ll get for the product o If you take the price the cost and the margin between those multiply it by the quantity this is what total revenue is price quantity o Total cost the quantity total cost o The difference between those 2 is total profit o 1 Determine the quantity o 2 Per unit price o 3 Per unit cost o 4 Average price o 5 Average cost o 6 Multiply each by quantity and that gives you the solutions Macroeconomics o GDP o Monetary policy o Fiscal policy o Government controls money supply and affects interest rate International trade o Concept of absolute advantage the cost of production in one country versus the cost of production in another country o Doesn t have to do with any other commodities o Comparative advantage is relative cost of production o Inequalities to determine who has this advantage o If a country can have absolute advantage in 2 goods but because we re better at producing agriculture than cars another country can still export cars to us o Even if they have advantage in everything it doesn t have comparative advantage in everything Autarky when a country is self sufficient o From the general equilibrium graphs where we don t trade with anyone else o Producing and consuming on our production frontier o Where supply and demand curve intersect Gains from trade o In general equilibrium framework shift our indifference curve outward and can consume beyond our production possibilities frontier o We import what we don t produce so well o Moving beyond production