Chelsea KatzECON2002/21/13Exam will cover: “Thinking at the Margin”, & Chapters 4, 5, 6, 7, & 8!!(25 Multiple Choice Questions/Two problems)- Copies of old exams and answer keys accessible on ELMS in “Old Exams”Module- Scientific Calculator = Permitted!! (no phones/graphing calculators/calculators with memory that can be saved)!!!- Review sessions at 11:00 AM/12:00 PM on Friday, March 1st in Tydings 0130 (NO SIMULATIONS)- At any quantity, the price given by the demand curve shows the willingness to pay of the marginal buyer (the buyer who would leave the market first if the price were any higher). - Consumer Surplus: a buyer’s willingness to pay minus the amount the buyer actually pays. Benefit consumers receive from consuming a good.- Consumer surplus is the area below the demand curve and above price, between the quantity 0 and the quantity consumers choose to buy.- Producer Surplus: is the amount a seller is paid for a good minus the seller’scost of producing it. The area above the supply curve and below the price curve. It is between the quantity zero and the quantity firms choose to produce. Benefit firms receive from producing a good.- Efficiency: the property of a resource allocation of maximizing the total surplus received by all members of society. (Maximizing Total Surplus). - Total surplus: a. consumer surplus + producer surplus. (sum of the both).b. (value to buyers – amount paid by buyers + amount received by sellers – cost to sellers) value to buyers – cost to sellers.- Maximizing total surplus (any planned economy):1. Who should consume what we produce? People who value the good the highest should consume what we produce. 2. How should we produce it? The firms that can produce the good at the lowest cost should produce the good.3. What should we produce? We should continue to produce each good as long as willingness to pay is at least as large as cost. - Individuals and firms can make better decisions by thinking at the margin. Arational decision maker continues to take an action if and only if the marginalbenefit of the action is at least as large at the marginal cost. (if we are going to follow this rule: it tells us that we must continue to produce this good, as long as willingness to pay is at least as large as the cost of producing this unit, maximize this different by keeping producing as long as above mentioned circumstances are met.)Clicker Question Answer Explanations: - 3 electric cars should be
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