Additional Lectures Study Guide Lecture and Textbook ECO 2023 Dr McCaleb Table of Contents FORMULAS TO KNOW 2 CHAPTER 12 NOTES 5 SPECIAL TOPICS UNCERTAINTY AND INFORMATION LECTURE 6 CHAPTER 20 NOTES 10 INEQUALITY POVERTY AND INCOME DISTRIBUTION 11 EXAM 1 REVIEW 14 EXAM 2 REVIEW 16 EXAM 3 REVIEW 18 Formulas To Know Review from Midterm 1 Slope of a Line o M Change in Y over change in X o M Y X o M Y2 Y1 X2 X1 Net Benefit NB o NB Total Benefit Total Cost o NB TB TC The optimal amount of any activity o Is when the Marginal Benefit is equal to the Marginal Cost o When MB MC Marginal Benefit MB o MB Change in Total Benefit Change in Quantity o MB TB Q o MB TB2 TB1 Q2 Q1 Marginal Cost MC o MC Change in Total Cost Change in Quantity o MC TC Q o MC TC2 TC1 Q2 Q1 When to increase the amount of an activity Production Possibilities Frontier When to decrease the amount of an activity Production Possibilities Frontier o If Marginal Benefit Marginal Cost o If MB MC o If Marginal Cost Marginal Benefit o If MC MB Labor Force LF o Employed Unemployed o E U Market Equilibrium o When the quantity demanded equals the quantity supplied o Equilibrium QD QS Midterm 2 Price Elasticity of Demand o Elasticity Change in Quantity Demanded Change in Price o QD P Midpoint Method to Calculating the Price Elasticity o Percent Change in Quantity New Quantity Initial Quantity New Quantity Initial Quantity 2 x 100 o Q Q2 Q1 Q2 Q1 2 x 100 o Percent Change in Price New Price Initial Price New Price Initial Price 2 x 100 o P P2 P1 P2 P1 2 x 100 Price elasticity of supply o Elasticity change in quantity supplied change in price o QS P Cross elasticity of demand o Elasticity change in quantity demanded of a good change in the price of one of its substitutes or complements o QD PS C Income elasticity of demand o Elasticity change in quantity demanded change in income o QD I Total Revenue and the Price Elasticity of Demand o Total Revenue TR Total Expenditure TE Price P x Quantity Q o TR PQ or TE PQ o Change in Total Revenue Change in Price Change in Quantity Demanded o TR P Q Consumer Surplus o Consumer Surplus CS Marginal Benefit Price o CS MB P Producer Surplus o Producer Surplus PS Price Marginal Cost o PS P MC Efficient Quantity o When Marginal Benefit Marginal Cost o When MB MC Market Equilibrium o When quantity demanded quantity supplied o Where QD QS o The marginal benefit from a good or service in excess of the price paid for it summed over the o The price of a good in excess of the marginal cost of producing it summed over the quantity o The sum of producer surplus and consumer surplus o TS PS CS o The Total Surplus of Efficient quantity and price TSE the total surplus of the inefficient Consumer Surplus quantity consumed o CS MB QD Producer Surplus supplied o PS MC QS Total Surplus Deadweight Loss quantity and price TSI o TSE TSI Marginal Social Benefit o The marginal private cost with the ITQ equals the marginal social cost and the equilibrium with o The sum of the marginal private benefit and the marginal external benefit o MSB MB MEB Marginal Social Cost o The sum of the marginal private cost and the marginal external cost o MSC MC MEC Midterm 3 Individual Transferrable Quotas ITQ the ITQ is efficient o MC Price of ITQ MSC Private Property Rights o The marginal cost of fishing equals the marginal social cost o S MC MSC Economic Profit o Total Revenue minus the total cost o Price x Quantity explicit costs implicit costs o PQ EC IC o PQ Total Fixed Cost Total Variable Cost o PQ TFC TVC Total Cost o Explicit Costs Implicit Costs o Total Fixed Cost Total Variable Cost o Opportunity Cost Average Total Cost o Average Fixed Cost Average Variable Cost o AFC AVC Marginal Revenue Equals Price o When an additional unit is sold the increase in total revenue equals the price o TR Q MR P Chapter 12 Notes Citation Bade Robin and Michael Parkin Foundations of Microeconomics 6th ed Boston Pearson Addison Wesley 2013 Print Information relevant to a transaction that is possessed by some market participants but not all 292 A situation in which either the buyer or the seller has private information 292 The problem that when it is not possible to distinguish reliable products from lemons there are too many lemons and too few reliable products 292 The tendency for people to enter into transactions that bring them benefits from their private information and impose costs on the uninformed party 295 When an informed person takes an action that sends information to uniformed people 296 The outcome when only one message is available and an uninformed person cannot determine quality 297 The outcome when signaling provides full information to a previously uninformed person 297 The tendency for a person with private information to use it in different ways that impose costs on an uninformed party with whom they have made an agreement 301 When an uninformed person creates an incentive for an informed person to reveal relevant private information 302 Private Information Asymmetric Information Lemons Problem Adverse Selection Signaling Pooling Equilibrium Separating Equilibrium Moral Hazard Screening Special Topics Uncertainty and Information Lecture Citation McCaleb Thomas Special Topics Uncertainty and Information Florida State University 0102 Bellamy 113 Collegiate Loop Tallahassee FL 17 April 2014 PowerPoint Lecture Asymmetric Information is a Source of Inefficiency When one party to a transaction has more relevant or better information than the other party Asymmetric information increases the cost to the less informed person of entering into a transaction with the better informed person Some transactions that could make both parties better off do not take place There are two kinds of asymmetric information 1 Moral Hazard a Arises in a principal agent relationship i This exists when one person the agent is performing a task on the behalf of another person the principal b Concerns the behavior of agents that are adverse to the interests of the principal c If the principal is unable to perfectly monitor the behavior of the gent the agent has an incentive to pursue their own self interest rather than the interest of the principal i The principal can do the following 1 Improve monitoring a This is costly the marginal benefit of improved performance from better monitoring must be weighed against its marginal cost 2 Efficiency wages a Paying workers above market wages making it more costly for them to risk losing their jobs due to
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