Final Exam Study Guide(Exam: Thursday, June 5, 9-10:15 a.m(Coverage: Chapter5-7Concepts of MV (and demand), MC (and supply)Various elasticity ideas in chapters 2-3 as well the market equilibrium andeconomic efficiency discussed in chapter 4.Related class notes:Session 10-18Related practice questions on textbook:All previous assigned practice questions;For Chapter 7: “Review Questions”: numbers 1-5 and in the “Problems” section:numbers 1-9, 11-15.7 There is also a set of extra problems with answers and hintstitled, “Some Extra Questions for Ch. 7” under Files and then Practice Questionsfor Exams on the course websiteKey Points Check List:Chapter 5 (session 10-12) Other forces effect on Demand (e.g. income, related good price)Income and Cross Price Elasticity of demand Other forces effect on Supply Perfectly elastic and inelastic on demand and supply Predict effects of change in one market on a related market S and D application: Short run VS. Long run, graph Effect of tax on steel on car market Effects of Tax and Subsidy Who pays the tax (graph), analysis Who receives the subsidy (graph), analysis Price control: price ceiling VS price floor, graph Non-price competition when a price ceiling is presentChapter 6 (session 13-14) Concept of productivity Production Possibility Frontier (PPF), graph Joint Production Possibility Frontier (Joint PPF), graph Marginal Cost of production of a good rises as more of the good is produced.(Reason: run out of “suitable” resources.) MC rises due to our inability to replicate the resources suitable forproduction of increasing amounts of a good. Use of principle of comparative advantage to international trade PPF with Many producers (smooth curve) Phenomenon: Increasing Costs at the Extensive Margin1 How to define the industry supply curve (with many producers of a good):The industry S curve is the lateral sum of firm’s MC curves. What are rents Why do rents exist (example, textbook, p212) Rents show the excess of valuation of consumers over the cost of resourcesused in production. Definition of property rights How do definition, protection, and enforcement of private property rightsaffect the efficiency of resource allocation Concept of economic efficiency (“economic pie”!)Chapter 7 (session 15-17) Law of diminishing returns Two forms of property rights: private and common Marginal Product of an input-Labor (MPL) Value of Marginal Product of Labor (VMPL) = P * MPL Total Product of Labor (TPL), related table calculation One thought: As we add labor (to the fixed capital and factory spaces) each additional unitof labor is as good (as suitable) a resource as the previous units of labor. Why not compare wage with VAPL (Value of Average Product of Labor) Why employees apply with a firm, not firms apply with employees. (Becauseof falling MPL) Law mattersOther Related Material: Summary Note 18 (for review); Quiz 3, 4, and 5 Representative graphs from past quizzes:Quiz 4, Question 1 (“Other factors” effect on demand and supply curve):New textbooksUsed textbooksQ QPPSDDSS’ D’2Quiz 5, Question 1 (Joint PPF):Q of fishQ of coconuts11166 fish and 8
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