ECON 202 1nd EditionExExam # 4 Study Guide Lectures: 1 - 32Chapter 1: The Five Foundations of Economics- Incentiveso Positiveo Negativeo Directo Indirect- Gains from Tradeo SpecializationChapter 2: Model Building and Gains from Trade- Opportunity Costso Graph when given amount of resources to produce a goodo Graph when given amount of goods produced- Production Possibilities Frontier- Positive vs. Normative StatementsChapter 3: The Market at Work: Supply and Demand- Find Equilibrium Price and Quantity from:o Tableo Grapho Equation- Surplus vs. ShortageChapter 4: Elasticity- Price Elasticity of Demand- Cross-Price Elasticity- Income Elasticity- Inelastic vs. Elastic Demand/Supply- Substitutes vs. ComplimentsChapter 5: Price Controls- Price Floors- Price CeilingsChapter 6: The Efficiency of Markets and the Costs of Taxation- Taxation and Deadweight Loss- Calculate:o Tax Incidenceo Deadweight Losso Tax RevenueChapter 7: Market Inefficiencies: Externalities and Public Goods- Externalities (Third Party Problem)o Positiveo Negative- Public Goods (Free Rider Problem)Chapter 8: Business Costs and Production- Short Run Cost Curves- Long Run Cost Curves- Calculate:o Average Fixed Cost (AFC)o Average Variable Cost (AVC)o Average Total Cost (ATC)o Marginal Cost (MC)- Economic vs. Accounting Profit- Types of Scaleo Economies of Scaleo Constant Returns to Scaleo Diseconomies of ScaleChapter 9: Perfect Competition- Characteristics of a Perfectly Competitive Industryo Price is determined at the market level and all firms will charge this predetermined priceo Won’t charge higher because no buyers will buyo Won’t charge lower because no incentive (enough buyers willing to buy at market price)- Demand and MR curve for a Perfectly Competitive firm- Short Run Profit Maxo Graph o Table- Long Run Competitive Equilibriumo Entry and Exito Equilibrium Conditions P=MC and P=min. LRATCChapter 10: Monopoly- Characteristics of a Monopolyo Natural Barriers to Entry Control of a scarce resource Technical superiority Economies of Scaleo Government Created Barriers Patents- Demand and MR Curves- Monopoly Profit Maximizationo Grapho Table- Long Run Profits- Monopoly vs. Perfect CompetitionChapter 11: Price Discrimination- Conditions for Price Discriminationo Firm must face a downward sloping demand curveo Different groups of buyers must Have different price elasticities of demand (different willingness to pay) Be easily identifiableo Low probability of resale- How to Price Discriminateo Elastic vs. inelastic Demand- Perfect Price DiscriminationChapter 12: Monopolistic Competition- Characteristics of a Monopolistically Competitive Industryo Large number of firms in the industry but each is small relative to the size of the industryo No barriers to entry or exit (guarantees 0 economic profit in LR)o Product Differentiation- Demand and MR Curves- SR Profit Maximization- LR EquilibriumChapter 13: Oligopoly- Characteristics of Oligopolyo A few firms, each large enough to influence priceo Products are typically differentiatedo Entry is typically difficulto Mutual interdependence The decisions of a firm depend on the behavior of other firms in the industry- Game Theoryo Dominant Strategyo Nash Equilibrium- Kinked Demand Curve- Cournot-Nash Model-
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