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Practice WPR 1 Solution

Practice WPR 1 Solution - SS201 Review Sheet and Practice...

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SS201 Review Sheet and Practice Problems for WPR1 (Spring 08): Solutions to the practice problems are below so you can verify your work! This document contains a review sheet and practice problems for WPR1. The answers to the questions that follow will not be graded, but all cadets are required to complete this review sheet and the practice problems prior to the Lesson 11 Review. Completely understanding the topics in the review sheet will set you up for success on the multiple choice and short answer questions. Working through the practice problems will help prepare you for the solving problems. Review sheet: Lessons 1/2: What is opportunity cost? What is a productions possibility frontier (PPF)? Why is a PPF normally bowed outward? What does the slope of a PPF represent? How can a society achieve a level of consumption outside their current PPF? Lesson 3/4: Understand the four types of goods (substitutes, complements, normal, inferior) discussed in Chapter 4. What variables can shift a market’s demand curve? What variables can shift a market’s supply curve? Graphically represent the supply and demand curve of a market. Using the Shock-Shift- Excess-Explain-Equilibrium (SSEEE) framework, analyze the impact of a shock to market (tell the market clearing story when demand or supply shifts). Lesson 5: Explain price elasticity of demand. What factors determine the price elasticity of demand? Understand how to compute price elasticity of demand using the midpoint method. Graphically denote elastic and inelastic supply and demand curves. State if their elasticity is >1 or <1. Will increasing the price on an elastic good increase total revenue for a firm? What about an inelastic good? Understand what the other elasticities of demand tell us and understand elasticity of supply. Lesson 6: What are consumer surplus and producer surplus?
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Where is total surplus and economic well-being maximized? What can prevent a market from reaching its point of maximum total surplus? Graphically show the area of consumer surplus and producer surplus. Calculate the numerical value of each. Lesson 7/8: What are price ceilings and price floors? Give an example of each and graphically display it. Denote and calculate consumer surplus, producer surplus, and deadweight loss. Why does the government implement price controls such as rent control and minimum wage? What determines which side of the market (buyers or sellers) bears the larger burden of a tax? Graphically place a tax wedge between a market’s supply and demand curves. Show the price buyers pay and the price sellers receive. Denote and calculate consumer surplus, producer surplus, deadweight loss, and tax revenue. Understand how elasticity affects the amount of deadweight loss.
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