Econ11Fall2007ProblemSet_6AnswersDue28Nov2007 - A. Yezer...

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THE GEORGE WASHINGTON UNIVERSITY Department of Economics A. Yezer Sixth Problem Set Answers in Econ 11 Fall 2007 1. On Blackboard under the November 19 th date, you will find a word file that is an outline of the course. For topics that we will have covered by November 28 th , please fill in all the key ideas that we have covered under each topic. Include all the golden rules, important equations, and types of diagrams as well as skills such as maximizing utility given prices. The answer to this question will become the basis for your review efforts before the final examination. Course Outline To Answer Problem Set #6 Question #1 I. Introduction To The Course & Subject - Basic Concepts A. Thoughts On The Textbook And Learning Economics Lots of key concepts in economics like opportunity cost, scarcity, marginal analysis, etc. B. Scarcity & Choice Using Production Possibility Frontiers Know how production functions for two goods combined with limits on inputs taken together generate a PPF. Be able to do this for linear production as in the “Mr. Chips” case. Know what shifts a PPF in and out. Understand how the slope of a PPF indicates opportunity cost. Understand technical efficiency as a point on the PPF and contrast this with inefficient points inside the PPF and infeasible points outside the PPF. Allocative efficiency requires that the correct mix of products be produced – represented by the point where the iso-revenue line is tangent to the PPF. Plot iso-revenue lines given information on product prices. Find the revenue-maximizing output of the two goods. Generate a supply response of the firm in response to a change in product prices that changes the slope of the iso-revenue line. Find the revenue-maximizing output when the PPF is linear. Identify comparative advantage when there are two linear PPF’s with different slopes. Solve problems in which you identify where production should take place. C. Introduction to Markets: Supply & Demand Analysis, Exchange T he concept of market demand and market supply curves along with market equilibrium price and quantity. Understand what happens if price is above or below equilibrium (inventory change). Solve problems involving the effects on market equilibrium of shifts in demand and supply or on taxes and subsidies on a simple S&D diagram. D. Solving Problems With Supply & Demand, Concept of Elasticity Own price elasticity of demand and the relation between own price elasticity and changes in total revenue. E = %?Q/%?P and %?Revenue = %?Q + %?P Cross price elasticity, income elasticity, and elasticity of supply.
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II. What's Behind Demand Curves? Consumer's Demand Theory A. Individual & Market Demand, Marginal & Total Willingness to Pay Total and marginal utility curves. Equal marginal utility principle when two goods have the same price. Golden rule for maximizing utility: MRS = price ratio for all goods consumed. Or for goods A, and B, MU A /MU B = P A /P B Identify consumer surplus on a demand curve.
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This homework help was uploaded on 04/18/2008 for the course ECON 011 taught by Professor Yezer during the Fall '07 term at GWU.

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Econ11Fall2007ProblemSet_6AnswersDue28Nov2007 - A. Yezer...

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