Econ Midterm II Review

Econ Midterm II Review - ATC MC M M CB A Py Px Px1 Econ...

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Unformatted text preview: ATC MC M M CB A Py Px Px1 Econ Midterm II Study Guide No long- run cost: (F04 MCQ 14; W 04 MCQ 7-9) Supply and Demand Applications: (Restrictions) Price Ceilings or floors Taxes and subsidies Tax decreases the amount of profit the firms receive, but not he people's willingness to pay If tax is borne by consumers: consumers have to face a higher price than initially If tax is borne by producers: producers receive less profit than they would before Tax can also be split between the two Tax on Supply Green: Tax; Blue: Consumer surplus; Red: Producer surplus; triangle to the right of green: deadweight loss It doesn't really matter who the tax is placed upon. The most important part is the elasticity of demand Price ceiling only has an effect if it is below the equilibrium price, and price floor only has an effect if it is above the equilibrium price. Elasticity: 1. Know the midpoint formula 2. Price elasticity 3. Cross elasticity 4. Income elasticity 5. Supply elasticity with respect to consumption If price of good x changes, the elasticity of good y will dictate how it the substitution effect will take place The difference between isoquants reflects increase in cost of production 1. Be able to pick out optimal production level Increase production (Quantity) as long as Marginal Revenue exceeds Marginal Cost and Average Revenue is greater than Average Variable Cost MR>MC And AR>AVC Consumption Diagram: Calculate elasticity of price, cross, income Production in Perfect Competition Perfect Competition in the Long-Run Equilibrium We earn 0 economic profit Produce at minimum ATC Potentially, we can have subsidies and maybe be better off if the market equilibrium is at the sociall optimal equilibrium because of externalities Social supply curve is not the same as the market supply curve It is actually inward, because it bears costs that the supplier doesn't bear ...
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This note was uploaded on 10/30/2008 for the course ECON 001 taught by Professor Zarnowski during the Spring '08 term at Dartmouth.

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Econ Midterm II Review - ATC MC M M CB A Py Px Px1 Econ...

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