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final exam review

final exam review - PAM 2000 Intermediate Microeconomics...

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PAM 2000 – Intermediate Microeconomics   Final Cumulative Review Supply and Demand Demand curve: A demand curve shows the quantity of a good buyers are  willing to buy  at  various prices,  ceteris paribus , such as the income of buyers, price of substitutes, etc. o Ceteris paribus  = all other things being held constant, same, equal o Reflects the “Law of demand”: As the price of any good rises, the quantity purchased  of the good falls,  ceteris paribus o Q O D  = a - bP O  + cY + dP s  – eP Shift in demand curve o Income of demanders (unless the good is inferior) o Price of substitutes: if price of substitute increases, demand for good X will increase o Price of complements: if price of complement increases, then demand for good X will  decrease o Expectations about the future, etc. Movement along demand curve   change in price  Supply curve: “Supply” is the quantity of a good a seller is  willing to sell  at various  prices,  ceteris paribus . (note that it is  willingness  to sell)  o “Quantity Supplied” is the quantity of a good suppliers are willing to sell at each  price,  ceteris paribus  o Factors that shift supply o Price of inputs (like labor, capital) o Technology  Market: An  institution  that has  evolved  to facilitate exchange between buyers and sellers  (not just a place); equilibrium: the quantity and price combination once reached, there is a  tendency to remain FDA Drug Approval process o Non-market allocation  o Prior 1962 Amendments to the Food, Drug and Cosmetics Act of 1938 (Kefauver- Harris Amendments), FDA had to approve within 180 days  o 1962 amendments added “proof of efficacy in intended use”  Removed time constraints 
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By 1970s time to approval time had risen to 8 to 10 years  Costly testing: $800 million per drug  Costly delays: delay of beta blockers cost 250,000 lives  o Two types of error Type 1: error of introducing an unsafe drug Type 2: error of withholding a beneficial drug (more common) Law of Unintended Consequences: how  policy will affect behavior  in unintended ways  that may reduce benefits of the policy  o Price floor: excess supply (minimum wage) o Price ceiling   shortage of supply Allocative efficiency: when the MB of the last unit produced equals the marginal cost of  producing it; if prices move freely, market achieves allocative efficiency o Minimum wage is an (allocatively) inefficient way to transfer money to the poor  (price floor)   excess supply of labor o Only one out of every 11 minimum wage workers is the head of a household  o Employment Policy Institute: An increase in the federal minimum wage to $7.25 
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