Principles of Macroeconomics

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University of Wisconsin Department of Economics Economics 101: Principles of Microeconomics Korinna K. Hansen Learning Guide 3 Due Date: Week of Monday, February 12 th , 2007 Reading Assignment: Case & Fair Chapter 3 (mostly beyond page 59) and all of Chapter 4 and Lecture Material. Problem Assignment: Problems 6, 8 on page74. Also problems 8, 9 and 10 on pages 92, 93. Objectives: After completing the assignment you should be able to do the following: 1. State the Law of Supply. 2. State all the determinants of supply. Given a change in one of the determinants draw the new supply curve and briefly explain your graph. 3. Understand what causes a movement along the supply curve versus a shift of the supply. 4. Graph a linear supply and demand curves given their functional form. 5. Draw an aggregate (market) supply curve from individual supply curves. 6. Describe the market equilibrium and explain why it is stable.
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Unformatted text preview: 7. Define the consumer surplus (CS) and calculate it if you are given a specific demand and supply curve. 8. Define the producer surplus (PS) and calculate it if you are given a specific demand and supply curve. 9. Define a price floor and explain and calculate market changes in P*, Q*, CS and PS after the introduction of a price floor. 10. Define a price ceiling and explain and calculate market changes in P*, Q*, CS and PS after the introduction of a price ceiling. 11. Describe how a world price that is lower than the domestic price with free trade can lead to imports in a market and changes in welfare for all parties involved. Be able to show all these changes on a graph and given specific linear demand and supply curves be able to calculate the relevant areas (for consumer and producer surplus)....
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