final exam sheet - Exogenous Variables: are determined by...

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Exogenous Variables : are determined by factors not discussed in the model (OR apts); Endogenous Variables : are determined by forces within the model (IR apts) Optimization principle : people try to choose the best patterns of consumption they can afford Equilibrium principle : prices adjust until the amount that people demand of something is equal to the amount that is supplied Reservation Price : the highest price that a person is will accept and still purchase the good, the point where they’re indifferent Competitive Market : many independent landlords, each out to sell apts at the highest price possible. It’s Pareto Efficient. Effect of Creating Condominiums : equilibrium price is unchanged because demand and supply both shift left by the same amount Effect of Tax on apts : equilibrium price P* remains unchanged because supply curve and demand curve remain unchanged. Landlords bare the brunt of the tax themselves. Effect of Rent Control : if max price is set less than P*->excess demand. Different people will get apts than in the competitive market depending on who has more time to shop. Discriminating Monopolist : Landlord decides to auction each apt off to the highest bidder, so each apt is sold for the highest price possible. Same buyers receive apts as in competitive market. Each buyer pays their reservation price. It’s Pareto Efficient. Ordinary Monopolist : Landlord doesn’t sell apts at equilibrium price p*, but chooses his selling price to maximize revenue. Not all apts will be sold, but maximum revenue will be made. Not Pareto Efficient. Pareto Improvement : way to make someone better off w.out making others worse off; Pareto Inefficient : if can make Pareto Improvements Pareto Efficient : if no more Pareto Improvements are possible. All gains from trade are exhausted and realized. Outcome of competitive market is Pareto efficient. Comparative Statistics: comparing two static equilibria without worrying about how the market moves from one equilibrium to another Budget Set: consists of all bundles of goods that the consumer can afford at given prices and income; Slope of Budget Line: measure the opportunity cost of consuming good 1.Budget Constraint: P1X1 + P2X2 ≤ m; Budget Line: P1X1 + P2X2 = m; -P1/ P2 = slope; m/ P2 = vertical intercept; m/ P1 = horizontal intercept Numeraire: the numeraire price is the price relative to which we are measuring the other price and income. It is the variable you divide both sides of the equation by Quantity Tax: the consumer has to pay a certain amount to the government for each unit of the good he purchases. For the consumer it’s just like making the price higher by “t”. It makes the budget line steeper.; Value Tax (ad valorem): expressed in percentage terms, it’s a tax on the value of a good. Quantity Subsidy: just like the quantity tax except it makes the price cheaper by “t”. It makes the budget line flatter. Lump Sum Subsidy/Tax: shifts the budget line in or out, because it adds or subtracts directly from your budget
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This note was uploaded on 09/23/2010 for the course BMGT 381 taught by Professor Dawson during the Spring '10 term at University of Maryland Baltimore.

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final exam sheet - Exogenous Variables: are determined by...

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