revfinal2006part2

revfinal2006part2 - Review for Final Part 2 Exam is...

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Review for Final Part 2 Exam is Saturday, December 9, 2 pm. In our regular room (Comer Auditorium).
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Final is comprehensive Material is covered fairly evenly from all four units. Many multiple choice questions are similar to, but not identical to, the ones you've seen. Problems will look like ones you've seen before on paper homework or exams, but with different numbers.
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Format of Final? 40 multiple choice questions, worth 2 points each. (80 points) 20 points of short problems. You don't need a Scantron. You do need a calculator.
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Studying Online practice problems still available. Exam 1-4 multiple choice questions are available in Comer 308. You have to look at them there. You can’t photocopy them. I have announced some extra office hours via email.
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Average and Marginal Cost Output (y) MC AC AVC MC intersects AC and AVC at each minimum. AC gets closer to AVC as output increases
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Perfect Competition Market Efficiency:  The market is “efficient” under perfect competition in the absence of externalities.  It is efficient because price = MC.  Reservation prices of  the marginal buyer = reservation price of the marginal seller and all relevant costs and  benefits are captured by the market. 
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Externalities If there are externalities, the market equilibrium is not efficient because it does not capture all relevant costs (or all relevant benefits in the case of positive externalities).   If there are  externalities, people outside the market are affected by the transactions in the market but their welfare is not represented  in CS or PS.
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Suppose that a firm is located along a river.  The firm uses water from the river to cool its machinery and  returns the water to the river several degrees warmer, which has  led to a decline in the fish population downstream of the firm. The externality (the dead fish) is a relevant cost of production that is not  captured by the market equilibrium.  If a relevant cost is ignored, that means  the market price is  too low and market quantity too high.  If the firm had to  pay the cost for the dead fish, supply would decrease.  In this case, if the government fines the firm to account for society’s cost of the dead fish, efficiency in this market would increase.
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Suppose that an increase in the college-educated population  increases job opportunities and community well-being for everyone. In this case, the externality (increased job growth for all) is a relevant benefit  of consumption that is not captured by the market equilibrium.  If a relevant  benefit is ignored, that means the market price is  too high and market quantity  too low.   In this case, to reach the socially optimal level of output, the government will employ strategies to 
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This note was uploaded on 11/15/2011 for the course AGEC 7100 taught by Professor Duffy,p during the Fall '08 term at Auburn University.

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revfinal2006part2 - Review for Final Part 2 Exam is...

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