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MT2 review outline

MT2 review outline - B Taxes subsidies and price supports...

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Second Midterm Review Outline (Note: Asterisks denote concepts that I plan to illustrate with specific examples.) I) Production A) Production functions* 1) Isoquants 2) Returns to scale 3) Marginal returns B) Short Run vs. Long Run C) Cost Functions 1) Deriving them: MRTS = w/r* 2) Economies of scale: dAC/dq* II) Firms in Competitive Markets A) Firms as price takers: Horizontal residual demand B) Output decisions 1) MC = p* 2) Shut down decision (a) Long run (b) Short run C) Market supply: Horizontal sum across all firms III) Application of the competitive model: Welfare = PS + CS + Gov’t Revenue A) Welfare maximized at the competitive equilibrium
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Unformatted text preview: B) Taxes, subsidies, and price supports can change welfare IV) Applications of the competitive model: Externalities and Public Goods A) Competitive equilibrium is inefficient: Vertical sum of demand/supply curves B) Achieving the social optimum through taxes, subsidies, and quotas* V) General Equilibrium A) 2 person, 2 good exchange economies: Edgeworth box* 1) Pareto efficiency: MRS A = MRS B 2) Dictator 3) Bargaining 4) Competitive equilibrium B) First Welfare Theorem C) Second Welfare Theorem D) Production: comparative advantage...
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