Study Guide

Study Guide - Micro Review Rival in consumption the same good cannot be consumed by more than one person at the same time Excludable the owner of

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Micro Review Rival in consumption- the same good cannot be consumed by more than one person at the same time Excludable- the owner of the good can prevent others from consuming it. Rival in Consumption Non Rival in Consumption Excludable Private Goods Artificially Scarce Goods Non Excludable Common Resources Public Goods Demand: The choke price is on the price axis (price that drives demand to zero) Supply: The choke price is on the price axis (price that drives supply to zero) Deriving Aggregate Demand functions: 1. Graph individual and aggregate demands 2. Identify kink points (choke prices) 3. Solve for the demand aggregation for the different regions defined by the kink point Consumer Surplus: Rises as Price Falls. CS= ½ * (demand choke price- P*) x Q* Producer Surplus: Falls as price falls. PS= ½ * (P*- supply choke price) x Q* Total Surplus: CS+ PS+ Government Revenue Tax Revenue: Tax x Q* Tax and market equilibrium: P^D= P^S + Tax. Taxes generate government revenue, cost firms. Discourage firms from entering the polluting industry. Deadweight loss is the difference between the total surpluses Subsidy and market equilibrium: P^D + subsidy=P^S. Subsidies cost government revenue, benefit firms. Encourages firms to enter the polluting industry. Pareto Improvement Criteria: Pursue the policy if it makes someone better off but no one worse off. Difficult to disagree with this decision rule. Very stringent, even though all policies generate winners and losers. In practice, implies that almost every policy will be rejected.
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/28/2012 for the course EC 336 taught by Professor Chen during the Spring '11 term at N.C. State.

Ask a homework question - tutors are online