Download APEC3001-–-First-Review-Session

APEC3001 – First Review Session
Marc F. Bellemare
Fall 2015
Structure of the Exam
• Four multi-part questions
• No huge surprises: Everything on the exam
(save for bonus question) is stuff I discussed in
lecture/similar to book problems.
• 60 points -> 75 minutes. Budget your time
wisely, and you’ll have an extra 15 minutes at
the end.
• Don’t leave anything blank.
Structure of the Exam
• Non-scientific, non-graphing calculator OK.
Everything else (scientific, graphing calculator,
phones) is NOT OK.
• Mixture of more technical and essay-type
questions. Maybe some true-false questions
with justifications, maybe some definitions—I
want to reward all types of learner.
• Don’t leave anything blank.
Structure of the Exam
•For the love of
God and all that is
holy, don’t leave
anything blank!
Chapter 1
• The definition of economics
• The definition of scarcity
• Know and understand the first seven (i.e.,
micro) principles of economics and know
when to recognize their application
• Understand the efficiency versus equity
tradeoff
Chapter 1
• Know the definition of and understand the
notion of opportunity cost
• Understand what rationality means and
economics
• Understand the notion of choice at the margin
• Understand what incentives are
• Know the definition of market
Chapter 1
• Understand the notion of market failure and
give examples: externality, market power, etc.
• Efficiency versus equity in public policy making
Chapter 2
• Examples of opportunity cost
• Understand the process by which we gain
scientific knowledge, and how economists
employ the scientific method
• Understand what a model is
• Know what factors of production are, as well
as goods and services
• Understand the many relationships between
households and firms in an economy
Chapter 2
• Know what a production possibilities frontier
(PPF) is, and know how to graph one
• Understand how the PPF illustrates an
important tradeoff
• Know why economic growth displaces the PPF
outward
• Make sure you think about why a PPF might
be bow-shaped
Chapter 2
• Know the difference between positive and
normative statements
Chapter 3
• Understand the notion that trade can (this
does not mean will) make everyone better off
– recall our trinkets experiment
• Know how to graph a PPF if you haven’t
learned in chapter 2
• Know the definition of export
• Know the definition of imports
• Understand absolute versus comparative
advantage
Chapter 4
• Understand what a market is
• Understand what a competitive market is, and
what a perfectly competitive market looks like
• Understand what was so great about our
market experiment with playing cards
• Know the Law of Demand
• Know the difference between demand (i.e.,
the demand curve) and quantity demanded
Chapter 4
• Know how to graph a demand schedule
• Know how to add up demand curves so as to
obtain market demand
• Know what makes us move along the demand
curve and what shifts the demand curve
around
• Know the Law of Supply
• Know the difference between supply (i.e., the
supply curve) and quantity supplied
Chapter 4
• Know how to graph a supply schedule
• Know how to add up supply curves so as to
obtain market supply
• Know what makes us move along the supply
curve and what shifts the supply curve around
• Supply and demand put together –
understand the notion of market equilibrium
• Equilibrium prices and quantity
Chapter 4
• Shortage or excess demand
• Surplus or excess supply
• Understand how market forces push price and
quantity toward equilibrium
• Also understand the distortionary (i.e.,
shortage or surplus) of certain policies (e.g.,
rent control)
• Know how to analyze changes in equilibrium
(i.e., the three-step method).
Chapter 4
• Think about how prices allocate resources,
and how the price did that in our playingcards experiment
Chapter 5
The formula for elasticity: QP/PQ
Why we use the midpoint method
What determines price elasticity
The variety of demand curves (perfectly
inelastic, inelastic, unit elastic, elastic,
perfectly elastic)
• Why a linear demand curve does not have
constant elasticity
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Chapter 5
• Price elasticity of demand and the
maximization of total revenue
• Price elasticity of supply
• The variety of supply curves (perfectly
inelastic, inelastic, unit elastic, elastic,
perfectly elastic)
• The determinants of supply elasticity
• Other elasticities
Chapter 6
• Government policies that distort market
equilibrium: price ceilings and price floors,
taxes
• Shortages and rationing
• Evaluating price controls
• Taxes
• Taxes on buyers, taxes on sellers – what’s the
difference?
Chapter 6
• The incidence of a tax
• No matter who you tax, the incidence is the
same
• Elasticity and tax incidence – the incidence
largely falls on the side of the market who can
least avoid the tax (i.e., who has the lowest
price elasticity).
Chapter 7
• Welfare Economics
• How is welfare measured in the context of our
supply and demand graphs?
• Willingness to pay and the D curve
• Consumer surplus
• Willingness to sell (or cost) and the S curve
• Producer surplus
Chapter 7
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Total surplus
Efficiency
Evaluating different equilibria
Who consumes the good? Who sells it?
How is total surplus maximized?
Adam Smith and the Invisible Hand
Free market versus government intervention