Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
What Is Covered Econ 2 Final Exam Where: Price Center Theatre Date: Friday March 24 Time: 8:00-11:00 a.m. • Final is cumulative • Heavier emphasis on chapters (14&15) not covered on earlier midterms • Format: multiple choice and fill in the blank/short answer questions • Format similar to midterms • Length roughly equal to the two previous midterms combined The Big Concepts • Chapter 7 An Outline of Topics Covered In Econ 2 • Chapter 9 – – – – Definitions: total/marginal revenue/cost Calculation and graphing of the above Relationship of the above to elasticities Distinction between a firm and an industry’s demand/supply curves – Perfect competition: firm ignores impact of quantity sold on price because it is negligible – Imperfect competition: firm considers impact of quantity sold on price so it acts as if marginal revenue curve is different from the demand curve – Demand and supply Curves – Determining consumer and producer surplus – Efficiency in market occurs where sum of consumer and producer surplus is maximized – Impact of [price ceiling, quantity restriction, tax, subsidy] on consumer and producer surplus and concept of deadweight loss – Influence on demand and supply elasticities on the above – How markets adjust to achieve an equilibrium normally and in the case of constraints [e.g., price ceiling] – Conditions need for markets to be efficient: buyers & sellers well-informed, markets competitive, all relevant benefits and costs included in supply/demand curves – Forms of imperfect competition: monopoly, cartel, duopoly, oligopoly, monopolistic competition – Profit maximization at MR=MC – Price, output, and surpluses under a monopoly • Firm versus society perspective • Comparison to pure competition – Price discrimination – Characteristics of a natural monopoly – Characteristics of a cartel (OPEC as example) – Sources of market power – Government regulations against market power 1 • Chapter 10 – Three characteristics of an economic game • Players/agents • Possible actions/strategies • Payoffs – Decision tree – Credible threat – Dominant strategy – Nash equilibrium – Repeated game – Prisoner’s dilemma game – Ultimatum game • Characteristics of a commons • Commons as an externality • Private versus public/societal maximization in a commons – Why is it called the “tragedy of the commons” • Global examples of commons • Chapter 11 – Definition of positive and negative externalities – Implications of a divergence between private and social benefits (or cost) • Price, quantity, surpluses – Correcting externalities: tax/subsidy – Correcting externalities: regulation in the form of (individual firm) quantity restrictions – Correcting externalities: marketable permits and an aggregate quantity restriction – Coase theorem: definition, implications, limits • San Diego Airport – As the number of projected passengers increases what is the scare resource? • Slots (takeoff and landing) in particular time periods – Nature of the problem • Slots essentially have a zero price – Solution: make slots costly and slots at more desirable times more costly • Congestion (peak time) pricing • Auction off particular slots (marketable permits) • Chapter 12 – How is information valued? • Maximum willingness to pay for it (buy) • Minimum willingness to accept compensation (sell) – Examples of information providers • Stock markets • Real estate brokers • Ebay – Information and the free rider problem • Calculation of expected value • Risk: adverse, neutral, loving • Implication of asymmetric information – Lemons problem – Moral hazard – Adverse Selection • Signaling – Advertising – Education – Warranties • Insurance markets with asymmetric information – Adverse selection, moral hazard, statistical discrimination 2 • Chapter 13 – Labor supply as a derived demand • Marginal (physical) product of labor • Value of marginal product of labor=labor demand • Employment of labor by profit maximizing firm – VMP=wage – Special case of MB(=VMP) = MC(=wage) – Diminishing returns to labor – Difference between firm, industry, economy wide labor supply – Substitution and income effects with respect to the above • Income distribution – Needed corrections • Taxes paid (particularly important for top) • Transfers payments (particularly important for bottom) • Top 20% get 46% of income; bottom 20% gets 5% – Importance of college-high school grade wage gap in explaining income inequality – Importance of falling (real) minimum wage in explaining income inequality – Implications of increasing minimum wage – Implications of means testing transfer payments – Desirable properties of a negative income tax – Nature of the efficiency versus equity tradeoff – Generic difficulties in doing a benefit-cost analysis – Approaches to measuring benefits and costs – Determining optimal level of safety • Value to workers • Cost of technological solution • Why is it not desirable to eliminate all risks – Why government intervention is sometimes (not) desirable in mandating safety levels – Value of a statistical life • • • • Definition How can it be determined Typical range of values used Types of government decisions used in • Wage determination – All jobs alike, all people alike, all interests alike • Wages same for all people – Differences in human capital – Compensating wage differentials • Restrictions on labor markets – Minimum wages – Labor unions • Discrimination in labor markets – Need to control for human capital and working condition preferences (e.g., number of hours) – Why “pure” discrimination is not profit maximizing – Other possible reasons for discrimination • Chapter 14 – Definitions: consumer sovereignty, Pareto improvement, potential Pareto improvement, benefit-cost ratio, net benefits – Difference between voting and potential Pareto criteria – Benefit-cost analysis and net present value formula • Role of the discount rate – Maximizing net present value versus benefit/cost ratio > 1 • Implications of pollution as a negative externality • Why efficient pollution control requires setting marginal abatement cost to be the same for all firms – Why standard regulations fail at this – Why a pollution tax succeed – Why marketable pollution permits succeed • Auctioning off pollution permits – Crime as an expected value calculation/ways in which the cost of criminal activity can be increases 3 • Health – List of market imperfections • Growth in health care cost in the U.S. over time fraction of GDP and possible reasons • Organ transplants as an example of market failure • Why health insurance causes problems with the usual benefit-cost calculation people make before making purchases • Importance of technological change (particularly cost of hospital stays) in explaining rise in health care spending • Chapter 15 – Definition of a (pure) public good • Non-rival (no congestion externality) • Non-excludable (cannot keep from using good) – Classic examples (air quality, defense) – Commons, collective, and private goods – Value/demand for good • Private (horizontal summation WTP) • Public (vertical summation of WTP) • Show graphically • U.S. system of health insurance – Private • Employer provided • Individually purchased – Public • Elderly • Poor • Veterans – Uninsured • Why are employers involved rather than the government as is the case in most countries? • Why public goods are underprovided • Ways to get them provided – Creating excludability (collective goods but still under provision) – Bundling/by-products (e.g., TV ads) • Ways to measure WTP • Fundamental Problem With Taxes – Creates distortionary incentives • Matching tax incidence to WTP – Income and use • Tax incidence as function of income – Regressive – Proportional – Progressive – Optimal level of provision for a public good Types of Taxes • Objectives of a good tax system – Raise sufficient revenue for desired public goods – Minimize side (adverse) effects of taxes • Raising taxes – Taxing “bads” – Taxing goods with an inelastic demands – Problem: insufficient revenue from first two • • • • • • • • • • • Head tax Income tax Wage tax Consumption tax User fees Transactions tax Property tax Profit tax Value added tax Externality taxes Import/export tariff 4 Political Economy • Pork barrel legislation • Logrolling • Rent Seeking THE END • Good luck! • I will have office hours Tuesday 21st from 2pm-3pm 5