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Review Class One Key points of Chapter 0 • Marginal analysis: •Relations between •Total magnitudes, •Average magnitudes, and •Marginal magnitudes. Key points of Chapter 0 1, MM is the slope of the TM curve; 2, AM is the slope of the ray starting from the origin to the point at the TM curve; (These two points are the geometrical definition.) Key points of Chapter 0 3, TM increases (decreases) if and only if MM > 0 ( MM < 0 ); 4, If TM is at maximum or minimum, then MM = 0; Key points of Chapter 0 5, AM increases (decreases) if and only if MM > AM ( MM < AM ); 6, If AM is at maximum or minimum, then MM = AM, or MM cuts AM at the later’s maximum or minimum. Key points of Chapter 0 • Warning: • 3 and 5 represent the sufficient and necessary conditions. • 4 and 6 represent only the sufficient conditions. • Analysis of your home work Key points of Chapter 1 • Welfare economics: • the study of how the allocation of resources affects economic well-being • Two very important definitions about the welfare economics: Key points of Chapter 1 A Pareto improvement is a change to make some people better off without hurting anybody else. •Pareto efficiency or Pareto optimal : • if there is already no way to make any more Pareto improvement. Key points of Chapter 1 • Pareto efficiency or Pareto optimal • Requires: exchange efficiency, production efficiency and product mix efficiency. Key points of Chapter 1 • Case One: Partial Equilibrium • Tool: Surplus, which measures the welfare of the actors. • Consumer surplus: • a buyer’s willingness to pay minus the amount the buyer actually pays. Key points of Chapter 1 • Geometrically, the area below the demand curve and above the price measures the consumer surplus in a market. • Producer surplus • the amount a seller is paid for a product minus the seller’s variable cost. Key points of Chapter 1 • Geometrically, The area below the price and above the supply curve measures the producer surplus in a market. • Total surplus=consumer surplus +producer surplus+(….) • Central rule: the market reaches the Pareto Efficiency if the total surplus reaches its maximum. 注意 • 前页的的核心法则已经改动,原来的表述是一 个充要条件,但是并不成立。 • 从排队的问题可以发现,一个状态是帕累托最 优,然而它的福利可以不是最大值 • 但是反过来,如果这个状态已经达到福利的最 大值,则可以推导出这个状态是帕累托最优。 • 总结来说,判断帕累托最优还是要从定义下手, 看是否有帕累托改进的可能。 Key points of Chapter 1 • Competitive market • Monopoly • Rent control Key points of Chapter 1 • Case Two: Production • Tool: Production Possibility Frontier, which symbolizes the maximum level of productivity. • Central rule: the economy reaches the production efficiency if and only if it is on the PPF. Key points of Chapter 1 • Fundamental theorems of welfare economics: • Every competitive economy is Pareto efficiency. • Every Pareto efficient resource allocation can be attained through a competitive market mechanism, with the appropriate initial redistributions. Key points of Chapter 1 • Warning: • The above two definitions describe the Property of allocation of resources, but they are not concerned explicitly with inequality. • There are many possible states of Pareto Efficiency. Key points of Chapter 2 • Two important definitions: • The budget set consists of all bundles that are affordable at the given prices and income. • The budget line consists of all bundles that just exhaust the consumer’s income. Key points of Chapter 2 • Slope of the budget line measures the opportunity cost. • Graph of the lump sum tax.( Remember the lump sum tax is imposed on the behavior of the consumption.) • Subsidies The end Thank you