micro review 2306-002
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This 6 page Study Guide was uploaded by IHUOMA ECHENDU on Tuesday May 10, 2016. The Study Guide belongs to 2306-002 at University of Texas at Arlington taught by Roger Wehr in Spring 2016. Since its upload, it has received 127 views. For similar materials see Microeconomics in Economcs at University of Texas at Arlington.
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Date Created: 05/10/16
OPTIONAL INSURANCE ASSIGNMENT 1. Economist associated with: Absolute advantage: Adam Smith Comparative advantage: David Ricardo 2. Formula: Producer equilibrium: MPL/PL = MPK/PK (minimizing cost of all inputs) Costminimization of an input: MRP=MRC (minimizing cost of a single input) MRP = ΔTR/ΔL MRC = ΔTC/ΔL MPL = ΔQ/ΔL MPK = ΔQ/ΔK Profit maximization for inputs: MRPL/PL = MRPK/PK = 1 Real wages (w): NOMINAL WAGES (W) ÷ PRICE LEVEL (P) 3. Nations that comprise: G2: U.S.A & Japan G5: U.S.A, Japan, U.K., France & Germany G7: U.S.A, Japan, U.K., France, Germany, Canada & Italy G8: G7 + Russia G10: G7 + Belgium, Sweden, Switzerland & Netherland (actually consists of 11 nations). G20: creditor nations G67: developing nations 4. Reason why the real wages rose following the plague (13471351): As workers died off, productivity went up and therefore the real wages went up. Supply of labor (SL) = demand for labor (DL) Nominal wages (W) = marginal revenue product (MRP) W = marginal revenue (MR) × marginal product of labor (MPL) W = price level (P) × MPL (W/P) = MPL Therfore, an increase in real wages equal an increase in marginal product of labor i.e. “w↑ = MPL↑” 5. Monopsony: is a market similar to a monopoly except that a large buyer not seller controls a large proportion of the market and drives the prices down. Sometimes referred to as the buyer's monopoly. A monopsonist is a single BUYER of an INPUT, pays less and hires more workers. Bilateral monopoly: a case in which there is both a labor union and a monopsonist. Natural monopoly: a case in which long run ATC continues to fall. Collective bargaining: negotiation of what wage rate or number of workers will be. 6. An increase in the factors of production and an improvement in technology will cause a ppf to shift to the right. 7. See note for graph and diagrams for the solution 8. When two nations have the same opportunity cost, it makes no sense to trade. See note for graph. 9. The carrot and stick regulation ties closely ties with the clean air act of 1990. The carrot represents benefits/rewards and the stick is a penalty. Examples of private regulators are ADA – American Dental Association, UL – Underwriters’ Laboratories, MPAA etc. 10. Flow: looking ata a unit per unit of time e.g. 1 gallon/hr, $1000/yr. income is a flow concept, as well as budget deficit. Stock: it’s stable amount compared to flow. It’s an accumulated amount. e.g. 6 gallons. Wealth is a stock concept as well as national debt. 11. Laffer curve created by arthur laffer is related to supply side economics and is a representation of the relationship between rates of taxation and the resulting levels of government revenue. See notes for graph 12. Three reasons for government intervention in a market: Antitrust the government needs to break up monopolies for prices to come down and more goods to be sold. Externalities cost or benefits incurred by a third party to a transaction. A cost is a negative externality while a benefit is a positive externality. Public goods a good which is both nonexclusive in consumption and nonrival I consumption. Its market demand is derived using a vertical summation and it poses a free rider problem. 13. Arbitrage buying at a low price and selling at a high price. Triangular arbitrage exploiting an arbitrage opportunity resulting froma pricing discrepancy among 3 different currencies in the foreign exchange market. 14. See note for graph. 15. An appreciation is an increase in the value of a currency relative to another currency. An appreciated currency is more valuable, expensive and can buy/be exchanged for a larger amount of foreighn currency. 16. An appreciation of yen in terms of dollar is a depreciation of dollar in terms of yen 17. $1=200Ɏ 400 Ɏ=8F (F/$) = (8F÷ 400Ɏ) (200Ɏ÷ $1) = (1600/400) = 4/1 = 4 18. Regulatory capture: large companies write regulations they are meant to be regulated by. 19. Progressive e.g. federal income tax Proportional e.g. flat tax Regressive e.g. sales tax 20. Cross subsidization is using the profit from one good to pay for another to function. Higher prices are charged to one group of consumers in order to subsidize lower prices for another group. Long distance airlines and telecommunications helped pay for sgort distances ones. 21. Revolving door: process where high level employees are moving back and forth from the public sector to the private sector. 22. Clean air act of 1990 created a market for pollution credits. VIEWS: The legislation only benefits land lords A B C 80 100 120 +20 0 20 The above example represents when one is given a pollution limit of 100… this ties with the carrot and stick regulation. ‘A’ is under 100, ‘B’ is on point and ‘C’ is over therefor ‘A’ gets the carrot and ‘C’ gets the stick. 23. Amakudari means descent from heaven and it ties with the revolving door and how it was bad for japanese banking Agio means to act on behalf 24. VER voluntary export restraint VIE voluntary import expansion WTO world trade organization MITI ministry of international trade and industry NAFTA north american free trade agreement GATT general agreement on tariffs 25. Supply side economics 26. Protectionism protecting a domestic industry from foreign cometition. Arguments: Jobs its appealing but in saving some jobs we lose some. National defense we need to be mindful of what we are protecting in order not to protect all including those we do not use anymore Infant industry – if you give an emerging industry much protection they would not grow Senile industry protecting old industries prevent you from goint to something bigger. Diversification the U.S. is already diverse. There is need to widen areas of protection and not just focus on one industry in case it fails. Macroeconomics if you export more and import less to protect your country other countries do it as well and trade wars like this altimately hurts the consumers 27. Currency exchange rate Distances limits goods and services traded Laws trade treaties and organizations 28. See note for graph, explanation and formulas. 29. Father of deregulation: Alfred Kahn Father of public choice theory: James Buchanan 30. Ted Kennedy started the deregulation movement in the U.S. and the airline industry was targetted. 31. This graph (open, closed tariff and quota economy) was handed out in class and can also be found in my notes posted on study soup. 32. Comparison between deregulation of airline and telephone industries: Crosssubsidiztion LDST subsidizing SDST Deregulated in 1984 Contrast: Airline was deregulated by legislation ADA of 1978 while telephone was deregulated by a court case. Cross subsidizatiom of airlines happened due to CAB settling rates based on distance while crosssubsidization of telephones happened due to conflicts between federal and state regulations. 33. To get the limits on the terms of trade, you have to have the opportunity cost for both nations. 34. Expected return: P1X1 + P2X2 + …PnXn Variance: (M – X1)² × P1 Standard deviation: the square root of the variance 35. The rule of 72 is a shortcut to estimate the number of years required to double your money at a given annual rate of return. The rule states that you divide the rate, expressed as a percentage, into 72: Years required to double investment = 72 ÷ compound annual interest rate. 36. Classical view of economy: the economy is inherently stable, and the help of government intervention destabilizes it. Keynsian view: the economy is inherently unstable and the interference of the government makes it stable. 37. Candarcet’s paradox: Problem of intransitivity The timing of the vote can dictate the outcome. Arrows impossiblility theorem: it’s impossible to devise a voting scheme that satisfies these criteria: transitive, no dictator and free if irrelevant outcomes. 38. New wave regulations: Safety e.g. operational safety and health agency (OSHA), national highway tariff safety administration (NHTSA) Environment e.g. environment protevtion agency EPA 39. CB>PB INELASTIC CB=PB UNIT ELASTIC CB<PB ELASTIC If the consumer pays all the burden, it’s perfectly inelastic If the producer pays all the burden, it’s perfectly elastic. 40. The principalagent problem develops when a principal creates an environment in which an agent's incentives don't align with its own. Generally, the onus is on the principal to create incentives for the agent to ensure they act as the principal wants. This includes everything from financial incentives to avoidance of information asymmetry. Therefore the problem comes when an agent does what’s in the best interest of themselves and not what benefits the principal. Examples of principles and agents are CEO (agent) and shareholders (principal), IRS (agent) and taxpayers (principal), politicians (agent) and society (principal) etc. 41. Government failure: due to the presence of government intervention, you get less or more than what’s socially optimal… it is more of a classical view. Market failure: due to the absence of government intervention, you get less or more than what’s socially optimal…it is more of a keynsian view of economics. 42. A private good is exclusive and rival in consumption while a public good isn’t. 43. Horizontal summation is used to derive the market demand of a private good and is calculated by adding up quantities given a particular price. Vertical summation is used to derive the market demand of a public good and is calculated by adding up prices given a particular quantity. 44. Wednesday 11 May 2016 from 11am – 1:30pm.
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