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AU / Economics / ECON 2020 / What are the defining characteristics of nitrogen oxide?

What are the defining characteristics of nitrogen oxide?

What are the defining characteristics of nitrogen oxide?

Description

School: Auburn University
Department: Economics
Course: PRINCIPLES OF MICROECONOMICS
Professor: William finck
Term: Fall 2016
Tags: Microeconomics
Cost: 50
Name: ECON 2020 (Dr. Macy Finck) Exam 5 Study Guide
Description: This detailed study guide covers all necessary information for the fifth exam (includes all terms, concepts, graphs, and equations that you need to know [highlighted]). It also includes the answers to the problem set.
Uploaded: 11/27/2016
20 Pages 56 Views 10 Unlocks
Reviews


ECON 2020 (Exam 5 Study Guide)


What are the defining characteristics of nitrogen oxide?



Lecture 1: Oligopoly

• Oligopoly:  

o Characteristics: 

1. Few, mutually interdependent firms  

2. High barriers to entry 

3. Imperfect information 

o Implications: 

1. Actions of 1 firm will affect the market 

2. (Long Run Profit) LRΠ can be > 0 

3. Strategic cheating possible 

• Market (Incentive to Collude) Graph: 

o Collusion – cooperation among firms to raise each other’s profits 


Why do developing nations have more air pollution?



We also discuss several other topics like What does peninsula of peninsulas mean?
Don't forget about the age old question of What are the 4 stages of group development?

• Cartel – agreement among firms to restrict output to achieve monopoly power o Cartel Facts: 

▪ Cartels are illegal in the U.S.  

▪ Cartels can increase profits to all firms regardless of product type ▪ When all members follow the rules, firms split monopoly profit  (best group outcome) 

• Firm (Incentive to Cheat) Graph: 


What are the types of smog?



We also discuss several other topics like How does the orientation of earth’s axis change with time?

o Lowering the price attracts new consumers plus consumers from other  firms; Ed increases We also discuss several other topics like Is anecdoche a real word?

o The Cheat Demand line becomes more elastic

ECON 2020 (Exam 5 Study Guide)

• Game Theory – 2 players make 1 decision independently and at the same time;  move of other players is unknown  

• Prisoner’s Dilemma – game in which the payoffs are such that the choice set that  maximizes total welfare fails to maximize individual welfare 

o Maximum Total Welfare – highest sum of profits

o Maximum Individual Welfare – determine best choice in each scenario

• Factors that Break Down Collusion: 

o Large number of sellers If you want to learn more check out What is chi square utilized for?
We also discuss several other topics like What was the human population size in 1999?

o Differentiated products 

o Differences in costs 

o Antitrust policy 

Lecture 2: Labor Markets

• Circular Flow:

• Demand for labor:

o Derived Demand – demand for a resource that depends on the demand for  the products it helps to produce (there is a direct relationship between the  demand for the product and the demand for labor) 

▪ As wage rate falls, the working force decreases  

▪ As wage rate rises, the working force increases

• Labor Market Graph:

ECON 2020 (Exam 5 Study Guide)

o We = equilibrium wage rate

o Le = equilibrium level of employment  

• Profit Maximization:

o Effects of Hiring a Worker: 

▪ Quantity of output rises  

▪ Total revenue rises 

▪ Total cost rises 

o Profit is maximized when ΔTR = ΔTC

• Marginal Revenue Product of Labor – the ΔTR from a 1 unit increase in L  o When a worker is hired, Q rises by MPL 

o When those units are sold, the firm earns MR on each

▪ MRPL = MR * MPL 

• Marginal Factor Cost – the ΔTC from a 1 unit increase in L 

o If we assume that labor is the firm’s only variable cost, then we calculate  Total Variable Cost:

▪ TVC = Labor * Wage

▪ MFC = ΔTVC

• Firms find the profit-maximizing level of employment (L*) where: o L* = MRPL = MFC

• Perfect Competition: 

o Characteristics: 

▪ Many small employers compete for many workers with identical  skills  

▪ Firms are “price takers” – they face a perfectly elastic supply of  labor  

• Profit Maximization: MFC = ΔTVC = W (for Perfect Competition Only)

L

W

TVC

MFC

1

8

8

8

2

8

16

8

3

8

24

8

4

8

32

8

ECON 2020 (Exam 5 Study Guide)

• Finding L* Graph (Perfect Competition): 

• Finding L* Math (Perfect Competition):

▪ Example:

o W = $9 and MRPL = 48 – 3L

o Find L*

▪ Solution:

o MRPL = 48 – 3L and MFC = 9

o 9 = 48 – 3L

o 3L = 39

▪ L* = 13 workers

• Finding L* Table (Perfect Competition):

L

Q

MPL

MR

MRPL

MFC = W

1

10

10

3

30

6

2

18

8

3

24

6

3

22

4

3

12

6

4

24

2

3

6

6

5

25

1

3

3

6

• L* = 4 workers

• Product/Output Market Structure – it is Perfect Competition if MR is constant; it  is Monopoly if MR is decreasing  

Lecture 3

• Monopsony: 

o Characteristics: 

▪ A single buyer (employer) in an industry 

▪ A monopsonist faces the entire, upward-sloping market supply  curve 

▪ Monopsonists are “price makers,” but as L rises, W rises as well  • Finding L* and W* Table (Monopsony):

ECON 2020 (Exam 5 Study Guide)

L

Q

MPL

MR

MRPL

W

TVC

MFC

1

12

12

5

60

2

2

2

2

22

10

4

40

4

8

6

3

31

9

3

27

6

18

10

4

38

7

2

14

8

32

14

5

43

5

1

5

10

50

18

o TVC = L (labor) * W (wage)

▪ L* = 4 workers

▪ W* = $8 (Exploitation of Labor: W < MRPL)

▪ Output Market: Monopoly

• Finding L* and W* Graph (Monopsony): 

o Find L* where MRPL = MFC

o Go to Supply curve to find W*

• Finding L* and W* Math (Monopsony):

▪ Example:

o MRPL = 55 – 3L and W = 6 + 2L

▪ Find L* and W*

o W = a + bL ---- MFC = a + 2bL

▪ MFC = 6 + 4L

o 55 – 3L = 6 + 4L

o 7L = 49

▪ L* = 7

o W* = 6 + 2(7)

o W* = 6 + 14

▪ W* = $20

• Labor Union – a group of workers organized to advance the interests of the  group (don’t confuse with a cartel) 

o Goals: 

▪ Maximize wages (within the union)

ECON 2020 (Exam 5 Study Guide)

▪ Maximize employment (within the union) 

o Problem: 

▪ According to the Law of Demand, when W rises, L falls 

• Factors that Increase Demand for Labor (DL): 

o Increase in the D for output 

▪ Action: advertise union-made 

o Increase in members’ productivity (D = MRPL = MR * MPL) ▪ Action: apprenticeship programs 

o Increase in the price of substitute labor 

▪ Action: lobby for minimum wage increases  

• Factors that Decrease Elastic Demand of Demand for Labor (Ed of DL):  o Decrease in the Ed for output 

▪ Action: lobby for import restrictions 

o Decrease the number of substitute inputs 

▪ Action: lobby for more immigration laws 

• Strike – the withholding of labor services by a labor union  Lecture 4: Role of the Government and Externalities

• Role of the Government in the United States: 

o Define and enforce Property Rights 

o Correct Market Failure (externalities, public goods) 

o Additional regulation 

• Enforcement of Property Rights: 

o Provide National Defense (against foreign aggressors) 

o Provide Police Protection (against domestic aggressors) 

o Legal Enforcement of Contracts (protection against fraud) 

• Market Failure – the inability of a market to bring about the socially optimal  allocation of resources 

• Marginal Social Cost – the additional cost imposed on society as a whole by  an additional unit of a good 

• Marginal Social Benefit – the additional gain to society as a whole from an  additional unit 

o MC – MB Rule: 

▪ The socially optimal quantity of a good occurs where: 

• MSC = MSB 

▪ Supply and Demand represent the private costs and benefits,  thus MSC = MSB in most markets 

▪ Externalities – external costs or benefits

ECON 2020 (Exam 5 Study Guide)

• Negative Externalities & External Costs (i.e. – pollution): 

o An uncompensated cost that an individual or firm imposes on others: ▪ MSC = S + Marginal External Cost 

o Without regulation; Marginal Social Cost > Marginal Social Benefit o Socially optimal Q < Qe 

o Appropriate Government Policy – tax, causing output to fall ▪ Optimal Tax = MEC

o PC = Consumer Price & PP = Producer Price

o Qe is before government involvement (want to go from Qe to Qopt): ▪ TAX

• Positive Externalities & External Benefits (i.e. – school): 

o An uncompensated benefit that an individual or firm confers on others: ▪ MSB = D + Marginal External Benefit 

o Without regulation, Marginal Social Benefit > Marginal Social Cost o Socially optimal Q > Qe

o Appropriate Government Policy – subsidize, causing output to rise

ECON 2020 (Exam 5 Study Guide)

▪ Subsidy – payment designed to encourage activities that yield  external benefits 

• Optimal Subsidy = MEB

o SUBSIDIZE

• Example:

o Negative Externality

o Unregulated: Q = 100 & P = 20 (MSC > MSB)

o Optimal Policy: Tax of $7

o Regulated: Q = 80 & P = $23

Lecture 5: Public Goods & Excise Taxes

• Public Goods – goods that are both non-rival in consumption and non-excludable  • Non-Rival in Consumption – good for which one person’s benefit does not reduce  the benefit available to others 

ECON 2020 (Exam 5 Study Guide)

• Non-Excludable – good for which the supplier cannot prevent non-payers from  obtaining benefits (fireworks display, police assistance, etc.) 

• Free-Rider Problem – the inability of potential providers of a good or service to  obtain payment from those who benefit 

o Problem: private firms will not sell goods that are non-excludable  o Solution: Government must provide public goods such that MSB = MSC • Example of Public Goods:

o A study group must decide how many hours of tutoring to purchase o MSC = $20 per hour

o Group = 4 party animals and 2 bookworms

▪ Example: MSC = 20

Q

MBBW

MBPA

Total MSB

1

8

4

(8*2) + (4*4) = 32

2

7

3

(7*2) + (3*4) = 26

3

6

2

(6*2) + (2*4) = 20

4

5

1

5

4

0

o Total MSB = (MB1*Pop1) + (MB2*Pop2)

▪ QOPTIMAL = 3 hours

• Excise Tax – per-unit tax levied on the production of a specific good o Goal of the Government = Maximize Revenue  

o Goal of the Producer = pass the burden to the consumers  

• Excise Tax Graph: 

o When the market is taxed, supply shifts vertically by the amount of the tax o Pc = Consumer Price

o Pp = Producer Price  

▪ Pc – Pp = Amount of Tax

ECON 2020 (Exam 5 Study Guide)

o Consumer Burden = Pc, A, B, Pe

o Producer Burden = Pe, B, C, Pp

o Tax Revenue = Pc, A, C, Pp

o Deadweight Loss = A, B, C

• Tax Incidence and Elasticity Graph:

o When demand is relatively inelastic: 

▪ Producers will pass on the majority of the tax 

▪ Consumers will bear a larger share of the burden 

• Tax Incidence and Elasticity Graph:

o When demand is relatively elastic: 

▪ Producers will pass on little of the tax 

▪ Producers will bear a larger share of the burden

ECON 2020 (Exam 5 Study Guide)

Lecture 1: Oligopoly

• Oligopoly:  

o Characteristics: 

1. Few, mutually interdependent firms  

2. High barriers to entry 

3. Imperfect information 

o Implications: 

1. Actions of 1 firm will affect the market 

2. (Long Run Profit) LRΠ can be > 0 

3. Strategic cheating possible 

• Market (Incentive to Collude) Graph: 

o Collusion – cooperation among firms to raise each other’s profits 

• Cartel – agreement among firms to restrict output to achieve monopoly power o Cartel Facts: 

▪ Cartels are illegal in the U.S.  

▪ Cartels can increase profits to all firms regardless of product type ▪ When all members follow the rules, firms split monopoly profit  (best group outcome) 

• Firm (Incentive to Cheat) Graph: 

o Lowering the price attracts new consumers plus consumers from other  firms; Ed increases

o The Cheat Demand line becomes more elastic

ECON 2020 (Exam 5 Study Guide)

• Game Theory – 2 players make 1 decision independently and at the same time;  move of other players is unknown  

• Prisoner’s Dilemma – game in which the payoffs are such that the choice set that  maximizes total welfare fails to maximize individual welfare 

o Maximum Total Welfare – highest sum of profits

o Maximum Individual Welfare – determine best choice in each scenario

• Factors that Break Down Collusion: 

o Large number of sellers 

o Differentiated products 

o Differences in costs 

o Antitrust policy 

Lecture 2: Labor Markets

• Circular Flow:

• Demand for labor:

o Derived Demand – demand for a resource that depends on the demand for  the products it helps to produce (there is a direct relationship between the  demand for the product and the demand for labor) 

▪ As wage rate falls, the working force decreases  

▪ As wage rate rises, the working force increases

• Labor Market Graph:

ECON 2020 (Exam 5 Study Guide)

o We = equilibrium wage rate

o Le = equilibrium level of employment  

• Profit Maximization:

o Effects of Hiring a Worker: 

▪ Quantity of output rises  

▪ Total revenue rises 

▪ Total cost rises 

o Profit is maximized when ΔTR = ΔTC

• Marginal Revenue Product of Labor – the ΔTR from a 1 unit increase in L  o When a worker is hired, Q rises by MPL 

o When those units are sold, the firm earns MR on each

▪ MRPL = MR * MPL 

• Marginal Factor Cost – the ΔTC from a 1 unit increase in L 

o If we assume that labor is the firm’s only variable cost, then we calculate  Total Variable Cost:

▪ TVC = Labor * Wage

▪ MFC = ΔTVC

• Firms find the profit-maximizing level of employment (L*) where: o L* = MRPL = MFC

• Perfect Competition: 

o Characteristics: 

▪ Many small employers compete for many workers with identical  skills  

▪ Firms are “price takers” – they face a perfectly elastic supply of  labor  

• Profit Maximization: MFC = ΔTVC = W (for Perfect Competition Only)

L

W

TVC

MFC

1

8

8

8

2

8

16

8

3

8

24

8

4

8

32

8

ECON 2020 (Exam 5 Study Guide)

• Finding L* Graph (Perfect Competition): 

• Finding L* Math (Perfect Competition):

▪ Example:

o W = $9 and MRPL = 48 – 3L

o Find L*

▪ Solution:

o MRPL = 48 – 3L and MFC = 9

o 9 = 48 – 3L

o 3L = 39

▪ L* = 13 workers

• Finding L* Table (Perfect Competition):

L

Q

MPL

MR

MRPL

MFC = W

1

10

10

3

30

6

2

18

8

3

24

6

3

22

4

3

12

6

4

24

2

3

6

6

5

25

1

3

3

6

• L* = 4 workers

• Product/Output Market Structure – it is Perfect Competition if MR is constant; it  is Monopoly if MR is decreasing  

Lecture 3

• Monopsony: 

o Characteristics: 

▪ A single buyer (employer) in an industry 

▪ A monopsonist faces the entire, upward-sloping market supply  curve 

▪ Monopsonists are “price makers,” but as L rises, W rises as well  • Finding L* and W* Table (Monopsony):

ECON 2020 (Exam 5 Study Guide)

L

Q

MPL

MR

MRPL

W

TVC

MFC

1

12

12

5

60

2

2

2

2

22

10

4

40

4

8

6

3

31

9

3

27

6

18

10

4

38

7

2

14

8

32

14

5

43

5

1

5

10

50

18

o TVC = L (labor) * W (wage)

▪ L* = 4 workers

▪ W* = $8 (Exploitation of Labor: W < MRPL)

▪ Output Market: Monopoly

• Finding L* and W* Graph (Monopsony): 

o Find L* where MRPL = MFC

o Go to Supply curve to find W*

• Finding L* and W* Math (Monopsony):

▪ Example:

o MRPL = 55 – 3L and W = 6 + 2L

▪ Find L* and W*

o W = a + bL ---- MFC = a + 2bL

▪ MFC = 6 + 4L

o 55 – 3L = 6 + 4L

o 7L = 49

▪ L* = 7

o W* = 6 + 2(7)

o W* = 6 + 14

▪ W* = $20

• Labor Union – a group of workers organized to advance the interests of the  group (don’t confuse with a cartel) 

o Goals: 

▪ Maximize wages (within the union)

ECON 2020 (Exam 5 Study Guide)

▪ Maximize employment (within the union) 

o Problem: 

▪ According to the Law of Demand, when W rises, L falls 

• Factors that Increase Demand for Labor (DL): 

o Increase in the D for output 

▪ Action: advertise union-made 

o Increase in members’ productivity (D = MRPL = MR * MPL) ▪ Action: apprenticeship programs 

o Increase in the price of substitute labor 

▪ Action: lobby for minimum wage increases  

• Factors that Decrease Elastic Demand of Demand for Labor (Ed of DL):  o Decrease in the Ed for output 

▪ Action: lobby for import restrictions 

o Decrease the number of substitute inputs 

▪ Action: lobby for more immigration laws 

• Strike – the withholding of labor services by a labor union  Lecture 4: Role of the Government and Externalities

• Role of the Government in the United States: 

o Define and enforce Property Rights 

o Correct Market Failure (externalities, public goods) 

o Additional regulation 

• Enforcement of Property Rights: 

o Provide National Defense (against foreign aggressors) 

o Provide Police Protection (against domestic aggressors) 

o Legal Enforcement of Contracts (protection against fraud) 

• Market Failure – the inability of a market to bring about the socially optimal  allocation of resources 

• Marginal Social Cost – the additional cost imposed on society as a whole by  an additional unit of a good 

• Marginal Social Benefit – the additional gain to society as a whole from an  additional unit 

o MC – MB Rule: 

▪ The socially optimal quantity of a good occurs where: 

• MSC = MSB 

▪ Supply and Demand represent the private costs and benefits,  thus MSC = MSB in most markets 

▪ Externalities – external costs or benefits

ECON 2020 (Exam 5 Study Guide)

• Negative Externalities & External Costs (i.e. – pollution): 

o An uncompensated cost that an individual or firm imposes on others: ▪ MSC = S + Marginal External Cost 

o Without regulation; Marginal Social Cost > Marginal Social Benefit o Socially optimal Q < Qe 

o Appropriate Government Policy – tax, causing output to fall ▪ Optimal Tax = MEC

o PC = Consumer Price & PP = Producer Price

o Qe is before government involvement (want to go from Qe to Qopt): ▪ TAX

• Positive Externalities & External Benefits (i.e. – school): 

o An uncompensated benefit that an individual or firm confers on others: ▪ MSB = D + Marginal External Benefit 

o Without regulation, Marginal Social Benefit > Marginal Social Cost o Socially optimal Q > Qe

o Appropriate Government Policy – subsidize, causing output to rise

ECON 2020 (Exam 5 Study Guide)

▪ Subsidy – payment designed to encourage activities that yield  external benefits 

• Optimal Subsidy = MEB

o SUBSIDIZE

• Example:

o Negative Externality

o Unregulated: Q = 100 & P = 20 (MSC > MSB)

o Optimal Policy: Tax of $7

o Regulated: Q = 80 & P = $23

Lecture 5: Public Goods & Excise Taxes

• Public Goods – goods that are both non-rival in consumption and non-excludable  • Non-Rival in Consumption – good for which one person’s benefit does not reduce  the benefit available to others 

ECON 2020 (Exam 5 Study Guide)

• Non-Excludable – good for which the supplier cannot prevent non-payers from  obtaining benefits (fireworks display, police assistance, etc.) 

• Free-Rider Problem – the inability of potential providers of a good or service to  obtain payment from those who benefit 

o Problem: private firms will not sell goods that are non-excludable  o Solution: Government must provide public goods such that MSB = MSC • Example of Public Goods:

o A study group must decide how many hours of tutoring to purchase o MSC = $20 per hour

o Group = 4 party animals and 2 bookworms

▪ Example: MSC = 20

Q

MBBW

MBPA

Total MSB

1

8

4

(8*2) + (4*4) = 32

2

7

3

(7*2) + (3*4) = 26

3

6

2

(6*2) + (2*4) = 20

4

5

1

5

4

0

o Total MSB = (MB1*Pop1) + (MB2*Pop2)

▪ QOPTIMAL = 3 hours

• Excise Tax – per-unit tax levied on the production of a specific good o Goal of the Government = Maximize Revenue  

o Goal of the Producer = pass the burden to the consumers  

• Excise Tax Graph: 

o When the market is taxed, supply shifts vertically by the amount of the tax o Pc = Consumer Price

o Pp = Producer Price  

▪ Pc – Pp = Amount of Tax

ECON 2020 (Exam 5 Study Guide)

o Consumer Burden = Pc, A, B, Pe

o Producer Burden = Pe, B, C, Pp

o Tax Revenue = Pc, A, C, Pp

o Deadweight Loss = A, B, C

• Tax Incidence and Elasticity Graph:

o When demand is relatively inelastic: 

▪ Producers will pass on the majority of the tax 

▪ Consumers will bear a larger share of the burden 

• Tax Incidence and Elasticity Graph:

o When demand is relatively elastic: 

▪ Producers will pass on little of the tax 

▪ Producers will bear a larger share of the burden

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