Midterm 2 Study Guide
Midterm 2 Study Guide ECON 101
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This 2 page Study Guide was uploaded by user258 on Sunday March 13, 2016. The Study Guide belongs to ECON 101 at College of William and Mary taught by Dr. Katie Lopresti in Spring 2016. Since its upload, it has received 85 views. For similar materials see Principles of Microeconomics in Economcs at College of William and Mary.
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I'm pretty sure these materials are like the Rosetta Stone of note taking. Thanks Ellen!!!
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Date Created: 03/13/16
Exam 2 Study Guide Exam Date: 3/17/16 New Information to Know: Elasticity o Income Elasticity IED=(Q/I) x (Iavg/Qavg Negative—IE<0—Inferior Good Income Elastic—IE>1—Normal Good—Luxury Income Inelastic—0<IE<1—Normal Good—Necessity o Cross Price Elasticity E CPQ /x ) Y (P X avgQY avg E>0—Substitutes E<0—Compliments E=0—Unrelated o Elasticity of Supply E S(Q /SP) x (P avgQS avg E>1—Elastic E<1—Inelastic E=1—Unit Elastic Factors affecting elasticity of supply Resource substitution possibilities Time frame Welfare and Efficiency o Consumer surplus CS=(MB-P)/Q Area below demand and above price o Producer Surplus PS=(P-MC)/Q Area below price and above supply o Total Surplus TS=CS+PS TS=((MB-P)+(P-MC))/Q=(MB-MC)/Q Government Policies o Price Controls Price ceilings (rent control) Non-market allocation Consequences o Inefficient allocation o Wasted resources o Inefficiently low quality Price floors (minimum wage (price of labor)) Consequences o Surplus o Wasted resources o Inefficiently high quality o Quotas Max quantities of a good that can be legally sold o Taxes Tax on buyers Tax on sellers Creates wedge between the price customers pay and the price sellers receive Tax incidence (burden) Falls most heavily on the most inelastic side of the market Buyers: P -P* Producers: P*-P S Externalities o A cost or benefit arising from production or consumption that falls on someone other than the producer or consumer o Negative Production Externality Cost comes from producer Overproduction Solutions Regulation Corrective taxes o Negative Consumption Externality Cost comes from consumers o Positive Production Externality Benefit comes from production o Positive Consumption Externality Benefit comes from consumers Underproduction Solutions Subsidy equal to MEB Vouchers o Pollution Market Level regulation Same permitted number of units permitted per firm Cap and Trade Tradable pollution permits
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