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Midterm 2 Study Guide

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by: user258

Midterm 2 Study Guide ECON 101



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About this Document

This study guide covers the new information covered since the previous exam
Principles of Microeconomics
Dr. Katie Lopresti
Study Guide
Microeconomics, Economics
50 ?




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"I'm pretty sure these materials are like the Rosetta Stone of note taking. Thanks Ellen!!!"
Oliver Nicolas

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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.


Reviews for Midterm 2 Study Guide

Star Star Star Star Star

I'm pretty sure these materials are like the Rosetta Stone of note taking. Thanks Ellen!!!

-Oliver Nicolas


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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 CPQ /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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