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UM / Economics / ECO 211 / How do you reduce poverty?

How do you reduce poverty?

How do you reduce poverty?

Description

School: University of Miami
Department: Economics
Course: Principles of Microeconomics
Professor: David spigelman
Term: Spring 2016
Tags: Microeconomics, Nash equilibrium, and Minimum Wage
Cost: 50
Name: ECO 211 Exam 2 Study Guide
Description: These notes cover materials from the review sessions and lectures for the second exam. The study guide has detailed graphs, tables, and explanations for everything mentioned in the lecture and reviews.
Uploaded: 03/21/2016
11 Pages 221 Views 25 Unlocks
Reviews

Matilde D'Amore (Rating: )

Yes YES!! Thank you for these. I'm such a bad notetaker :/ will definitely be looking forward to these



Friday, March 18, 2016


How do you reduce poverty?



ECO211 Exam 2 Study Guide

Taxes, Excludable & Rival Goods

- taxes: to correct market failures, raise revenues, redistribute funds, and finance  operations

- Progressive taxes: fall more heavily on rich people (the higher the income, the higher  the tax)

- Regressive taxes: falls more heavily on poor people

- Budget surplus: Tax revenues are greater than spending

- Budget deficit: Spending is greater than tax revenue

- Specific tax: tax on a specific good (example: alcohol tax, gasoline tax) Welfare Loss from taxes

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No Tax (1)

With Tax (2)

2-1

Consumer

A+B+C

A

-B-C

Producer

D+E+F

F

-D-E

Government

0

B+D

B+D

Welfare

-C-E


What encouraged research and development, technology, and innovations?



*Welfare is negative: There is a welfare loss/ dead weight loss from taxes.

Consumer Price (PC) - Supplier Price (PS) = Tax  

*The graph shows that who you tax (supplier or producer) doesn’t matter. The change of  quantity will be the same.* If you want to learn more check out Proto­ language doesn’t have syntax, and only have words for concrete concepts. has a simple, what?

- Incidence: burden from a tax

- Incidence of a specific tax doesn’t depend on who you tax, it only depends  on the relative elasticity of the supply and demand, and whoever (produce/ consumer) has the more inelastic curve will bare the greater share of the  burden from the tax.


What are the two ways to regulate a high fixed cost monopoly?



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- The supply curve is steep (inelastic)

-The price change for the customer is less  

than the price change for the producer

-The supplier has more burden from the tax  

because of the inelasticity of the supply  

curve.

- The demand curve is steep (inelastic) If you want to learn more check out Water vapor converted to a liquid; latent heat is released; atmosphere must be at saturation.

- The price change for the producer is  

less than the price change for the  

consumer.  

- The consumer has more burden from  

the tax because of the inelasticity of  

the demand curve.  

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- Excludable VS Rival Goods  

- Excludable: can prevent somebody from using it (things you have to pay for) - Rival: something that is congested  

Excludable

Rival

YES

NO

Private Goods

Common Resources

Crowded Toll Road, University Education

Brickell Road at rush hour

Club Goods

Public Goods

uncrowded toll road, Coral Gables Police

Country Road

Don't forget about the age old question of What are the characteristics of sound waves?
Don't forget about the age old question of What is the difference between antigenic drift and antigenic shift?

- Pigouvian Taxes

- There is a deadweight loss if the  

market operates where demand and  

supply intersect.  

-There is a welfare gain with  

pigouvian taxes, if the market goes  

back to the equilibrium where supply  

and demand intersect, there is  We also discuss several other topics like What are the two main roles of dna?

welfare loss

-The pigouvian tax (MSC curve)  

makes the market more efficient.  

- MSB = (Marginal Benefit+ Marginal External  

Benefit)

- There is a deadweight loss if the market  

operates where demand intersects supply

- The pigovian tax (MSB curve) makes the  If you want to learn more check out What does culture do?

market efficient  

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* Pigouvian taxes are used to maximize welfare*

* Possible test question: There is NO welfare lost in a pigouvian tax, there is only  welfare gain*

- Excludable VS Rival Goods  

- Excludable: can prevent somebody from using it (things you have to pay for) - Rival: something that is congested  

Excludable

Rival

YES

NO

Private Goods

Common Resources

Crowded Toll Road, University Education

Brickell Road at rush hour

Club Goods

Public Goods

uncrowded toll road, Coral Gables Police

Country Road

* Possible Test Question: How do you allocate public goods?*

* Use cost and benefit analysis and set marginal cost equal to marginal benefit  (MC=MB)

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Wages, Labor, Monopoly, Nash Equilibrium  

- Minimum wage

•If wage is above E (Equilibrium), then  

the quantity demanded for labor is less  

than the quantity supplied for labor  

(A < B).

•There will be an excess of labor  

causing unemployment.  

- Maximum Wage

•If wage is below E (Equilibrium), then  

the quantity demanded for labor is  

higher than the quantity supply for labor  

(A > B)

•There will be a deficit of labor causing  

the wage to go back up to the  

equilibrium point.  

•Maximum wage is ineffective because  

the price will always go back to E.  

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-Firm: Equilibrium from the industry (Marginal Cost= Marginal Benefit) • Demand = Value of Marginal Product of labor (D=VMPL)

• Price x Marginal Product of Labor =VMPL (OR) Price x (change in price/ change in  quantity)

- Price cannot be controlled by firm or industry (controlled by the market), but  industries can manipulate Marginal Product of Labor  

Possible Test Question

How do you raise standard of living? OR How do you reduce poverty?

-To raise wage, shift the demand curve up

• To raise wage there must be an increase in human capital (HK), physical  capital (K), or technology (T)

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• Wage increases =VMPL increases = HK, K, T increases = Price x Marginal  Product of Labor increases

• To accumulate capital for growth:

• Domestic savings

• Foreign investments

• Foreign aid  

- There is a a welfare loss from monopoly

- Monopoly is encouraged for research and development, technology and innovations - High Fixed Cost Natural Monopoly

• type of industry regulated by setting output

- Walmart Type Natural Monopoly  

• doesn’t have high fixed cost (everything is cheaper)

• output is not regulated, but the number of stores allowed to open is regulated  (example: There can only be 3 Walmarts in Miami)

Possible Test question: What is the type of firm that is set by regulating output? - high fixed cost monopoly  

Possible Test Question: Why are high fixed cost natural monopolies regulated? - to increase welfare

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Possible Test Question: What are the two ways to regulate a high fixed cost  monopoly?

1) Produce at the point where AC intersects the Demand curve 2) Produce at the point where Demand curve intersects the MC curve • producing at this point(2) will create a loss because it’s below the AC curve  

• firms must be subsidized to make up for the loss (shaded area) of profit  when operating at point 2

- Nash Equilibrium  

- results when players optimize by only looking out for themselves  - Cournot Equilibrium: if players choose their level of output  

- Dominant Strategy: strategy that is best regardless of what the other player does 9

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Game Theory and Nash Equilibrium Example

Does Clyde have a dominant strategy?  

1) Look at the first column of the table for Clyde (upper left square, lower left square) • If Clyde confesses and Bonnie confesses: (Clyde 6 years)

• If Clyde doesn’t confess and Bonnie confesses: (Clyde 7 years)

• If Clyde confesses he gets 6 years in prison, if he doesn’t he gets 7 years. Clyde will  confess because 6 years is better than 7 years.  

2) Look at the first column of the table (upper right square, lower right square) • If Clyde confesses and Bonnie doesn’t confess: (Clyde 4 years)

• If Clyde doesn’t confess and Bonnie doesn’t confess: (Clyde 5 years)

• If Clyde confesses even when bonnie doesn’t, he gets 4 years in prison. If he  doesn’t confess, he gets 5 years. Clyde will confess because 4 years is better than 5  years.  

* Clyde is better off if he confesses therefore the dominant strategy for him is to  confess*

Does Bonnie have a dominant strategy?

1) Look at the first row for Bonnie (upper left square, upper right square) • If Bonnie confesses and Clyde confesses: (Bonnie 10 years)

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• If Bonnie doesn’t confess and Clyde confesses: (Bonnie 11 years)

• If Bonnie confesses, she gets 10 years instead of 11. Bonnie will confess because  10 years is better than 11 years.

2) Look at the second row for Bonnie (lower left square, lower right square) • If Bonnie confesses and Clyde doesn’t confess: (Bonnie 6 years) • If Bonnie doesn’t confess and Clyde doesn’t confess: (Bonnie 8 years)

• If Bonnie confesses, she gets 6 years instead of 8 years. Bonnie will confess  because 6 years is better than 8 years.  

* Bonnie is better off if he confesses therefore the dominant strategy for her is to  confess.*

*Nash Equilibrium is at the upper left square because both will confess.*  

*The lower right square is the idle choice, but they can’t get there because they can’t  collude.*

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