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by: Mandy Schmitt


Mandy Schmitt
OK State
GPA 3.53

Russell Evans

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Russell Evans
Study Guide
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This 0 page Study Guide was uploaded by Mandy Schmitt on Sunday November 1, 2015. The Study Guide belongs to ECON 2103 at Oklahoma State University taught by Russell Evans in Fall. Since its upload, it has received 37 views. For similar materials see /class/232927/econ-2103-oklahoma-state-university in Economcs at Oklahoma State University.




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Date Created: 11/01/15
Econ 2103 Exam 2 Study Guide A more complete study guide as well as some sample questions will be available on this website Monday March 21 Our exam will cover chapters 7 8 10 and a brief overview of l 1 Your studies should follow closely the material presented in class as well as the material covered by the in class assignments Chapter 7 We discussed the concepts of consumer and producer surplus We even illustrated the concepts using cards and selling fictitious A s in the class We observed that many market participants are able to purchase a good or service at a price below the maximum price they would have been willing to pay The difference between the maximum price consumers are willing and able to pay and the market price they do pay is called consumer surplus Analogously the difference between the minimum price that producers must receive to cover their opportunity costs of production and the market price they do receive is called producer surplus Adding consumer and producer surplus together gives a measure of wellbeing generated by the market called total economic surplus We also noted that competitive markets are efficient that is they generally maximize total economic surplus Chapter 8 We illustrated again the incidence of a perunit excise tax Using our analysis from chapter 7 we were able to see the reduction in consumer and producer surplus We also gained a better understanding of the deadweight loss associated with taxation When the tax is imposed the resulting reduction in total economic surplus is greater than the tax revenues raised This additional reduction in total economic surplus is the deadweight loss or excess burden of the tax We did note however that we might be willing to tolerate the reduction in total economic surplus if the tax resulted in a more equitable distribution of well being This served to illustrate the tradeoff between equity and efficiency Chapter 10 We discussed the nature of extemalities the imposition of costs or bene ts on non consenting third parties resulting from market activities We illustrated this as a divergence between the private and social costs bene ts of productive activity We noted that an ef cient allocation of resources required the balancing of social costs anal social bene ts We discussed ways that ef ciency the maximizing of total economic surplus could be restored in the presence of extemalities application of the Coase theorem regulation Pigouvian taxes and issuing tradeable pollution permits The in class assignment currently scheduled for completion on Tuesday serves as an illustration of how this material might lend itself to a shortanswer question Chapter 11 We will brie y discuss public goods on Tuesday Public goods have two distinguishing qualities First they are nonrival consumption of the good by one party does not limit the consumption possibilities of another party Second the are nonexcludable once the good has been provided it is provided for all regardless of whether or not individuals have participated in the nancing of the good Consider as an example National Defense Defending one city against invasion does not considerably diminish the ability of the armed forces to defend another city Consumption by one does not limit the consumption possibilities of another Also National Defense is provided nationally regardless of whether or not funding that defense is provided through tax payments The tax evader is just as protected as the taxpayer National Defense is nonexcludable Because of these two characteristics there is always an incentive to understate your valuation of the good thereby inducing others to provide the good and permitting your consumption at a lower price The attempt to induce others to provide the good for your consumption is known as free riding In the extreme case everyone free rides and the private market fails to provide the good at all This result is clearly inef cient and often requires government intervention to restore ef ciency


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