Economics 2005 Exam 2 Review
Economics 2005 Exam 2 Review ECON 2005
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This 2 page Study Guide was uploaded by Tim Reynolds on Tuesday March 29, 2016. The Study Guide belongs to ECON 2005 at Virginia Polytechnic Institute and State University taught by Steve Trost in Spring 2016. Since its upload, it has received 58 views. For similar materials see Principles of Economics in Economcs at Virginia Polytechnic Institute and State University.
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Date Created: 03/29/16
Exam 2 Review Structure 36 multiple choice questions – evenly distributed (fewer from chapter 6) 48 minutes Topics Chapter 6: - Theory of the consumer o Consumers maximizing utility given their income o Marginal utility Law of diminishing marginal utility o Maximizing utility (MU/P=MU/P for all goods and spend all income) o LDMU and a regressive tax system - Budget lines – rotate if P changes, shift out if income increases (I/P1 vs. I/P2) - Consumers o Consumer surplus- above P below D curve o Producer surplus- below P and above S curve o Total surplus- CS + PS o Deadweight loss- whenever Q is not “right.” (Not in equilibrium) Chapter 7: - Inputs: Minimizing Costs o Land, Labor, Capital, Entrepreneurial skill. o Production technology. Choose technology and inputs to minimize costs for each level of output. o Marginal productivity and marginal costs. o Law of diminishing returns (in the short run). - Firms, production, and costs (Ch. 7) o Firms maximize profits (TR-TC) o Accounting vs. economic costs (implicit and explicit) o Costs (TC,FC,VC,AFC,ATC,MC) o Know how tall the costs relate to each other (TC=FC+MC, MC= change in TC / change in Q, MC hits AC at minimum) o LRAC- economies of scale, diseconomies of scale, “minimum efficient scale” - Short run costs o ATC-AVC = AFC Chapter 8: - Perfect competition o “price takers” o Homogeneous product o Everyone has access to full information o Unrestricted entry/exit to market o Prices are not fixed/regulated o Be familiar with “picture” of the firm. o Flat demand curve for individual firm o P=MC (MC=MR) gives profit – maximizing quantity o P=MC is efficient from the society’s standpoint o LR competitive equilibrium o Allocative and productive efficiency in the LR - Short and long run in PC o Shut down vs. production n the short run Stay if P> or equal to AVC, shut down if P< AVC (lose fixed costs) Short run vs. Long run Chapter 9: - Monopoly o There are no close substitutes and there are significant barriers to entry (patents, government, etc.) o Monopolist’s demand curve is the market demand curve o MR is not the same as price or the demand curve since a monopolist must lower price in order to sell more. o To maximize profits, choose Q such that MR=MC then choose price off demand curve o Know where profits are on picture o Not efficient since P>MC (Q to low, P to high) and not at minimum of ATC - Monopolies, etc. o Natural monopolies (large economies of scale) o Price discrimination: First (perfect) Second degree (unobservable characteristics) Third degree (observable characteristics) BEST WAYS TO STUDY: 1. Read over notes/copy down important bits 2. Look over graphs/draw pictures 3. Take practice exam 4. Read Book chapters GOOD LUCK!!!!
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