Everything since last exam

33 questions
check for example quiz
can use calculator

1st question about cross-price elasticity

Epba  will not calculate  put into equation
Will tell you whether they are sub or compliments
If pos they re subs
If neg they are compliments

#3,4,5 will be about price controls

know 2 types of price control
price ceiling
price floor
know whether they are binding or not binding
if they are not binding, we are done
if they are binding, we either have surplus or shortage… impact
classic example: floor = minimum wage
ceiling = rent control
when are they binding
what will be the consequence
** know story about minimum wage****
when is it binding
who benefits from it – how many
who will be hurt from it – how many people
go to lab sheets and find one about minimum wage and understand it

#next few questions are about taxes

know: when a tax is imposed in a given market – it does not matter where the
tax will create wedge between paid and receive – price paid will be higher
tax will shrink market – equil will be lower
buyers and seelers share burden
burden of tax will fall more heavily on the least elastic
less elastic you are the more you will pay
tax creates dead weight loss

will be asked to calculate whole rectangle for amount of tax – length pb-ps
what is dead weight loss—triangle on inside
 He will make it with easy numbers
Burden of taxation – tax will fall more heavily on least elastic side of mkt

WELFARE ECONOMY –
WILL BE DOMINATE PART OF EXAM!!!!!!!!!!!!!!
Go back to get lab sheets
Example of Alicia of bottle water
Willingness to pay
Cost of production
Csurplus – area above price below demand curve
Psurplus – above supply but below price – ½ b *h
Tsurplus – consumer + producer; or whole traiangle, when Qo is produced – value
to buyers – cost to sellers
Definition in words
And be able to calculate
Look at all lab sheets

Go back and identify with area –

Many many questions
Must master this section
Use this to revisit taxation!!! Question might be about taxes and welfare

CASE OF TAXATION
Have to know story – economy working freely then govt puts tax on mkt – then say how
will tax affect peoples well-being… compare surpluses before and after tax… which
creates a dead-weight lost (little traiangle)
Equity/efficency – know difference
Greatest ts = efficency

bigger tax = bigger elasticity

Remember the laffer curve

What determines dwl – elasticity
Tax revenue vs tax size
Calculate and identify and why there is a dwl lost
And determine size
Calculation between tax collection and tax

INTERNATIONAL TRADE!!!
Know story of international trade
When we open economy we face world price which may be higher or lower than
domestic price

If higher, we ceome export – consumers are worse off producers are btter, society is
better off
If lower – we are import consumers are better off, producers are worse off, society is
better off

Draw this graphically

c
pw a

d
pw #2

know args for national trade

unfair competition
protection as
there are 5

10 questions all together

2 ways
tariff
set quota - limit on qtys you can import

have to have in mind pic of tariff

sss
What is qty imported when imported
What is qty imported
What is tax collection when tariff-
What is dwl created by tariff – two little triangles on either side of tax collection

What is cs before tariff

What is cs after tariff
Etc more like this!!!!
Know whole story!!!!!!!!!!!!!!!

Might be cases where some govt is needed

Externality
EXTERNALITY
Really need to know this story – whole story
Uncompensated effort of someones actions on the wellbeing of a bystander
Pos or neg
Noises pollution – neg
Education taxation – pos
When there is an externality mkt fails to allocate resources efficency, the mkt
fails!
What can you do
1. nothing- let people talk it out… boom box. When where there be a deal?
When will there not be a deal?

Coase theory
If choose to do
2. require good behavior, prohibit bad behavior
3. put tax on neg externality, subsidize pos externality

tell in words and work out in picture

another mrkt failure is PUBLIC GOODS AND COMMON GOODS

can classify a group if good is exclusible or rival in consumption

yes no
yes private natural mono

no common resources public good