- •3. Difference between micro and macro economics.Role of economists in making policy
- •4 . Absolute advantage and comparative advantage.
- •5. How comparative advantage explains the gains from trade
- •6.The meaning of market. Determine the characteristics of competitive market
- •7.Describe a type of market that is not perfectly competitive
- •8.Determine the demand for a good in a competitive market.
- •11.Describe the role of prices in market economies
- •12.The meaning of the elasticity of demand.Determine the elasyicity of Demand
- •13.Explain the ways of computing the price elasticity of demand
- •14.Explain the relationship between total revenue and the price elasticity of demand
- •15.Explain the meaning and types of the elasticityof Supply. Determine the elasticity of Supply
- •17. Describe the different types of controls on prices. Give the real world examples of these two kinds of price controls.
- •18. Explain how price ceilings affect market outcomes. Draw the graphs.
- •19. Explain how price floors affect market outcomes. Draw the graphs.
- •21. The meaning of tax. Explain how taxes on buyers affect market outcomes.
- •22. How does elasticity affect the burden of a tax? Justify your answer using supply-demand diagrams.
- •24. Explain how to define and measure producer surplus.
- •25. Using a demand-supply diagram, explain and identify the following areas:consumer surplus, producer surplus, total surplus.
- •26. The meaning of total surplus in a market, and describe why might it be a good measure of economic well-being. Using a demand-supply diagram, show the areas representing total surplus
- •27. Name two types of market failure. Explain why each may cause market outcomes to be inefficient
- •28. Explain how taxes reduce consumer and producer surplus.
- •29. The meaning and causes of the deadweight loss from a tax.
- •30 Describe why some taxes have larger deadweight losses than others. Explain how tax revenue and deadweight loss vary with the size of a tax.
- •31. Explain the Laffer curve and supply-side economics.
- •32. Explain what determines whether a country imports or exports a good.
- •33. Explain who wins and who losses from international trade.
- •37The meaning of tariff. Describe its economic effects.
- •39Determine the arguments people use to advocate trade restrictions.
- •40 Describe what happens to the gains from trade when a tax is imposed.
- •42 Describe why externalities can make market outcomes inefficient. Use the graphs to explain.
- •43 The types of private solutions to externality. Define the Coase theorem.
- •44. Determine why private solutions to externalities sometimes do not work
- •45. Identify the various government policies aimed at solving the problem of externalities
- •46. Describe the different kinds of goods, and give an example of each
- •47. The importance of free-rider problem. Explain why private markets fail to provide public goods.
- •Implicit Costs
- •53.Explain the various measures of cost. Give the meaning of average total cost and marginal cost and explain how they are related.
- •Variable Costs
- •54 Describe the relationship between short-run and long-run costs
- •55. Explain how competitive firms decide when to shut down production temporarily and how competitive firms decide whether to exit and enter a market?
- •56. Explain why some markets have only one seller. Describe how a monopoly determines the quantity to produce and the price to charge.
A more educated population benefits society:
lower crime rates: educated people have more opportunities, so less likely to rob and steal
better government: educated people make better-informed voters
People do not consider these external benefits when deciding how much education to “purchase”
Result: market eq’m quantity of education too low
How govt may improve the market outcome:
subsidize cost of education
43 The types of private solutions to externality. Define the Coase theorem.
Types of private solutions:
moral codes and social sanctions, e.g., the “Golden Rule”
charities, e.g., the Sierra Club
contracts between market participants and the affected bystanders
The Coase theorem states that private parties can find efficient solutions to externalities without government intervention. The theorem states that if trade in an externality is possible and there are sufficiently low transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property. In practice, obstacles to bargaining or poorly defined property rights can prevent Coasian bargaining
The CoaseTheorem: An Example
Dick owns a dog named Spot. Negative externality: Spot’s barking disturbs Jane, Dick’s neighbor.
The socially efficient outcome maximizes Dick’s + Jane’s well-being. •If Dick values having Spot more than Jane values peace & quiet, the dog should stay.
Coase theorem: The private market will reach the efficient outcome on its own…
The CoaseTheorem: An Example
•CASE 1: Dick has the right to keep Spot. Benefit to Dick of having Spot = $500 Cost to Jane of Spot’s barking = $800
•Socially efficient outcome: Spot goes bye-bye.
•Private outcome: Jane pays Dick $600 to get rid of Spot, both Jane and Dick are better off.
•Private outcome = efficient outcome.
The CoaseTheorem: An Example
•CASE 2: Dick has the right to keep Spot. Benefit to Dick of having Spot = $1000 Cost to Jane of Spot’s barking = $800
•Socially efficient outcome: See Spot stay.
•Private outcome: Jane not willing to pay more than $800, Dick not willing to accept less than $1000, so Spot stays.
•Private outcome = efficient outcome.
The CoaseTheorem: An Example
•CASE 3: Benefit to Dick of having Spot = $500 Cost to Jane of Spot’s barking = $800 But Jane has the legal right to peace & quiet.
•Socially efficient outcome: Dick keeps Spot. •Private outcome: Dick pays Jane $600 to put up with Spot’s barking. •Private outcome = efficient outcome.
The private market achieves the efficient outcome The private market achieves the efficient outcome regardless of the initial distribution of rights.