Download - Syllabus Fact-Check
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How the remaining class sections will go:
1. Lesson on Market Failure and the Role of the Government
2. Return to Public Goods & the Distribution of Income
3. Unit 5 Exam Returned and Reviewed (grades up to date)
4. Practice AP Exam5. Practice AP Exam
6. Review for AP Exam
7. AP Exam (5/16)
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Syllabus Fact-Check• Basic Economic Concepts (8–14%)• Supply and demand (15–20%)• Market equilibrium• Determinants of supply and demand• Price and quantity controls• Elasticity (Price, income, and cross-price elasticities of demand and Price elasticity of supply)• Consumer surplus, producer surplus, and allocative efficiency (9c)• Tax incidence and deadweight loss (chapter 6)• • B. Theory of consumer choice (5–10%)• Total utility and marginal utility• Utility maximization: equalizing marginal utility per dollar• Individual and market demand curves• Income and substitution effects• Q• C. Production and costs (10–15%)• Production functions: short and long run• Marginal product and diminishing returns• Short-run costs• Long-run costs and economies of scale• Cost minimizing input combination and productive efficiency• • D. Firm behavior and market structure (25–35%)• Profit: Accounting versus economic profits, Normal profit, and Profit maximization: MR=MC rule• Perfect competition: Profit maximization, Short-run supply and shutdown decision, Behavior of firms and markets in the short run and in the long run, and Efficiency and perfect competition• Monopoly: Sources of market power, Profit maximization, Inefficiency of monopoly, Price discrimination, and Natural Monopoly• Oligopoly: Interdependence, collusion, and cartels, Game theory and strategic behavior, Dominant strategy, and Nash equilibrium• Monopolistic competition: Product differentiation and role of advertising, Profit maximization, Short-run and long-run equilibrium, and Excess capacity and inefficiency• • III. Factor Markets (10–18%)• A. Derived factor demand• B. Marginal revenue product• C. Hiring decisions in the markets for labor and capital• D. Market distribution of income• • IV. Market Failure and the Role of Government (12–18%)• A. Externalities: Marginal social benefit and marginal social cost, Positive externalities, Negative externalities, and Remedies• B. Public goods: Public versus private goods and Provision of public goods• C. Public policy to promote competition: Antitrust policy and Regulation• D. Income distribution: Equity and Sources and measures of income inequality
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Children, begin gathering your past tests
Final will be 25% old test questions, 25% modified old test questions, 25% will be
modified final review questions, and 25% will be one bad mother
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Market Failure and the Role of the Government
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• Market Failure can result from imperfect competition, externalities, public goods, and imperfect information
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• Market failure results in the opposite of a market being in equilibrium, namely higher prices and a lower quantity… or low prices and too much without it being bought
• The solution for this would be obviously for the government to strive towards structuring a market more towards perfect competition…?
• 1776: Pure competition and liberal democracy
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Infinite buyers and sellers Zero entry and exit barriers
Perfect factor mobility in the long run Perfect information
Zero transaction costs (such as liscences) Profit maximization at where MC=MR
Homogenous products Non-increasing returns to scale
Property rights
More detailed, but we have covered all of this…
This is perfect competition… imperfect competition is the opposite
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Monopoly, oligopoly, and monopolistic competition are examples of imperfect competition
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Externalities• These are effects felt
beyond those involved in demanding and supplying… Not reflected in the price
• Think of them as “spillover effects”
• Pollution is the best example
• Negative Externalities are from a failure for someone to account for the harms of their actions
• Positive Externalities a failure to account for the unintended benefits
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OUR SECOND TO LAST GRAPH TYPE
The variables:•MB= Marginal Benefit of the individual buyer… Always declining (the Law of Diminishing Marginal Utility)•MSC or MSB=Marginal Social Cost or Benefit is when you examine the total effect of an externality in a market… cost is negative externality and benefit is positive externality•MEC or MEB= Marginal External Cost or Benefit is the additional externality gained from one more•MPC= Marginal Private Cost, what the buyer pays for each additional unit of product
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OUR SECOND TO LAST GRAPH TYPE
The variables:•MB= Marginal Benefit of the individual buyer… Always declining (the Law of Diminishing Marginal Utility)•MSC or MSB=Marginal Social Cost or Benefit is when you examine the total effect of an externality in a market… cost is negative externality and benefit is positive externality•MEC or MEB= Marginal External Cost or Benefit is the additional externality gained from one more•MPC= Marginal Private Cost, what the buyer pays for each additional unit of product
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Negative Externality Model Graph
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Positive Externality Model Graph
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What can you do to address externalities?
A Pigovian tax is a tax applied to a market activity that generates negative externalities. In such a case, the market outcome is not efficient and may lead to over-consumption of the product. A Pigovian tax equal to the negative externality is thought to correct the market outcome back to efficiency.
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Negative Externality Model Graph
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Remember, pollution is the cost of progress
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Negative effects of public goods and imperfect information
• Public goods (non-excludable and non-rival) can create moral hazard- a tendency to be more willing to take a risk, knowing that the potential costs or burdens of taking such risk will be borne, in whole or in part, by others…
• Imperfect Information means that some people in the market know something about economic realities which the rest of the market does not… Where the black gold is
• No prisoner dilemma applies• Insider Trading - radingof a
corporation's stock or other securities (such as bonds or stock options) by individuals with access to non-public information about the company.
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Your homework
• Find and read an article opinion on moral hazard or insider trading in the 2008 Financial Crisis… Come to class ready to discuss what you discovered
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Distribution of Income
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• How do you think the bottom 20% compares to the top 20% in terms of income brackets?
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• This top-heaviness of income has led to much social tension and questions about the essence of America
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• Only 42% of Americans think income inequality has increased in the past ten years
• Lowest in Maine, highest in Texas
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OUR LAST GRAPH1111!11!!• The vertical axis represents
the cumulative percentage of income, the horizontal axis measures the cumulative percentage of families beginning with the poorest and to the richest
• The perfect equality line means the bottom 10% would get 10% and so on… The line of inequality (known as the Lorenz Curve) is how it really is
• Gini coefficient is found by:
Shaded areatotal triangle area
If one person made all the income, what would the Gini coefficient be?
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1
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• Homework… Create two problems for each of the three themes we are studying
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TAX SYSTEMS, THREE KIND
• Proportional taxes maintain equal tax incidence regardless… Everyone pays 30%
• Regressive taxes take more money from those at the lower brackets… The top 10% pays 1% and the bottom 10% pays 30%
• Progressive taxes take more money from those at the upper brackets… The top 10% pays 30% and the bottom 10% pays 1%