ECN 201 – STUDY GUIDE INSTRUCTIONS Instructions:
I usually hand write my study guide so it becomes muscle memory, but you can use a computer if you want.
1. Start by writing out the definitions that you do not know well or concepts. 2. I would then go through my notes and read over what I wrote.
3. I always wrote out the equations because they will not be given on the test most of the time.
4. Then I would work through the homework problems that were given in class
a. Work through them without looking at the answers. If you are able to do them then you will be fine for the open ended
5. Take pictures from the PowerPoints if they help with the definitions.
6. Go back through the readings and identify the main concept of what they are saying. 7. Highlight concepts that you went over a lot in class, they will be the most important
questions on the test.
8. Go back over the PowerPoints and ask questions on concepts you do not understand way BEFORE the exam.
a. If you do them last minute, you will not do well on the test b. You can not cram information the night before
9. Add in examples that you went over in class because those same examples will most likely be on the test.
Sample:
Supply & Demand in Labor Markets
Demand change factors: educations, training, and productivity
Supply change factors: # of workers, education requirements, and change in government (policies, demographic changes.
Minimum wage – price floor makes it illegal for an employer to pay less than minimum wage. When minimum wage rises it leads to a deadweight loss for people that could have been working for a smaller amount of pay.
Price Elasticity, Total Revenue, and Price Total Revenue = Price x Quantity
TR = P x Q
Percent change in total revenue % ∆TR ≈ % ∆P+ % ∆QD
Price elasticity of demand: % change in quantity demanded given a % change in price. Midpoint Method:
|e |=%∆Q %∆Q = Q1-Q0 / avg. Q %∆P %∆P = P1-P0 / avg. P
Price elasticity of supply: % change in quantity supplied given a % change in price. Midpoint Method:
|e |=%∆Q %∆Q = Q1-Q0 / avg. Q %∆P %∆P = P1-P0 / avg. P |e (d)| > 1 price elastic
|e (d)|= 1 price unit elastic |e (d)| < 1 price inelastic
**normal goods are not always luxury goods
but luxury goods are always normal goods **necessities are always normal goods
Cross-Price Elasticity of Demand/Supply = %∆Q / %∆Price
Effects of an excise tax.
- With a tax of $.30 you would add that tax to your equilibrium price of $1.80. o Then there will be a new quantity and price amount.
o Also deceasing quantity demanded.
Tax (per unit) = price paid by buyers – price received by sellers
Tax wedge short cut – where the $ equals for suppliers and consumers for their total tax. S **Burden of the taxes fall on the sellers.
**Less price elastic bearing more of the burden on tax.
** Tax revenue = $.30 X $1.60 million = $480,000 per month Tax revenue = tax X quantity
Why do they want to implement these taxes? POLITICAL REASONS – they promised money to a certain department (i.e. education) so they need to get the money in other things (i.e. soda tax).
- Sometimes it doesn’t work because customers will go out of state to buy their goods. o Philly consumers will go to NJ for soda products/sweetened products
An establishment is a single physical location where one activity takes place. A firm is an establishment of multiple establishments.
Production – process of combining inputs to produce outputs, ideally of a value greater than the value of inputs.
- Input: milk
- Output: parmesan cheese
Monopolistic – similar but not identical, some market power (ex. restaurants) Oligopoly – few; identical or similar (ex: Uber and Lyft)
Monopoly – one; unique (ex: Netflix) Profit = revenue – cost
Revenue = price x quantity
Explicit costs – out of pocket (ex: wages or rent)
Implicit costs – opportunity costs (ex: one’s own time and energy, when starting up a new firm) Accounting profit = total revenue – explicit cost
Economics profit = total revenue – total costs (including explicit and implicit)
The total costs of production: include labor costs, cost of physical capital investments, raw materials, etc.
Fixed costs: are costs that cannot be changed in the short run and do not vary w/ the level of production (ex: rental and machinery)
Variable costs: costs that can be changed in the short run and do not vary with level of production (ex: transportation, packaging, other raw material, etc.)
Total costs (TC) = fixed costs + variable costs Average cost (AC) = total cost / Q
Average cost (AC) = Average Fixed costs (AFC) + Average Variable costs (AVC) Marginal cost (MC) = ∆TC / ∆Q or ∆VC / ∆Q
Short run: period of time during which at least some factors of production are fixed (inputs). Long run: period of time during which all factors of production are available.
- Firms can build new factories, purchase equipment, enter (exit) markets - All costs are variable costs (no fixed costs)
Production technology: method or process of combining inputs to product outputs.
Economies of scale: when the average cost of producing each individual unit declines as total output increases.
Pure competition: many firms product identical products (ex: wheat)
- there are many buyers available to buy the product and many sellers available to sell the product
- buyers and sellers all have revenant info. To make rational decisions about product being bought and sold
- firms can enter or exit a market without restrictions
- firms can take market prices as given (firms are price makers) Profit = (Price – AC) X Q
(economic) profit: TR > TC / P > AC No (economic) profit: TR = TC / P = AC
(economic) loss: TR < TC / P < AC Marginal revenue (MR) = ∆TR / ∆Q
