06e104 Study Guide Copy

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06E:104 Microeconomic Theory

Tippie College of Business/College of Liberal Arts and Sciences Economics

Course Prepared by

Thomas Pogue, Ph.D.

3 Semester Hours11 Written Assignments

2 Examinations

Prerequisite: 06E:001 and 22M:017 or consent of instructor


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Copyright 2007 The University of Iowa. All rights reserved.

No part of this publication may be reproduced in any form by any means

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The University of Iowa

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06E:104 Microeconomic TheoryTippie College of Business/College of Liberal Arts and Sciences

Economics

Course Contents

Section A: Course LessonsAbout the Coursewriter ........................................................ ............................................... 6 Introduction ........................................................ ....................................................... .......... 7

About This Course .................................................................................................. 7 Course Organization ............................................................................................... 7 Examinations........................................................................................................... 8 Cheating .................................................................................................................. 9 Required Course Materials ..................................................................................... 9 Web and E-mail Options .................................................... ................................... 10 Evaluation and Course Grade ............................................................................... 12

Unit 1 Introduction ...................................................... ...................................................... 13 Lesson 1 Introduction to the Study of Microeconomics .................................................. 14

What You Should Know .................................................... ................................... 14 Reading and Study Assignment .................................................. .......................... 14 Graded Assignment .................................................. ............................................. 14

Unit 2 Demand, Supply, and Market Equilibrium .................................................... ........ 15 Lesson 2 Demand and Supply............................................. ............................................. 16

What You Should Know .................................................... ................................... 16 Reading and Study Assignment .................................................. .......................... 17 Graded Assignment .................................................. ............................................. 17

Lesson 3 Market Equilibrium ....................................................... ................................... 18 What You Should Know .................................................... ................................... 18 Reading and Study Assignment .................................................. .......................... 18 Graded Assignment #1 ....................................................... ................................... 18

Lesson 4 Using Supply-Demand Analysis ..................................................... ................. 20 What You Should Know ................................................... .................................... 20 Reading and Study Assignment .................................................. .......................... 21 Graded Assignment #2 ...................................................... .................................... 21

Unit 3 Explaining Consumer Behavior .................................................. .......................... 22 Lesson 5 How Consumers Choose ........................................................ .......................... 23

What You Should Know ................................................... .................................... 23 Reading and Study Assignment .................................................. .......................... 23 Written Assignment ................................................. ............................................. 24

Lesson 6 Consumers' Demand Curves ................................................... .......................... 25 What You Should Know ................................................... .................................... 25 Reading and Study Assignment .................................................. .......................... 25 Graded Assignment #3 ...................................................... .................................... 26


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Unit 4 Explaining Firm Behavior ................................................. ................................... 27 Lesson 7 Short Run Production and Costs ...................................................... ................. 28

What You Should Know .................................................... ................................... 28 Reading and Study Assignment .................................................. .......................... 29

Graded Assignment #4 ....................................................... ................................... 29 Lesson 8 Long Run Production and Costs ...................................................... ................. 30

What You Should Know ................................................... .................................... 30 Reading and Study Assignment .................................................. .......................... 31 Graded Assignment #5 ...................................................... .................................... 31 Midcourse Examination .................................................... .................................... 31

Unit 5 Economic Outcomes with Perfect Competition.................................................... 32 Lesson 9 Markets with Competitive Firms ..................................................... ................. 33

What You Should Know ................................................... .................................... 33 Reading and Study Assignment .................................................. .......................... 34 Graded Assignment #6 ...................................................... .................................... 34

Lesson 10 Welfare and Policy Analysis with Competition ............................................. 35 What You Should Know ................................................... .................................... 35 Reading and Study Assignment .................................................. .......................... 36 Written Assignment ................................................. ............................................. 36

Lesson 11 General Equilibrium with Competition .................................................. ........ 37 What You Should Know ................................................... .................................... 37 Reading and Study Assignment .................................................. .......................... 37 Graded Assignment #7 ...................................................... .................................... 38

Unit 6 Economic Outcomes with Monopoly and Oligopoly .......................................... 39 Lesson 12 Monopoly......................................... ....................................................... ........ 40

What You Should Know ................................................... .................................... 40

Reading and Study Assignment .................................................. .......................... 41 Written Assignment ................................................. ............................................. 41 Lesson 13 Non-uniform Pricing................................................... .................................... 42

What You Should Know ................................................... .................................... 42 Reading and Study Assignment .................................................. .......................... 42 Graded Assignment #8 ...................................................... .................................... 43

Lesson 14 Oligopoly and Monopolistic Competition ...................................................... 44 What You Should Know ................................................... .................................... 44 Reading and Study Assignment .................................................. .......................... 45 Graded Assignment #9 ...................................................... .................................... 45

Unit 7 How Markets Fail .................................................... ............................................. 46

Lesson 15 Externalities, Commons, and Public Goods ................................................... 47 What You Should Know ................................................... .................................... 47 Reading and Study Assignment .................................................. .......................... 48 Graded Assignment #10 .................................................... .................................... 48

Unit 8 Risk, Uncertainty and Investment ........................................................ ................. 50 Lesson 16 Risk and Uncertainty .................................................. .................................... 51

What You Should Know ................................................... .................................... 51


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Reading and Study Assignment .................................................. .......................... 51 Written Assignment ................................................. ............................................. 51

Lesson 17 Interest Rates, Investments and Capital Markets............................................ 52 What You Should Know .................................................... ................................... 52

Reading and Study Assignment .................................................. .......................... 53 Graded Assignment #11 ..................................................... ................................... 53 Final Examination .................................................... ............................................. 53 Transcript ........................................................ ...................................................... 53


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About the Coursewriter

Thomas F. Pogue, is Professor Emeritus of Economics, Tippie College of

Business, The University of Iowa. His research, specializing in state and localgovernment tax and expenditure policy, is widely published in academic and

professional journals and books. In addition to his academic research, Professor

Pogue has worked closely with political and business leaders on a number of

economic policy studies. He has prepared research reports for studies of taxation

in Arizona, Minnesota, and Iowa. He has directed Iowa-based studies of economic

development policy, labor supply, school finance, and welfare reform. He has

been director or co-director of projects funded by the U.S. Department of Housing

and Urban Development, the U.S. Department of Transportation, the National

Institute of Justice, the Northwest Area Foundation, and the Iowa Business

Council. Professor Pogue has presented expert witness testimony in cases

involving valuation of waste disposal sites, state regulation of interstate highway

transport, and economic development effects of tax increment financing of public

and private infrastructure. He has prepared economic analyses for law suits

dealing with taxation of multi-state corporations and state recovery of damages

attributable to tobacco use.Professor Pogue received a Ph.D degree in economics from Yale

University in 1968, a M.S. degree in agricultural economics from Oklahoma State

University in 1962, and a B.S. degree in agricultural economics from New

Mexico State University in 1957. He served as a commissioned officer in the

United States Air Force 1957-1960.


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Introduction

About This Course

Course Description

In this course, we study contemporary microeconomic theory. We study

theories of consumer and producer behavior; the role of markets in coordinating

economic activity; market structures and market imperfections; the conditions

under which markets can be depended on to allocate resources efficiently; and

how government policies, e.g. taxes, alter market outcomes. The course is

designed to give you the economic tools for the applied economics courses that

follow it.

Course Organization

The course consists of seventeen lessons grouped into eight units of study.

Each lesson has a W HAT YOU SHOULD K NOW component that lists questions you

should be able to answer, and concepts, terms and relationships you should

understand. It also includes a READING ASSIGNMENT drawn from the required

textbook, and often a graded, WRITTEN ASSIGNMENT to be submitted via

MyEconLab.

As part of your study for each lesson, you should login to

http://www.coursecompass.com/ and go to your course: Microeconomic Theory.

There you will find a list of assignments and due dates. Details about accessing

CourseCompass are provided on the ICON course site. Each graded assignment

will be listed as Quizzes and Tests . You will also be able to access a number of

study aids, listed below:

Study Plan , where you can work through exercises for each chapter.After you think you understand the content of a lesson, you should

take the sample test. If you do not do well on this sample test, review

again the reading and multimedia materials.


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Textbook Resources , where you will find additional study aids and

supplemental materials, including Lecture Notes, Practice Quizzes,

Solved Problems, and Applications . To reinforce what you have read,

you should view animations and slide shows in the multimedia

library .

Economic news , where you can apply what you have learned in each

lesson to real world situations reported in the New York Times,

eThemes of the Times .

Student Center , where you can go to the tutor center for one-on-one

help.

Results , which gives you an up-to-date record of your scores on eachtest or quiz you have taken.

If you have questions about an assignment, send a detailed question to the

instructor by e-mail. Please be as specific as you can, as it is not possible for your

instructor to provide a helpful response to unfocused general questions. You need

to make every effort to understand the problem yourself, using the course

materials available to you, before asking the instructor for assistance.

Deadlines for submitting assignments and taking exams are noted in the

course syllabus. Practice assignments are available in CourseCompass. You

should complete the practice assignment prior to completing the graded

assignment.

Examinations

There are two supervised examinations, a 90 minute midcourse exam and

a two-hour final (comprehensive). Each exam consists of multiple-choice

questions (50 for the midterm and 75 for the final exam) that are similar to thequestions in the graded assignments. Books, notes, and computers cannot be

referred to during these exams. A standard non-programmable calculator is

allowed.


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Information regarding exam scheduling and policies is posted on the

course Web site in ICON. You are responsible for registering for their exam by

the posted deadlines.

Cheating

You are spending a lot of time, effort, and money to take this course. Most

students recognize they are only hurting themselves by cheating. For the small

minority of students who don't, I include the following warnings. Any of the

following will result in an F in the course:

plagiarism, use of another person's work without permission or

attribution; collaboration on any of the exams;

completing a homework assignment with another student.

Required Course Materials

The following items may be downloaded from the course Web site.

Course Study Guide Distance Education Policies and Instructions

Textbook/Course Materials to Purchase IndependentlyThe following text is listed on the Textbook and Materials Order Form for

this course, along with vendor information where it made be purchased. If you

purchase books from an alternate bookseller, it is imperative that you obtain the

correct edition.

Required Text: Perloff, Jeffrey. Microeconomics, sixth edition,Pearson Education, 2011 (ISBN: 9780132744928)

Registration for MyEconLab via MyLab/Mastering

Assignments are submitted online on MyEconLab via MyLab/Mastering

(former CoursecCompass). To access your instructor's MyEconLab course site,


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you will need to complete a one-time registration and enrollment process, after

which you'll be able to access your course for the rest of the semester. If you do

not complete the course during the first semester of your enrollment, you will

need to purchase a second registration for continued access to MyEconLab. If you

purchased a new textbook, it may have come with a Student Access Kit that

contains a code you can use to register. If you do not have a Student Access Kit,

you can purchase access online with a major credit card.

Detailed instructions for registering and logging in to MyLab/Mastering

are provided on the ICON course site under CONTENT>SUBMIT

ASSIGNMENTS.

Web and E-mail Options

This course is delivered on the World Wide Web via ICON (Iowa Courses

Online).

To access the course online, you will need the following information:

1. Go to: http://icon.uiowa.edu/

2. Login to ICON using the fields provided for Hawk ID and Password.

Hawk ID Help

http://hawkid.uiowa.edu/

If you cannot locate the letter that was sent with your Hawk ID password

or if you need to start at once, you may call the ITS Help Desk at The University

and ask them to reset your password. Please feel free to call our toll-free number

(800.272.6430) and select the phone routing option that connects you with the ITS

Help Desk.

Online Tutorials

http://www.uiowa.edu/~online/tutorials/tutorial.html

View the online tutorials, which are provided in Flash format: topics

include instruction on using ICON, WebMail, Hawk ID Tools, Security, and


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more. Please be aware that Distance Education courses do not use all of the

components explained in the ICON tutorial.

Technical Support for Online Students

Technical assistance, including FAQs, software demos and downloads,

and contact information are provided on our Technical Support pages at

http://continuetolearn.uiowa.edu/ccp/sos/ .

Electronic Submission of Assignments

Instructions for submitting assignments electronically in the ICON Drop

Box are posted on the ICON course site under "Submit Assignments."

E-mail Aliashttp://continuetolearn.uiowa.edu/ccp/sos/email.htm

A University of Iowa e-mail alias was created for you when you enrolled

in this course, if you didn't already have one. All subsequent e-mail contact from

our office will go to your UI alias and be routed to the e-mail routing address you

specify. Please keep your routing address current; make updates in ISIS

http://isis.uiowa.edu/ by going to My UIowa/My Email/Update Email Routing

Address. E-mail is an official method of communication at The University of

Iowa; you are responsible for all information sent to your e-mail address of record

at The UI and you may carry on official transactions with The University by

sending e-mail from your e-mail address of record.


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Evaluation and Course Grade

Grades will be based on the following:

Graded Item Points11 graded assignments, 10 points each, lowest grade dropped 1001 midcourse exam 751 final exam 125

Using these points, letter grades will be assigned as follows:

A+ = 290-300 pointsA = 280-289 pointsA- = 270-279 pointsB+ = 260-269 pointsB = 250-259 pointsB- = 240-249 points

C+ = 230-239 pointsC = 220-229 pointsC- = 210-219 pointsD+ = 200-209 pointsD = 190-199 pointsD- = 180-189 pointsF < 180 points


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Lesson 1 Introduction to the Study of Microeconomics

What You Should Know

1. What are the basic economic decisions?

2. Why does scarcity of economic resources force tradeoffs?

3. Who makes economic decisions?

4. Are all economic decisions made by individuals as they buy and sell in

the market place?

5. Does government make some economic decisions in our society?

6. How are prices used in economic decision making?

7.

Why do economists use models?8. How do economists "test" the predictions of their models?

9. Who uses economic analyses and models?

10. How do you use economics in your personal decisions?

11. What is a "positive" economic statement? What is a "normative"

statement?

Reading and Study Assignment

Read Perloff: Chapter 1.

View animations and slide shows in the multimedia library.

Take the sample test.

Graded Assignment

The graded assignment part for this lesson is encompassed in GradedAssignment #1 that follows after Lesson 3. Go on to Lesson 2.


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Unit 2 Demand, Supply, and Market Equilibrium

Lesson 2 Demand and Supply

Lesson 3 Market Equilibrium

Graded Assignment #1

Lesson 4 Using Supply-Demand Analysis



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Lesson 2 Demand and Supply


1. What variables may affect a person's demand for a productthequantity of a product that a person wants to buy?

2. What is a demand curve? What does it show?

3. What does the Law of Demand tell us about demand curves?

4. Does a change in the price of a product shift its demand curve? Does it

cause movement along the demand curve?

5. Which variables affect quantity demanded but are not shown on the

graph of a demand curve?6. Which variables shift the demand curve?

7. Explain how each of the variables in this demand function affect Q,

the quantity demanded. See equation 2.1 in text.

Q = D( p, p b , pc , Y)

8. Based on this demand function, how much does quantity demanded

change when price increases by 1? See equation 2.2 in text.

Q = 171 20p + 20 p b + 3p c + 2Y

9. Be sure you understand solved problem 2.1 on p. 16.

10. How are individual demand curves added up to get a market demand

curve? Be sure you understand the application on p. 17.

11. What is a supply curve? What does it show?

12. What does the Law of Supply tell us about supply curves?

13. Does a change in the price of a product shift its supply curve? Does it

cause movement along the supply curve?

14. What variables shift the supply curve?

15. Explain how each of the variables in this supply function affect the

quantity supplied.

Q = S(p, p h)


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Lesson 3 Market Equilibrium


1. What is market equilibrium (Fig. 2.6)?

2. Explain the forces that push a market to equilibrium.

3. Understand how market equilibrium changes when the

a. demand curve shifts;

b. supply curve shifts;

c. price of an input changes (solved problem 2.3).

4. How do import bans and quotas affect market equilibrium?5. How are market outcomes (price and quantity) affected by price

ceilings? By price floors?

6. Does a minimum wage make all workers better off? Explain.

7. Will people be able to buy all of the gasoline they want if there is a

price ceiling on gasoline? Explain.

8. Does demand always equal supply? Explain when such may not be the

case.

9. Characteristics of perfectly competitive markets.





Graded Assignment #1Instructions

Review the section on graded assignments in the Introduction before

completing this assignment. Instructions for submitting assignments electronically


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are posted on the ICON course site under "Submit Assignments"; additional

details on assignment submission are provided in your syllabus.

Description

Complete graded assignment #1, located under Quizzes and Tests in

MyEconLab.


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Lesson 4 Using Supply-Demand Analysis


1. How does a shift in the supply curve affect price and quantity whenthe demand curve is vertical? When it is horizontal?

2. What does the price elasticity of demand measure?

3. What is the formula for price elasticity of demand?

4. How is the price elasticity of demand related to the slope of a demand

curve? (Fig. 3.1)

5. How does demand elasticity change along a downward sloping linear

demand curve? (Fig. 3.2)6. Why would a demand curve be horizontal? vertical?

7. What does the income elasticity of demand measure?

8. What is the formula for income elasticity of demand?

9. What is a normal good? An inferior good?

10. What does cross-price elasticity of demand measure? What is the

formula for cross-price elasticity of demand?

11. How is cross-price elasticity related to whether a good is a

complement or a substitute?

12. What does supply elasticity measure? What is the formula for supply

elasticity?

13. What is supply elasticity when the supply curve is vertical? When it is

horizontal?

14. Why would a supply curve be vertical? Horizontal?

15. Why might the long-run elasticity of demand for a product differ from

the short-run elasticity?16. Why might the long-run elasticity of supply of a product differ from

the short-run elasticity?

17. What is a specific sales tax? How does levying such a tax affect

equilibrium price and quantity?


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a. Do the effects of the tax on equilibrium price and quantity depend

on whether it is collected from seller or buyer?

b. How do these effects depend on demand elasticity? On the supply

elasticity?

18. How do demand and supply elasticities affect revenue from a specific

sales tax?

19. Does the incidence of specific sales tax depend on whether tax is

collected from buyers or sellers? When do buyers bear the entire

burden of the tax? When do sellers bear the entire burden?






Instructions

Review the section on Written Assignments in the Introduction before




Description


MyEconLab.


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Unit 3 Explaining Consumer Behavior

Lesson 5 How Consumers Choose

Lesson 6 Consumers' Demand Curves



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Lesson 5 How Consumers Choose


1. What do consumers try to do as they decide how much of each good to

buy?

2. What is a preference map? An indifference curve?

3. What is the marginal rate of substitution between two goods? How is it

related to the slope of indifference curves?

4. What is meant by the term diminishing marginal rate of substitution?

How is it related to the shape of indifference curves?

5.

How are indifference curves shaped if goods are perfect substitutes? perfect complements? imperfect substitutes?

6. What is the consumer's budget constraint? What variables determine

the budget constraint?

7. What is the marginal rate of transformation? How is it related to the

slope of the budget constraint?

8. How is a consumer's budget constraint affected by

a. an increase in the price of a product?

b. an increase in income?

c. imposition of a government limit (quota) on the amount

consumed? (solved problem 4.3)

9. What is the consumers optimal bundle and how to find it

10. How do food stamps differ from cash in their effect on the budget

constraint?






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Written Assignment



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Lesson 6 Consumers' Demand Curves


1. Explain how changes in price change the budget line and the quantity

demanded. Understand Fig. 5.1.

2. Explain how changes in income shift the budget line and demand

curve. Understand Fig. 5.2.

3. What does the price-consumption line show?

4. What does the income-consumption line show?

5. What does the Engel curve show?

6.

Understand how normal and inferior goods differ.7. What are the income and substitution effects of a decrease in the price

of a normal good? How do those effects differ if the good is inferior?

8. What is a Giffin good?

9. Explain how a person's labor supply curve is determined as she

allocates time between working and leisure.

10. Understand the income and substitution effects of a wage increase. Fig

5.10.

11. How is labor supply affected by a giftan increase in unearned

income? See solved problem 5.5.

12. Explain how the labor supply curve could become "backward

bending."

13. What are the income and substitution effects of decreasing the tax

income tax rate?

14. Will an increase in income tax rates always cause workers to supply

less labor?





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Instructions





Description


MyEconLab.


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Unit 4 Explaining Firm Behavior

Lesson 7 Short Run Production and Costs


Lesson 8 Long Run Production and Costs


Midcourse Examination


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Lesson 7 Short Run Production and Costs


1. Terms and concepts that you should know:a. corporations

b. limited liability

c. technological efficiency

d. profits = revenue costs

e. production function: q = f (K, L)

f. short run

g.

fixed inputh. variable input

i. long run

2. Understand how to calculate marginal and average product from a

table such as 6.1.

3. Understand graphing of average and marginal product as in Figure 6.1.

4. What does the law of diminishing marginal returns tell us?

5. How do explicit and implicit costs differ? What does each include?

6. What does opportunity cost measure?

7. Is time spent waiting for a service is part of its cost?

8. How does historical cost differ from opportunity cost? Which should

be used in calculating the cost of production?

9. What is the opportunity cost of using each of the following inputs:

a. labor?

b. raw materials?

c. a durable input such as machine or truck?d. land or buildings?

10. What do businesses do when they amortize and expense?


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11. Understand how each of these measures of cost are derived and used:

variable cost, fixed cost, total cost, marginal cost, average cost average

fixed cost. Refer to Table 7.1.

12. Understand the graphing of cost curves as in Figure 7.1.

13. How does a specific tax on output, say $10 per unit of output, affect

costs? Table 7.2 and Figure 7.3.

14. How does a lump-sum tax affect marginal and average costs? See

solved problem 7.2.


Read Perloff: Chapter 6, pp. 151-163; Chapter 7, pp. 184-198. View animations and slide shows in the multimedia library.



Instructions





Description

Complete graded assignment #4, located under Quizzes and

Tests in MyEconLab.


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Lesson 8 Long Run Production and Costs


1. In the long run, which inputs are variable?2. What is an isoquant?

3. How are isoquants shaped if inputs are perfect substitutes? If

substitution is not possible? If inputs are imperfect substitutes?

4. What does the marginal rate of technical substitution (MRTS)

measure? How is it related to the slope of the isoquant?

5. What causes a diminishing marginal rate of technical substitution?

6.

What is meant by constant returns to scale? Decreasing returns toscale? Increasing returns to scale?

7. What is an isocost line?

8. What does the slope of the isocost line measure?

9. Understand how the cost-minimizing combination of inputs is

determined using the isoquant and the isocost lines.

10. What is the last-dollar rule?

11. How do changes in relative factor prices affect the cost-minimizing

input mix? See Figure 7.6.

12. What does the expansion path show?

13. What does the long run cost curve show?

14. Understand how the shape of the long-run total cost curve depends on

returns to scale. What is the shape of long run cost curve with constant

returns to scale?

15. How are short-run average cost curves and long-run average cost

curves related?16. Explain how long-run average cost changes as output increases if there

are constant returns to scale in production. If there are increasing

returns to scale in production. Application on p. 213.

17. How does learning by doing reduce average cost?


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Read Perloff: Chapter 6, pp. 163-175 (omit section 6.6); Chapter 7, pp.

199-218 (omit section 7.5).




Instructions





Description


MyEconLab.

Midcourse Examination

A supervised, 90-minute exam follows Lesson 8. The exam consists of fifty multiple-choice questions that are similar to the questions in the graded

assignments and sample tests. The examination is closed book and closed notes.

You may use a standard, non-programmable calculator, but not a computer or

other calculating or data storage device. Information regarding exam scheduling

and policies is posted on the course Web site in ICON under the exam

registration widget. Each student is responsible for reading the examination

information and registering for each exam (if it is not taken at the Iowa City DCE

testing center) by the posted deadlines.


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Unit 5 Economic Outcomes with Perfect Competition

Lesson 9 Markets with Competitive Firms


Lesson 10 Welfare and Policy Analysis with Competition

Lesson 11 General Equilibrium with Competition



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Lesson 9 Markets with Competitive Firms


1. Why are firms that sell in perfectly competitive markets said to be

price takers?

2. Why is the demand curve for a product sold by a competitive firm

horizontal?

3. How does economic profit differ from business profit?

4. What conditions must be met for profits of a competitive firm to be

maximized in the short run? In the long run?

5.

Understand how to determine the profit maximizing outputgraphically. See Figure 8.2.

6. How does a specific tax on the output of a competitive firm change its

marginal cost? Its average cost? Its profit maximizing output?

7. At what price will a firm decide to shut down in the short run?

8. Under what condition will a firm continue to produce in the short run

even if it is losing money?

9. How is a firm's short-run marginal cost curve related to its short-run

supply curve?

10. Refer to Figure 8.4. Is the firm making a profit at all points on the

supply curve? Is it covering all variable costs at all points on supply

curve?

11. How do changes in input (factor) prices affect supply curve?

12. Understand how individual firm supply curves are added to get a

market supply curve when firms are identical and when firms differ.

13. Understand how market supply and demand curves determine shortrun market equilibrium.

14. How does a specific tax on output of all firms affect market

equilibrium price and quantity?


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15. Explain how the long run market supply curve is determined when

there is free entry and exit of identical firms. How is this supply curve

different if the number of firms in the industry is fixed?

16. How do changes in input prices affect market supply curves?


Read Perloff Chapter 8.




Instructions





Description


MyEconLab.


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Lesson 10 Welfare and Policy Analysis with Competition


1. Under what conditions are economic profits zero in long run? Under

what conditions are economic profits positive in the long run?

2. What is rent?

3. How is the welfare of consumers and producers affected by buying

and selling in the market place?

4. What is consumer (buyer) surplus? How is it measured?

5. What is marginal willingness to pay? How is it related to the demand

curve?6. Can we accurately estimate marginal willingness to pay and consumer

surplus by just asking them how much a good is worth to them?

Explain.

7. How do price increases and decreases affect consumer surplus? How is

the resulting change in consumer surplus related to price elasticity of

demand?

8. What is producer (seller) surplus? How is it measured?

9. How do we get information about producer surplus from the marginal

cost curve?

10. How are the marginal cost and supply curves related?

11. Can we use the supply curve to tell how much the firms within an

industry gain (lose) when the price of their product increases

(decreases)? How is this done?

12. Explain how competitive markets can maximize the combined welfare

of producers and consumers.13. Explain how producing either more or less than the competitive market

output can decrease the combined welfare of producers and

consumers?

14. What does dead weight loss measure?


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15. Explain how each of the following policies or conditions causes output

to differ from the competitive equilibrium quantity, and in doing so

generates deadweight loss:

a. limiting the number of firms in an industry

b. Imposing barriers to entry into or exit from an industry

c. per-unit sales tax

d. price floor

e. price ceiling

f. ban on imports

g. tariff or quota on imports

16. What are some examples of barriers to entry? Exit?17. What is rent seeking? How does it affect welfare?





Written Assignment

The graded assignment part for this lesson is encompassed in Graded

Assignment #7 that follows after Lesson 11. Go on to Lesson 11.


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Lesson 11 General Equilibrium with Competition


1. The objective of this lesson is to understand how equilibrium is

determined in related marketshow actions in one market affect

demand and supply in other markets.

2. Understand the example of minimum wage with incomplete coverage

(Fig. 10.2).

a. How does the minimum wage affect the distribution of

employment between covered and uncovered sectors?

b.

How does the minimum wage affect the wage in the uncoveredsector?

c. Do some workers lose when a minimum wage is imposed on only

some sectors of the economy? Explain.

3. Understand the effects of taxing wages in one sector while leaving

wages in other sectors untaxed (solved problem 10.1).

a. What happens to the before-tax wage in the covered (taxed) sector?

b. What happens to the after-tax wage (take-home pay) in each

sector?

c. Does the after-tax wage of workers in the covered sector fall by the

full amount of the tax?

d. After full adjustment, does the tax place a heavier burden on

workers in the covered sector than in the uncovered sector?

4. Do all workers gain from a "living wage law" that covers only some

workerse.g., government employees or employees of firms that

contract with government? Explain.


Read Perloff: Chapter 10, only pp. 316-324.



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Instructions





Description


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Unit 6 Economic Outcomes with Monopolyand Oligopoly

Lesson 12 MonopolyLesson 13 Non-uniform Pricing


Lesson 14 Oligopoly and Monopolistic Competition



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Lesson 12 Monopoly


1. How do monopolists decide on the amount to produce given the

demand and costs they face?

2. How is price related to marginal revenue for competitive firms? For

monopolists?

3. Are monopolists "price takers"?

4. Can a monopolist set both the quantity it sells and the price at which

that output is sold? Explain.

5.

Will a profit maximizing monopolist operate in the inelastic portion of its demand curve? Explain.

6. How is market power measured?

7. How is market power related to demand elasticity? How is it related to

the availability of substitutes?

8. How does monopoly affect producer surplus? Consumer surplus?

9. How does monopoly affect welfare, defined as the sum of producer

and consumer surplus?

10. Does monopoly generate a deadweight loss?

11. Understand the welfare loss of a specific tax on a monopolist (solved

problem 11.4). Does the monopolist increase price enough to "pass-

on" the full amount of the tax to consumers?

12. What is a natural monopoly?

13. How do patents help to maintain monopoly?

14. How can governments create or maintain monopolies?

15. How can governments reduce market power?16. What is optimal price regulation?

17. What are the main problems that government faces in regulating

monopoly?

18. What are network externalities? How can they give rise to monopoly?


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Read Perloff: Chapter 11



Written Assignment



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Lesson 13 Non-uniform Pricing


1. What is price discrimination?

2. Can competitive firms price discriminate?

3. Why do firms price discriminate?

4. What conditions are necessary for price discrimination to be possible?

5. What is perfect (first degree) price discrimination?

6. With perfect price discrimination, how much is each buyer charged?

7. Does a monopoly generate a dead weight loss if it can perfectly price

discriminate?8. Are consumers better off if a monopolist perfectly price discriminates

that if it sets a single price?

9. Explain how costs of having multiple prices (transactions costs) limit

the extent to which firms price discriminate.

10. What is quantity discrimination? Explain.

11. What is multi-market price discrimination? Under what conditions is it

possible and profitable?

12. What is a two-part tariff?

13. What are tie-in sales?

14. What is bundling?






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Instructions





Description


MyEconLab.


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Lesson 14 Oligopoly and Monopolistic Competition


1. How does oligopoly differ from monopoly?

2. How does monopolistic competition differ from competition?

3. Are oligopolistic firms price takers?

4. Are monopolistic competition firms price takers?

5. Understand the summary of characteristics of alternative market

structures (Table 13.1).

6. What is game theory?

7.

Understand the following concepts used in game theory:a. profit or payoff matrix

b. noncooperative game

c. dominant strategy

d. prisoners' dilemma

e. repeated games

f. Nash equilibrium

8. Will two oligopolistic firms always choose strategies that maximize

their combined profits? Explain.

9. What is a cartel?

10. How do cartels increase profits?

11. Will a cartel produce more or less than the competitive output?

12. Will the price with a cartel be higher or lower than the competitive

price? Explain.

13. Do cartels generate dead-weight losses?

14. Explain the factors that may cause a cartel to fail/break up.15. What does the Cournot model of oligopoly assume about firms'

behavior? Do they collude? Is the resulting output more or less than

output under competition? Explain.


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Read Perloff: Chapter 13 and 14, omit sections 13.5, 13.6, 13.7, 14.3,

and 14.4




Instructions





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Unit 7 How Markets Fail

Lesson 15 Externalities, Commons, and Public Goods



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Lesson 15 Externalities, Commons, and Public Goods


1. What are externalities?

2. What is a negative externality? A positive externality?

3. Are externalities taken into account by buyers and sellers as they make

their market decisions?

4. Explain how externalities cause inefficiency in competitive markets.

First consider a negative externality, then a positive externality.

5. Do negative externalities cause too much or too little to be produced?

6.

Explain how each of the following can be used to reduce the externalcosts associated with pollution:

a. emission standards

b. emission fees

c. taxes on the output of products that generate pollutants

d. taxes on the output of pollutants

7. Would it be economically efficient to eliminate all pollution? Explain.

8. Explain how cost-benefit analysis can be used to maximize benefits

from reducing pollution.

9. What is the economically efficient level of pollution?

10. Explain why a tax equal to marginal external cost does not achieve the

social optimum when the external cost is generated by a monopolist.

11. What is the Coase Theorem?

12. What are pollution rights?

13. Explain how creating and trading pollution rights can reduce external

costs.14. Explain why a resource (or property) will be used inefficiently (over

used) if no one owns the propertyif no one has right to restrict or

allocate its use.

15. What approaches have governments taken to prevent over use?


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16. How do public goods differ from private goods?

17. What is a nonexclusive public good? Will such a good be produced

privately and sold in the market place? Explain.

18. Will competitive markets produce the social optimum (efficient level)

of a public good? Explain.

19. What is free riding? How does it deter provision of public goods?

20. Suppose the amount of a public good is chosen by majority voting, on

a yes/no vote. Will the chosen amount be the socially optimum

(efficient) amount? Explain.

21. Is it possible that majority voting will result in too much (more than

the efficient amount) of a public good? Too little? Explain.22. If we were to take a poll of voters asking whether they are satisfied

with the amount of a public good chosen by majority vote, is it

possible that a majority of voters would say that they would prefer a

different amount? Explain.






Instructions



are posted on the ICON course site under "Submit Assignments"; additionaldetails on assignment submission are provided in your syllabus.


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Description


MyEconLab.


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Unit 8 Risk, Uncertainty and Investment

Lesson 16 Risk and Uncertainty

Lesson 17 Interest Rates, Investments and Capital Markets



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Lesson 16 Risk and Uncertainty


1. Understand the definition and use of the following terms:a. probability

b. observed frequency

c. subjective probability

d. probability distribution

e. expected value

f. variance

g.

standard deviationh. expected utility

i. risk aversion

j. fair bet risk neutrality

k. risk premium

2. Will a risk-averse person take a fair bet? Explain.

3. Are lotteries fair bets? Explain.

4. What is diversification (risk pooling)?

5. Under what conditions will diversification reduce risk?

6. How does insurance reduce risk? Explain.

7. Are insurance policies fair bets? Explain.


Read Perloff: Chapter 17, omit sections 17.4 and 17.5



Written Assignment



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Lesson 17 Interest Rates, Investments and CapitalMarkets

What You Should Know1. What are interest rates?

2. What measures the return you get from forgoing expenditure?

3. What does the discount rate measure? What is the marginal rate of

time preference?

4. Explain how one values future income/consumption relative to current

income/consumption.

5. At what interest rate will a person be willing to lend? At what interest

rate will she be willing to borrow?

6. What is compounding?

7. What is APR (annual percentage rate)?

8. What is the future value (FV), after t periods, of PV dollars invested

today?

9. What is the present value of FV dollars received t periods in future?

10. What is the present value of a flow, f, of payments over t periods?

11. What is the future value of a flow, f, of investments over t periods?

12. Explain the effect of inflation on real (inflation adjusted) values of

future dollar values.

13. What is the formula for the real value of a dollar received one year

from now if the rate of inflation is ?

14. When the inflation rate is , what is the formula for the real present

value of a dollar received one year from now?

15. What is the nominal interest rate? The real interest rate?16. What is the net present value (NPV) of an investment?

17. Should an investment be made if has a negative NPV? Explain.

18. What is the internal rate of return (irr) on an investment?


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Read Perloff: Chapter 16, omit section 16.3.




Instructions





Description


MyEconLab.

Final Examination

A supervised, 2-hour exam follows Lesson 17. The exam is

comprehensive and consists of seventy five multiple-choice questions that aresimilar to the questions in the graded assignments and sample tests. The

examination is closed book and closed notes. You may use a standard, non-

programmable calculator, but not a computer or other calculating or data storage

device. Information regarding exam scheduling and policies is posted on the

course Web site in ICON. You are responsible for registering for the exam by the

posted deadlines.

Transcript

http://registrar.uiowa.edu/transcripts/

Upon completion of this course, your final grade will be entered on your

permanent student record at The University of Iowa. Official transcripts of your


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permanent record can be obtained from the Office of the Registrar, The

University of Iowa, 1 Jessup Hall, Iowa City IA 52242-1316. For information on

the current transcript fee or to order your transcript by phone, call 319.335.0230.

A transcript request form, which can be printed from the Web and mailed or faxed

to the Office of the Registrar, is available online (address above). Final course

grades can also be viewed and transcripts ordered electronically through ISIS:

http://isis.uiowa.edu/ .

06e104 Study Guide Copy

Documents

Transcript of 06e104 Study Guide Copy