APEC3001 – Second Review Session Marc F. Bellemare Fall 2015

Structure of the Exam Four multi-part questions No huge surprises: Everything on the exam (save for bonus question) is stuff I discussed in lecture/similar to book problems. 60 points -> 75 minutes. Budget your time wisely, and you’ll have an extra 15 minutes at the end. Don’t leave anything blank.

Structure of the Exam Non-scientific, non-graphing calculator OK. Everything else (scientific, graphing calculator, phones) is NOT OK. Mixture of more technical and essay-type questions. Maybe some true-false questions with justifications, maybe some definitions—I want to reward all types of learner. Don’t leave anything blank.

Chapter 8 The Effects of a Tax What determines the size of the deadweight loss? DWL and the elasticities of S and D How big should government be? What happens when the size of a tax changes? Multiplying the tax by X means an increase of more than X in the deadweight loss

Chapter 8 Revenue and the size of the tax (also known as the Laffer curve)

Chapter 9 World price and comparative advantage Small economy assumption The welfare effects of international trade Bottom line: surplus always increases, even though one group’s surplus decreases Other benefits of international trade Why the opposition to trade?

Chapter 9 Tariffs Quotas Arguments for restricting trade and economists’ responses thereto Trade agreements

Chapter 10 Example of negative externalities Welfare analysis of negative externalities What does it mean to “internalize” an externality? Examples of positive externalities Welfare analysis of positive externalities Public policy and externalities: command-and- control versus market-based approaches

Chapter 10 Corrective taxes or subsidies Corrective taxes vs. regulations The gasoline tax Tradable pollution permits Corrective taxes vs. tradable pollution permits Private solutions to externalities The Coase Theorem

Chapter 11 Excludable goods Rival goods Private goods: excludable, rival Public goods: nonexcludable, nonrival Common resources: nonexcludable, rival Club goods: excludable, nonrival

Chapter 11 The Tragedy of the Commons Policy options to prevent overconsumption of common resources Examples of each type of good

Chapter 12 Taxation in the US Government receipts since 1929 Government revenue as a share of GDP Taxes and efficiency Deadweight loss Income vs. consumption taxes Administrative burden Marginal vs. average tax rates

Chapter 12 Lump-sum taxes Taxes and equity The benefits principle The ability-to-pay principle Vertical equity Proportional, regressive, and progressive taxes Horizontal equity

Chapter 12 Marriage taxes and subsidies Tax incidence and tax equity Who pays the corporate income tax? Flat taxes The efficiency/equity tradeoff

Chapter 13 Profit is total revenue minus total cost Total revenue is price times quantity Total cost is the sum of all production costs Implicit vs. explicit costs Accounting vs. economic profit Fixed costs Variable costs

Chapter 13 Production function Marginal product Total vs. marginal product Marginal productivity of labor Why MPL diminishes Total vs. marginal cost MC, AFC, AVC, ATC Graphing cost curves (REMEMBER THIS BY HEART!)

Chapter 13 Costs in the short run and in the long run LRATC at different scales of operation The Envelope Theorem