Review Class One

Key points of Chapter 0 Marginal analysis: Relations between Total magnitudes, Average magnitudes, and Marginal magnitudes.

Key points of Chapter 0 1, MM is the slope of the TM curve; 2, AM is the slope of the ray starting from the origin to the point at the TM curve; (These two points are the geometrical definition.)

Key points of Chapter 0 3, TM increases (decreases) if and only if MM > 0 ( MM < 0 ); 4, If TM is at maximum or minimum, then MM = 0;

Key points of Chapter 0 5, AM increases (decreases) if and only if MM > AM ( MM < AM ); 6, If AM is at maximum or minimum, then MM = AM, or MM cuts AM at the later’s maximum or minimum.

Key points of Chapter 0 Warning: 3 and 5 represent the sufficient and necessary conditions. 4 and 6 represent only the sufficient conditions. Analysis of your home work

Key points of Chapter 1 Welfare economics: the study of how the allocation of resources affects economic well-being Two very important definitions about the welfare economics:

Key points of Chapter 1 A Pareto improvement is a change to make some people better off without hurting anybody else. Pareto efficiency or Pareto optimal : if there is already no way to make any more Pareto improvement.

Key points of Chapter 1 Pareto efficiency or Pareto optimal Requires: exchange efficiency, production efficiency and product mix efficiency.

Key points of Chapter 1 Case One: Partial Equilibrium Tool: Surplus, which measures the welfare of the actors. Consumer surplus: a buyer’s willingness to pay minus the amount the buyer actually pays.

Key points of Chapter 1 Geometrically, the area below the demand curve and above the price measures the consumer surplus in a market. Producer surplus the amount a seller is paid for a product minus the seller’s variable cost.

Key points of Chapter 1 Geometrically, The area below the price and above the supply curve measures the producer surplus in a market. Total surplus=consumer surplus +producer surplus+(….) Central rule: the market reaches the Pareto Efficiency if the total surplus reaches its maximum.

注意 前页的的核心法则已经改动，原来的表述是一 个充要条件，但是并不成立。 从排队的问题可以发现，一个状态是帕累托最 优，然而它的福利可以不是最大值 但是反过来，如果这个状态已经达到福利的最 大值，则可以推导出这个状态是帕累托最优。 总结来说，判断帕累托最优还是要从定义下手， 看是否有帕累托改进的可能。

Key points of Chapter 1 Competitive market Monopoly Rent control

Key points of Chapter 1 Case Two: Production Tool: Production Possibility Frontier, which symbolizes the maximum level of productivity. Central rule: the economy reaches the production efficiency if and only if it is on the PPF.

Key points of Chapter 1 Fundamental theorems of welfare economics: Every competitive economy is Pareto efficiency. Every Pareto efficient resource allocation can be attained through a competitive market mechanism, with the appropriate initial redistributions.

Key points of Chapter 1 Warning: The above two definitions describe the Property of allocation of resources, but they are not concerned explicitly with inequality. There are many possible states of Pareto Efficiency.

Key points of Chapter 2 Two important definitions: The budget set consists of all bundles that are affordable at the given prices and income. The budget line consists of all bundles that just exhaust the consumer’s income.

Key points of Chapter 2 Slope of the budget line measures the opportunity cost. Graph of the lump sum tax.( Remember the lump sum tax is imposed on the behavior of the consumption.) Subsidies

The end Thank you