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Review for Quiz 1 (Everything through Chapt 5)

Review for Quiz 1 (Everything through Chapt 5). Peter Berck 2012 Env . Econ. 1. Supply and Demand. Supply and Demand demand vs. quantity demanded supply vs. quantity supplied movements along vs. shifts of S & D price ceiling, price floor Excess supply/demand

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Review for Quiz 1 (Everything through Chapt 5)

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  1. Review for Quiz 1(Everything through Chapt 5) Peter Berck 2012 Env. Econ. 1

  2. Supply and Demand • Supply and Demand • demand vs. quantity demanded • supply vs. quantity supplied • movements along vs. shifts of S & D • price ceiling, price floor • Excess supply/demand • market & individuals' demand curves • horizontal summation • specific tax • tax incidence • elasticity of demand and supply • complementary vs. substitute goods • normal and inferior goods

  3. Tax example Ps = 0.25 Q Pd = 3 – .4 Q t= .6 D-1(Q) – t = S-1(Q) Pd - t = Ps

  4. Tax • Incidence • Flat and vertical supply curve

  5. Demand PL Supply QD QL Loan rate • A price floor supported by government purchase. ?treasury outlay Excess supply

  6. Consumer Theory • consumption bundle* *=learn the definition • Preferences* • budget line or budget constraint* • indifference curve* • properties of indiff. curves • (1) slope down (2) don't cross (3)"moon" shaped • derivation of demand curves • Why tangency of budget line & indiffcurve • Change price

  7. Demand Curve Price of Wine is 8

  8. Normal & Inferior Again • What happens to q demanded with increased income?

  9. Sale • 10 at normal price of 5 and then rest at half price of 2.5. • Price of other good is 1 and income is 100 • Draw budget constraint with sale

  10. Pareto Improvement* • When at least one party to a deal is made better off and no parties are made worse off the deal is said to be Pareto improving. • Examples of market trades that are pareto improving • Examples of market trades that are NOT pareto improving

  11. What Goes Wrong With Markets • Reasons for • No ownership; open access* • Externalities* • Public Goods (non-rival; non-excludable)* • Insufficient weight on future • Government Failure • Give examples of each

  12. Surplus,EV,CV • Total Willingness to Pay* • Amount Paid • Consumer Surplus* • Surplus from a public good • Define EV* and CV* for a price change.

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