APEC3001 – Second Review Session

1. APEC3001 – Second Review Session Marc F. Bellemare Fall 2015

2. 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.

3. 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.

4. 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

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

6. 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?

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

8. 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

9. 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

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

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

12. 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

13. 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

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

15. 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

16. 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!)

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