Review Class One

1
Review Class One
2
Key points of Chapter 0

• Marginal analysis
• Relations between
• Total magnitudes,
• Average magnitudes, and
• Marginal magnitudes.

3
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.)

4
Key points of Chapter 0

• 3, TM increases (decreases)
• if and only if
• MM gt 0 ( MM lt 0 )
• 4, If TM is at maximum or minimum,
• then MM 0

5
Key points of Chapter 0

• 5, AM increases (decreases)
• if and only if
• MM gt AM ( MM lt AM )
• 6, If AM is at maximum or minimum,
• then MM AM,
• or
• MM cuts AM at the laters
• maximum or minimum.

6
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

7
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

8
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.

9
Key points of Chapter 1

• Pareto efficiency or Pareto optimal
• Requires
• exchange efficiency,
• production efficiency and
• product mix efficiency.

10
Key points of Chapter 1

• Case One Partial Equilibrium
• Tool Surplus, which measures the welfare of the
  actors.
• Consumer surplus
• a buyers willingness to pay minus the amount the
  buyer actually pays.

11
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 sellers variable cost.

12
Key points of Chapter 1

• Geometrically, The area below the price and above
  the supply curve measures the producer surplus in
  a market.
• Total surplusconsumer surplus producer
  surplus(.)
• Central rule the market reaches the Pareto
  Efficiency if the total surplus reaches its
  maximum.

13
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14
Key points of Chapter 1

• Competitive market
• Monopoly
• Rent control

15
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.

16
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.

17
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.

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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 consumers income.

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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

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The endThank you