Review Sheet for Intermediate Microeconomics | ECON 301, Study notes of Microeconomics

Download Review Sheet for Intermediate Microeconomics | ECON 301 and more Study notes Microeconomics in PDF only on Docsity! Class Review Content: Chp2, Chp3, Chp4, Chp5 Chp1: Def. Of Microeconomics Positive statement vs Normative statement Chp2: Supply and Demand curve (I) Demand: ( , , )d relatedQ f p p Y (1) Two Defs: Quantity demanded: It is a movement along the demand curve. If its own price falls, quantity demanded decreases and moves along the demand curve. Only caused by its own price. Demand curve: When other factors change, the demand curve might shift rightward, or leftward. Caused by all other factors except its own price. (2) Inverse demand curve: 1( , )relatedp f p Y  (3) Show it in a diagram: we normally put price on the y-axis, quantity demand on the x-axis, then in the diagram, the line is expressed by inverse demand curve. And the slope of that line is 1( ) ' p dp dQ f Q dQ dp      (4) Law of demand: Demand curve is always downward sloping except for “giffen” goods, i.e., the slope is always Negative. (5) Substitutes vs Complements: 0 related dQ dp   this good and the related good are substitutes 0 related dQ dp   complements (6) Market demand curve: at any price, the market demanded quantity will be the sum of quantity demanded by all individuals. (II) Supply curve shift & quantity supplied: similar as demand curve. Market supply curve: sum of different supply curve. Normally, it is domestic supply + foreign supply. Two scenarios: ban policy & quota policy. (III) Market equilibrium (1) p*, Q* : Let M M s dQ Q , then we can solve out the equilibrium p and Q. (2) shocks in the market equilibrium: shift in demand curve and supply curve. The effect depends on elasticity. (3) price ceiling and price floor: price ceiling: set maximum price below p*, create excess demand. Price floor: set minimum price above p*, create excess supply. Chp3 Applying the demand-supply model (I) Price elasticity of demand Own elasticity: dQ p Q p dp Q p Q        <0 0 | | 1: | | 1: | | 1: inelastic unitaryelastic elastic        Cross elasticity: , related related related Q p related related p pdQ Q dp Q p Q        , relatedQ p >0: substitutes , relatedQ p <0: complements (II) Price elasticity of supply: s s s s s dQ Qp p dp Q p Q        (III) Income elasticity : dQ Y dY Q     >0: normal good  <0: inferior good (IV) Tax Incidence Two types of tax: sale tax: (1 )newp p p p     where  is the tax rate Unit tax: , $c fp p p p tax   if gov’t collect tax from producers $ ,c fp p tax p p   if gov’t collect tax from consumers (IV) Constrained Consumer Choice yforx yforxMRS MRT ( , )x y   : if no negative amounts, then we have an interior solution. If there exists at least one of negative optimal amount, then we have Corner solution. If max| | | | (0, ) (0, )yforx yforx y Y MRS MRT y p    If max| | | | ( ,0) ( ,0)yforx yforx x Y MRS MRT x p    yforx yforx x x y y yx x y MRS MRT MU p MU p MUMU p p       = = a a = B. Burritos per semuster Q 10 a0 50 Z, Pizzas per semester 1b} Comer Saluton B Burritos per semester 80 2, Pizzas per semester