Study Guide for Midterm Exam - Public Policy Analysis | PP 607, Exams of Botany and Agronomy

Download Study Guide for Midterm Exam - Public Policy Analysis | PP 607 and more Exams Botany and Agronomy in PDF only on Docsity! ECON 439/539 OREGON STATE UNIVERSITY Winter 2008 Public Policy Analysis Department of Economics C. Tremblay Study Guide for the Midterm Course Outline, Readings, and Objectives Part 1 – The Role of Public Policy 1.1 Introduction 1.2 Efficiency and Equity – Welfare Economics 1.2.1 Equilibrium and Efficiency < Katz, Michael L. and Harvey S. Rosen, Microeconomics, Second Edition, Burr Ridge, Ill.: Irwin, 1994, pp. 377-385. < Pindyck, Robert S. and Daniel L. Rubinfeld, Microeconomics, Sixth edition, Upper Saddle River, NJ: Pearson Prentice Hall, 2005, pp. 579-584, 590, 604-606. Partial Equilibrium ° Define consumer surplus, producer surplus, and total surplus verbally and graphically. ° Explain and show graphically why total surplus is maximized in perfect competition. ° Show how consumer surplus, producer surplus, and total surplus change when price controls are imposed. ° Define deadweight loss and show graphically. ° Explain why society might impose rent control laws even if total surplus falls. ° Show how a rent control policy can actually reduce consumer surplus. ° Illustrate how a federal tax on a good would affect total surplus. ° Define excess burden. General Equilibrium Note: PowerPoint slides for the lectures are posted on my website for this topic. ° Define partial equilibrium analysis and general equilibrium analysis. ° Construct a supply and demand model of 2 interrelated markets (i.e., where the goods are complements, goods are substitutes, or 1 good is an input in the production of the other good). Show how a partial equilibrium model understates the effects of a change in price or quantity in one market when there are feedback effects from a related market. ° Explain when a General Equilibrium occurs. ° Define a Pareto efficient allocation. ° State the first and second theorems of welfare economics. ° Define Marginal Rate of Substitution (MRS), Marginal Rate of Technical Substitution (MRTS), and Marginal Rate of Transformation (MRT). ° List the 3 conditions needed for economic efficiency. ° Describe the equalities that must hold for each of the following types of efficiency: ° Efficiency in exchange. ° Efficiency in production. ° Efficiency in the output market. ° Why do competitive markets satisfy the 3 conditions of efficiency? Use equalities to show your answer. ° Suppose that the MRTS for good x =2 and the MRTS for good y=3. Should society change the amount of x produced and the amount of y produced? If so, how? ° Recall that marginal cost (MC) is the additional cost for producing 1 more unit of output. What is the relationship between marginal cost and MRT? ° Explain why an allocation of goods is efficient only if the goods are distributed so that the MRS between any pair of goods is the same for all consumers. 1.2.2 Equity < Katz and Rosen, pp. 422-426. < Pindyck and Rubinfeld, pp. 591-593. ° Using a utility possibilities frontier, illustrate that: 1) an efficient allocation need not be equitable; 2) an inefficient allocation may be more equitable than an efficient allocation. ° Define a social welfare function verbally and in equation form. ° State 4 views of equity. ° Critique the idea of social welfare maximization as a method of attaining social goals. 1.3 When Should the Government Intervene? < Pindyck and Rubinfeld, pp. 607-610. ° Briefly discuss 4 situations in which free markets are not efficient. ° Explain why monopoly power violates the conditions of economic efficiency. ° How does the second welfare theorem relate to government intervention?