The Final Exam is Thursday, December 12th, from 3:00-5:00. The review sheet explains the details of the exam.
The Last Homework was due Friday, December 7th in class. I e-mailed those who have turned it in already the solutions. If you do not plan on turning the assignment in late, e-mail me and I will send it to you.
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16 comments:
Q: What is the difference between positive and negative externalities?
A: Remember that benefits/costs on 3rd parties that weren't involved in the market transaction. Economists are only concerned with Technological Externalities (TE), whereas Pecuniary Externalities (PE) are the "good" externalities that arise from the market clearing process.
A Pecuniary externalities is the result of a change in prices or profits because of a demand/supply shock. For example, when you enter the workforce you are hired by an employer wanting a college educated employee. However, you represent a demand shock to the right that lowers wages for all other existing college-educated workers. That is a negative pecuniary externality for others. This type of externality is good because it maximizes total social surplus (CS+PS), because it represents people doing things society values.
A Technological Externality is when damages/benefits are bestowed on unconsenting 3rd parties not through the market process, and they are what economists are actually concerned with. A negative TE would be like air pollution from SUV drivers. A positive TE might be my getting a flu vaccine reduces the likelihood you will get the flu.
Q: What is a 2-Part Tariff?
A: A 2-part tariff is a form of price discrimmination where you have to pay both an "entry fee" and then a "per use" price as well. Sams Club was an example of this, where you buy a membership and then also for every item you want. Also, bars with a cover charge and a per-drink price would fit this form.
Q: In question 6 on the Homework, I don't quite get what kind of answer you are looking for.
A: Very simply the Jist of your answer should be along the lines of the following:
6(a) If Jim has rights: Jim will not turn off the radio for anything less than $10. Barry values the quite at $20. Barry can pay Jim $10-$20 to shut-off the radio. The result will be the radio turned off.
6(b) If Barry has rights: Barry will not turn on the radio for anything less than $20. Jim values the radio at $10, not enough to compensate Barry for having the radio on. The result will be the radio turned off.
Q: For question 2(e), I'm not sure if it is 1st degree or 3rd degree price discrimination.
A: You are right, I am too vague there to distinguish between them. I will accept either answer as correct.
Q: #7 you have a cost for the escalator at 100, 100, 100, total of 150... are these right? If not what should they be?
A: My mistake, it should add up to 300, not 150.
Q: #7. In part C we have to explain how log rolling will cause 2 inefficient project will pass by bundling. but when i work out the graph to show this i saw that the bundle totals (using notes as an example) Roman -5, Adrian +5, Justin -120....(ex, Roman, BT 65, cost 50. has a total of +15, BE 80 cost of 100 total -20, then took the 2 totals and got -5) that is how i did all 3 players and got that the bundle wouldnt not pass.. i know from my notes that it should pass.
A: My bad again, change Roman's escalator benefit from 80 to 90. Then it should work.
Q: #4(a) Does 'Socially efficient project' mean Total Benefit larger than total cost?
A: Yes.
Q: #4(e) What is 'market outcome'?
A: In Markets, all transactions are voluntary, so people participate when they believe the benefits will be greater than the costs. Therefore, all people participating in the market are made better off.
Q: Why are demand shocks so threstening to people without zoning? How does zoning help protect them from this risk?
A: Briefly, your answer should address the points on the handouts. Pay attention to the shape of the supply curve.
Q1: Is a positive externality good for the society? Likes education, provide flu vaccine to citizens.
A: Don’t think about things in terms of “good” or “bad”. Instead, think of having benefits or costs placed on third parties.
Q2: What is 'SUV driver'?
A: SUV is a type of car, specifically it is a big one that is criticized for creating pollution and being dangerous.
Q: You wrote:
'A Pecuniary externalities is the result of a change in prices or profits because of a demand/supply shock. For example, when you enter the workforce you are hired by an employer wanting a college educated employee. However, you represent a demand shock to the right that lowers wages for all other existing college-educated workers. '
Did you mean that the lower wages due to the Demand curve moving to the right? i can't draw the result in my graph.
A: If I wrote that I was wrong, your graduation represents a shift to the right in Supply, not Demand.
Q: I'm having trouble answering 8A on the review sheet. I was able to answer parts B and C but I can't find anything on Capture Theory anywhere in my notes so I really dont know what it is or how to answer the question can you please give me any information to help answer 8A? Thank You!
A: Capture Theory is the idea that government regulatory agencies will ultimately be captured by the groups they are supposed to regulate. They then use the regulatory agency to their own advantage. Expand on this answer in terms of why this will usually be the outcome, how they use it to their advantage. Remember that I discussed the Morgantown Bar owners have control over the Bar licensing, so that they can keep out new competing bars.
I know what a technological externality is but I'm not sure what you're looking for in 2B can you tell me what kind of answer you're looking for? Also in part C in my notes I have a graph titled market with positive consumption externalities is that what you are looking for in 2C?
For 2B: your answer should fall along the lines of the externalities make the private marginal benefits/costs different from the social marginal benefits/costs. Without externalities, PMB=SMB and PMC=SMC. People do not always consider damages or benefits for others, so they choose the Q* where PMB=PMC. If SMB and PMB are not the same OR if SMC and PMC are not the same (as in the case with externalities) then we will not have the Q** where SMB=SMC.
For 2C: The question states there are positive supply-side technological externalities. In this case SMC=PMC+MEB, so the SMC curve is to the right of the PMC curve, and Q** > Q*. This should all be drawn on a graph.
Check out www.gametheory.net for supplementary materials. You can also find extra Game Theory problems for Practice can be Found at:
http://jross08.googlepages.com/GameTheoryHW2.doc
Their solutions are:
1. A: Negative; B: Negative
2. J: Fight; R: Fight
3. A: Don’t Invent; B: Copy
4. A: Don’t Fight; B: Don’t Attack
Q: I’m having trouble answering how free-riders make it difficult to
provide the public goods in the market? Can you help?
A: Since public goods are non-rival and non-excludable, once the public good is provided anyone can enjoy the benefits even if they did not pay to help provide it (thus the term "Free Riders"). Therefore, nobody wants to be the one paying, instead they want to let someone else pay and then free-ride.
Q: I'm having some trouble explaining the equilibrium outcome for the median voter theory, could you please help me with that one a little bit?
A: Median Voter Theory: to answer this, you should use those diagrams in class and talk about how during a campaign they would continuously take turns moving right next to the other candidate towards the median voter. Then describe the equilibrium condition of being at the median voter and how there is no incentive to change position there.
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