Classical View Cheat Sheet
Sunday, October 27, 2019
Tuesday, October 1, 2019
2019 Micro Set 2, FRQ #1, Monopoly
watch me answer it here
2019 Micro Set 2, FRQ #1
a) Draw a correctly labeled graph for Gigantic and show each of the following.
(i) Price Profit maximizing
(ii) Profit max quantity
(iii) ATC curve
(iv) Consumer surplus
b) Demand for prescription drugs increases and Gigantic hires its workers in a perfectly competitive labor market.
One point is earned for stating that Gigantic Pharmaceutical Corporation’s demand for warehouse
workers will increase and for explaining that the marginal revenue product of labor increases because
of the increase in the product price.
ii) What happens to the wage rate paid by Gigantic to its warehouse workers and the number of warehouse workers it hires?
One point is earned for stating that the wage rate Gigantic pays to its warehouse workers will not change and the number of workers hired will increase.
(The wage rate doesn't change because Gigantic's product is protected by a patent and there is no competition in the production of Gigantic's drug. It is the only one that can produce and sell it,, so as the price goes up the market is unaffected so only the demand for Gigantic's drug increases. No competition for workers means no increase in wages in the market or for Gigantic's workers.)
c) After Gigantic's patent expires another firm enters the the market and makes an identical drug and sells it for a lower price.
i)What will happen to Gigantic's producer surplus?
Producer surplus is defined as the area below the price but above the supply curve. As the price falls the area of producer surplus decreases.
ii) What will happen to the consumer surplus in the prescription drug market? Explain.
Consumer surplus is defined as the area above the price but below the demand curve and as the price of the good decreases in the market consumer surplus increases.
Tuesday, September 17, 2019
2019 Micro Set 1, FRQ 1, Monopoly
(a)Draw a correctly labeled graph for Fillup and show each of the following.
(i) Quantity
(ii) Price
(iii) DWL
(iv) The quantity at which FillUp would earn zero economic profit, labeled Qz.
b) FillUp's fixed costs increase. Will each of the following increase
Fixed costs do not
effect the MC curve, so if MC is unaffected then the quantity produced doesn’t
change. If quantity produced doesn’t change then DWL remains the same.
Think of it like this,, our rent increases. Does this affect
the demand for our good? No, the demand curve doesn’t shift. It does affect the
ATC curve as our fixed costs have increased so ATC would naturally shift
upwards and it does affect our profits or losses but MC curve is unaffected by
fixed costs so no change in quantity produced. If quantity produced doesn’t
decrease or increase then DWL stays the same.
Remember DWL is defined as inefficiency due to the reduced
quantity produced by this monopoly. Barriers to entry allow the monopoly to
restrict output and sell at a higher price. The less output represents a loss
of consumer and producer surplus, which is the definition of DWL.
If fixed costs increase then profit must decrease as TR - TC = Profit.
If fixed costs increase then profit must decrease as TR - TC = Profit.
c) Demand for gasoline decreases.
(i) What must remain true for Fillup to operate in the short-run.
If demand decreases it shifts left and the price must remain above the minimum of the AVC as that would be the point of shut-down.
Monopoly cheat sheet here
ii) What happens to fillup's profit maximizing quantity and price if Fillup continues to operate.
If demand shifts left both price and quantity will decrease.
(i) What must remain true for Fillup to operate in the short-run.
If demand decreases it shifts left and the price must remain above the minimum of the AVC as that would be the point of shut-down.
Monopoly cheat sheet here
ii) What happens to fillup's profit maximizing quantity and price if Fillup continues to operate.
If demand shifts left both price and quantity will decrease.
Tuesday, August 20, 2019
2019 Macro Set 2, FRQ # 3 Comparative Advantage
2019 Macro Set 2 FRQ # 3
Comparative Advantage
Comparative Advantage
i) On the curve is attainable and efficient - E is efficient.
ii) I is inefficient as it is inside the curve, usually the College Board refers to anything inside the curve as unemployment, recession or idle resources. All are inefficient.
iii) Outside the curve is unattainable as society doesn't have the resources to achieve that point.
c) Capital Formation (the production of capital goods - machinery, equipment, factories) are thought of as future goods. To produce more Capital goods implies that society will be able to produce more in the future.
More Capital Goods = More Long Run Growth.
Less Capital Goods = Less Growth
Know and understand this now as you will see it again.
Saturday, August 10, 2019
Monday, June 3, 2019
2019 Macro Set 2, FRQ #2, FOREX
2019 Macro FRQ #2 Set 2
If real US income increases then we could assume that imports will increase. Think about this from the perspective that a society that is wealthier will tend toward importing more goods from other countries. If imports > Exports then we have a current account deficit.
(i) If the interest rate is increasing in the EU then US citizens will buy Euros and deposit them into EU banks to get the higher rate of interest. The US will have a capital outflow as currency leaves the US and is a capital inflow into the EU. As US citizens dump their $ into the FOREX the demand for the US$ decreases and the value of the US$ decreases.
Friday, May 31, 2019
2019 Macro Set 2, FRQ #1, Long-Run, Fiscal, LRAS Shift
2019 Macro FRQ #1 - Set 2
watch me answer it here
1) Assume Artland is operating above full employment.
(Above full employment = Inflationary scenario)
(ii) If there is no Fiscal or Monetary policy workers will demand higher wages in an inflationary scenario, this shifts the SRAS curve to the left. Higher wages cause business to raise the prices for their goods and services they produce and output returns to the full employment level as demand for these more expensive goods and services falls.
(i) Government spending can decrease
(ii) The unemployment rate will increase - the NRU will not be affected
(iii) Price level in (b) higher or lower than in (c) - (b) has a higher PL
 |
| GS decreases & AD shifts left Lowering the PL |
The price level in (c) is lower as Aggregate Demand shifts to the left with the fiscal policy action of a reduction in government spending.
Equilibrium interest rate will decrease as less government spending implies the government isn't borrowing from the loanable funds market. This could have been shown with either an increase in SLF (like I did) or even better a decrease in the demand for loanable funds.
Either is correct and acceptable
2) LRAS curve will shift to the right in the long run as a lower interest rate will increase investment and therefore capital formation causing LR economic growth.
Subscribe to:
Comments (Atom)