ap econ unit 2

Econ Unit 2 Study Guide

Mostly Chapters 4, 5, and 6, but also some random bits in Chapters 3, pgs. 91-94, Chapter 16 pgs. 347-350, and Chapter 37 pgs. 764-769

Consumer Producer and Total Surplus

Price Ceilings and Floors

Comparative and Absolute Advantage

World Price and Tariffs

Per Unit Taxes and Subsidies

Tax Incidence

Changes in surpluses as a result of taxes and subsidies

Changes in total surplus and efficient allocation as a result of taxes and subsidies

Elasticity

Effects of relative elasticity on consumer and producer surplus under per-unit taxes and subsidies

Price Elasticity of Demand

Price Elasticity of Demand Formula

Elasticity Coefficient

Price Elasticity of Supply

             Immediate Term

             Short Term

             Long Term

Elastic > (|Elasticity coefficient| =1) > Inelastic

Total Revenue Test

Elastic and Inelastic portions of the same demand curve

Cross Elasticity of Demand

             Complements (negative values)

             Substitutes (positive values)

Income Elasticity of Demand

             Normal goods

             Inferior Goods

Income Effect

 Substitution Effect

Market Failure

Positive and Negative Externalities

Marginal Social Benefit

Marginal Private Benefit

Marginal Social Cost

Marginal Private Cost

Public Goods

Private Goods

Rival and Nonrival

Excludable and Nonexcludable

Utility Maximizing Rule

Utility

Marginal Utility

Law of Diminishing Marginal Utility

Marginal Utility per Dollar

You should be able to:

1.       Graph consumer, producer and total surplus.

2.       Graph a price ceilings and price floors, including changers in consumer, producer and total surplus.

3.       Graph world price and tariffs, including changers in consumer, producer and total surplus 

4.       Recognize more and less elastic supply  and demand curves

5.       Identify the elastic and inelastic potions of demand curves. 

6.       Apply the total revenue test to determine whether a particular price change will increase or decrease Total Revenue.

7.       Graph consumer and producer surplus with a per-unit Tax, showing how relative elasticity effects who pays the tax. 

8.       Understand that elasticity determines who pays a per-unit tax, not who is required to write the checks. 

9.       Understand the relationship between elasticity and total revenue.

10.    Apply cross elasticity to determine whether goods are substitutes or complements. 

11.    Apply income elasticity to determine whether goods are normal or inferior. 

12.    Apply both cross and income elasticity to determine how a particular product's price and quantity will change given certain circumstances. 

13.    Graph MSC/MPC and MSB/MPC and understand the relationship between those curves and positive and negative externalities.

14.    Understand what is meant by “socially efficient.” 

15.    Understand and give examples of the terms rival/nonrival and excludable/nonexcludable. 

16.    Explain why the Utility Maximization rule works. 

17.    Understand and interpret a chart that shows quantity, total utility, and marginal utility. 

18.    Apply the Utility Maximization rule to tell what goods a rational consumer would buy next. 

19.    Use the Utility Maximization rule to infer which goods a consumer values most.  (Revealed preference.)

20.    Use and understand the algebraic form of the Utility Maximization rule.