Review of Topics: Economics 101, Part 2

Chapters 3; 4; 5; 6; 7:167-185; 10; 11; Chapter 9: pp.239-244

Market Equilibrium

• Equilibrium price and quantity
• Excess demand
• Excess supply
• Sales
• Demand shifters
• supply shifters
• Price adjustments toward equilibrium

Market Efficiency

• Consumer surplus
• reservation price
• Producer surplus
• Dead weight loss
• Total surplus
• Market Value
• Consumer Value
• market value versus total value: paradox of value
• Aplia auction: how private information gets translated into market information

Government Intervention in Markets

• Price floors: dairy price supports
• Price ceilings: rent control
• Quotas: Taxi Cabs
• Sales taxes
• Excise taxes
• Tax burden

Elasticities

• Own price elasticity of demand
• Elastic vs. Inelastic demand
• Total revenue and own price elasticity
• Substitutes, brand loyalty, time and the elasticity of demand
• Income elasticity of demand: luxuries, necessities and inferior goods
• Cross-price elasticity of demand: substitutes, complements, unrelated goods
• Examples:
  • Iowa State tuition, enrollments and tuition revenue
  • Hewlett Packard printers and cartridges
  • Applications of relative elasticity of demand: drugs, Southwest Airlines

Theory of the Consumer

• Utility
• Indifference curve
• Marginal utility
• Nonsatiation
• Completeness
• Diminishing Marginal Utility
• Marginal rate of substitution
• slope of the indifference curve = ratio of marginal utilities
• Risk and return
• Budget constraint: income and prices
• Slope of budget constraint = ratio of prices
• Consumer equilibrium: MU_X/MU_Y = P_X/P_Y
• Income effect
• Substitution effect
• Derivation of an individual demand curve
• Application: Housing Prices and demand for other products
• Derivation of a market demand curve as the sum of individual consumer demands
• Reasons market demand curves slope downward

Markets for capital

• Present Value
• Future Value
• Interest rates
• Stocks and stock prices
• Bonds and bond prices
• Risk and return