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| | There are three lectures remaining, including this one, and then there will be our final exam. As in our last Lecture (#11), we will review some important concepts while also learning some new ones. The review will help you prepare both for the final exam and, if you choose, the CLEP exam. | | There are three lectures remaining, including this one, and then there will be our final exam. As in our last Lecture (#11), we will review some important concepts while also learning some new ones. The review will help you prepare both for the final exam and, if you choose, the CLEP exam. |
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| − | But let's first address a superb question asked by a student last week. He wondered whether the "economic rent" (the extra amount charged by a company above its costs, perhaps because it is a monopoly) is the same as the "deadweight loss." The answer is "yes": "economic rent" is a type of deadweight loss. Any time the price of a good is raised above its price in a perfectly competitive market, there will be buyers who will not pay the higher price and thus will lose out on the consumer surplus between the higher price and lower, competitive price. That loss in consumer surplus is a deadweight loss. | + | But let's first address a superb question asked by a student in the last class. He wondered whether the "economic rent" (the extra amount charged by a company above its costs, perhaps because it is a monopoly) is the same as the "deadweight loss." The answer is "yes": "economic rent" is a type of deadweight loss. Any time the price of a good is raised above its price in a perfectly competitive market, there will be buyers who will not pay the higher price and thus will lose out on the consumer surplus between the higher price and lower, competitive price. That loss in consumer surplus is a deadweight loss. |
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| | When the price is increased due to taxes, then both the buyers and the sellers lose out, and there is a deadweight loss that is even greater because it includes both a consumer surplus lost by the buyer and a producer surplus lost by the seller. So while higher prices due to monopolies are bad, higher prices due to taxes are even worse. You could review Lecture 7 and its graph to understand this further. | | When the price is increased due to taxes, then both the buyers and the sellers lose out, and there is a deadweight loss that is even greater because it includes both a consumer surplus lost by the buyer and a producer surplus lost by the seller. So while higher prices due to monopolies are bad, higher prices due to taxes are even worse. You could review Lecture 7 and its graph to understand this further. |
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| | == Government Policy == | | == Government Policy == |
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| − | As mentioned in a prior Lecture, 10% of the CLEP exam is on government policy. With an ear tuned for politics, a student can rack up many correct answers here. But if a student's political ear is off-key, he can lose far more points here than he should. | + | As mentioned in a prior Lecture, 10% of the CLEP exam is on government policy. With an ear tuned for politics, a student can rack up many correct answers here. But if a student's political ear is off-key, he can lose far more points here than he should. In addition what we have already learned, we need to know: |
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| | * market distribution of income (Lorenz curve) | | * market distribution of income (Lorenz curve) |