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| | {{Economics_Lectures}} | | {{Economics_Lectures}} |
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| − | Let’s pause for a moment and divide economics into three categories: Introductory, Intermediate and Honors: | + | '''Next week: Midterm exam, about 30 multiple choice questions. Closed book. No penalty from wrong answers (the CLEP exam has no penalty for wrong answers either).''' |
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| | + | <Add material about the meaning of the word "economy" from the Greek word for "household", and elaborate on the significance of that> |
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| | + | It is worth emphasizing two important points. First, keep “supply” and “demand” separate in your mind. When asked about “returns to scale,” for example, realize that is purely a function of supply. It has nothing to do with demand. Do not cite the demand when determining the returns to scale. This is a common mistake. Avoid it. |
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| | + | Second, realize that the market acts in ways that are contrary to what you would prefer. We may care what happened yesterday, for example, but the demand curve does not. Nor do stock buyers care if selling off their shares will cause a company to go out of business and everyone to lose their job. The market maximizes efficiency, which can sometimes have unfortunate or counterintuitive results. Someone who opposes communism in China can affect his own buying decisions, but do not confuse his views and utility with that of the market. |
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| | + | Let’s pause for a moment and divide economic concepts into three categories: Introductory, Intermediate and Honors: |
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| | ===Introductory=== | | ===Introductory=== |
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| | '''''Perhaps you would like to show initiative and organize the next homeschool dinner! Perhaps a Christmas event?''''' | | '''''Perhaps you would like to show initiative and organize the next homeschool dinner! Perhaps a Christmas event?''''' |
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| | + | == Sample problems == |
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| | + | 1. Imagine a firm in perfect competition, and in long-run equilibrium. Which of the following statements is true? |
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| | + | (a) the total revenue of the firm cannot be increased |
| | + | <br>(b) AVC > MC |
| | + | <br>(c) MC is at a minimum |
| | + | <br>(d) marginal revenue is at a maximum |
| | + | <br>(e) the average total cost is at a minimum |
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| | + | Our test-taking tips encourage us to eliminate wrong answers before trying to select the correct answer. Let's look at answer choice (a): the total revenue of the firm cannot be increased. That is wrong because if we increase our output, we could increase our total revenue, even though we may lose money on that additional unit. For example, if we sold chocolate candy bars for $1, we could always increase revenue by selling another one for the below-market-price of 50 cents. We'd lose money on that additional bar, but we'd increase our overall revenue. |
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| | + | Similarly, answer choice (d) must be wrong because we know that we would continue selling until MR (marginal revenue) declines to where it equals MC (marginal cost). That point were MR=MC is not where MR is the maximum. |
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| | + | That leaves us with the possible answer choices of (b), (c) and (e). Can we eliminate one of these to improve our chances of selecting the correct one? |
| | [[Category:Economics lectures]] | | [[Category:Economics lectures]] |
| | {{DEFAULTSORT: Economics Lecture 08}} | | {{DEFAULTSORT: Economics Lecture 08}} |