S. Klepper, Economics 73-100

Production possibilities curves

• Shape of curves and constant, increasing, decreasing opportunity cost
• Problems 1-3 on Problem Set 1, Quiz 1, Minitest 1Production possibilities curve frames three key economic decisions
• Big issue--extent of reliance on markets vs. centralization in key decisions

Supply and Demand

• Factors shifting supply and demand, effects on price and quantity
• Problems 4 and 5, Problem Set 1
• Experiment 1
• Relationship of price and quantity to setup of experiment
• Allocation of offices, strengths and weaknesses of markets
• Minimum wages and consequences of restricting markets

Utility, marginal utility, and consumption choices

• Equality of marginal utility divided by price for all goods
• Problems 1,2,4 and 6, problem set 2, Quiz 2, Minitest 2
• College earnings premium

Budget lines, indifference curves, and consumer choice

• Problems 3 and 5, problem set 2
• Experiment 2
• Relationship of p_x:p_y and trades to setup of experiment
• Marginal utility of X and Y, willingness to pay for marginal unit of X
• In kind grants such as food stamps
• Budget line when price per unit not same for all units

Exam covers lecture more than problem sets

• Understand class analyses, especially experiments

Do past exam questions

• Write out answers to selected problems, ask TA to review by Saturday
• Meet with TA by Monday to review answers

Attend Monday and Tuesday review sessions

• Monday, 7:30, DH 2315--questions regarding two past exams I in

• Tuesday, 6:00, PH 100--general session on all but past exam questions

1. Consider experiment 1. Assume that the total number of traders was a multiple of 20, so that there were an equal number of buyers with each redemption value and sellers with each cost. Suppose that each buyer with a redemption value of $2.10 was assigned a seller with a cost less than or equal to $2.10, with the seller obligated to sell its unit to the buyer at a price of $2.10. Analogously, suppose each seller with a cost of $2.90 was assigned a buyer with a redemption value of $2.90 or greater, with the buyer obligated to purchase the seller’s unit at a price of $2.90. The rest of the traders, called the unassigned traders, were allowed to make trades at any prices they liked, subject to the rules of the experiment—i.e., sellers could not sell at prices less than their costs and buyers could not buy at prices greater than their redemption values. All other aspects of the experiment were the same as the version conducted in class. Which of the following statements correctly predict the outcome of this version of the experiment according to the model of supply and demand? Mark true for correct statements and false for incorrect ones.

_____1. The price of trades among the unassigned traders would be the same as the price of trades in the version of the experiment conducted in class.

_____2. Seven out of every eight unassigned sellers would sell their unit.

_____3. The total number of units traded by all traders, including both the assigned and unassigned traders, would be the same as the number of units traded in the version of the experiment conducted in class.

Before you try to answer the above questions, derive the supply and demand schedules of the unassigned traders. Each of these can only be determined for a restricted range of prices, but that is all you will need to answer the questions.