The exam consists of multiple choice and multiples worked out problems. The time limit is 50 minutes. No books, notes, or electronic devices (except traditional calculators) are allowed. Topics to be covered: (1) Welfare economics: consumers, producers, and the efficiency of markets the link between buyers’ willingness to pay for a good and the demand curve. Define and measure consumer surplus. The link between sellers’ costs of producing a good and the supply curve. Define and measure producer surplus. E equilibrium of supply and demand maximizes total surplus in a market. (2) Application of welfare economics: the costs of taxation how taxes reduce consumer and producer surplus. The meaning and causes of the deadweight loss from a tax. Why some taxes have larger deadweight losses than others. How tax revenue and deadweight loss vary with the size of a tax. (3) Application of welfare economics: international trade what determines whether a country imports or exports a good. Who wins and who loses from international trade. The gains to winners from international trade exceed the losses to losers. E welfare effects of tariffs and import quotas. The arguments people use to advocate trade restrictions. (4) Economics of public sector: externalities definition of externalities. Why externalities can make market outcomes inefficient. The various government policies aimed at solving the problem of externalities. How people can sometimes solve the problem of externalities on their own. Why private solutions to externalities sometimes do not work. (5) Economics of public sector: public goods and common resources (a) the defining characteristics of public goods and common resources. Me of the important public goods and common resources in our economy. Why private markets fail to provide public goods. Why the cost-benefit analysis of public goods is both necessary and difficult. Why people tend to overuse common resources. (6) Economics of public sector: the design of the tax system (a) how the IS S. Government raises and spends money. The efficiency and the costs of taxes. Alternative ways to judge the equity of a tax system. Why studying tax incidence is crucial for evaluating tax equity. The trade-off between efficiency and equity in the design of a tax system.
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