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ECON 439/539 OREGON STATE UNIVERSITY Winter 2009 Public Policy Analysis Department of Economics C. Tremblay
Study Guide for Midterm (Monday, February 9)
READING
Part 1 – The Role of Public Policy
1.1 Introduction 1.2 Efficiency and Equity – W elfare Economics
1.2.1 Partial Equilibrium and Efficiency Katz, Michael L. and Harvey S. Rosen, Microeconomics , Second Edition, Burr Ridge, Ill.: Irwin, 1994, pp. 377-385. (http://oregonstate.edu/~tremblac/katzandrosen.pdf)
1.2.2 General Equilibrium and Efficiency < Pindyck, Robert S. and Daniel L. Rubinfeld, Microeconomics , Sixth edition, Upper Saddle River, NJ: Pearson Prentice Hall, 2005, pp. 579-584, 590, 604-607.
1.2.3 Equity Katz and Rosen, pp. 422-426. < Pindyck and Rubinfeld, pp. 591-593.
1.2.4 W hen Should the Government Intervene? < Pindyck and Rubinfeld, pp. 607-610.
1.3 Behavioral Economics and Neuroeconomics
1.3.1 Behavioral Economics < B. Douglas Bernheim and M ichael D. Whinston, Microeconomics , Chapter 13, Behavioral Economics, Boston: McGraw-Hill, 2008.
1.3.2 Neuroeconomics Camerer, Colin F., George Loewenstein, and Drazen Prelec, “Neuroeconomics: W hy Economics Needs Brains,” Scandinavian Journal of Economics 106(3), 2004, pp. 555-579, http://proxy.library.oregonstate.edu/login?url=http://search.ebscohost.com/login.aspx?dir ect=true&db=ecn&AN=0762506&loginpage=Login.asp&site=ehost-live
Part 2 – Tools of Analysis
2.1 Cost-Benefit Analysis (skip for now) 2.2 Introduction to Regression Analysis < W ooldridge, Jeffrey M ., Introductory Econometrics , South-W estern, 2000, Chapter 1. < Stock, James H. and M ark W. Watson, Introduction to Econometrics , Brief Edition, Boston: Pearson, 2008, pp. 109-119.
Note : You will not be tested on “Are Idle Hands the Devil’s W orkshop? Incapacitation, Concentration and Juvenile Crime” by Brian A. Jacob and Lars Lefgren until the final.
STUDY QUESTIONS
Partial Equilibrium and Efficiency
° Define consumer surplus, producer surplus, and total surplus verbally and graphically. ° Explain and show graphically why total surplus is maximized in perfect competition. ° Show how consumer surplus, producer surplus, and total surplus change when price controls are imposed. ° Define deadweight loss and show graphically. ° Explain why society might impose rent control laws even if total surplus falls. ° Show how a rent control policy can actually reduce consumer surplus. ° Illustrate how a federal tax on a good would affect total surplus. ° Define excess burden.
General Equilibrium and Efficiency
Note : PowerPoint slides for the lecture are posted on my website for this topic.
° Define partial equilibrium analysis and general equilibrium analysis. ° Construct a supply and demand model of 2 interrelated markets (i.e., where the goods are complements, goods are substitutes, or 1 good is an input in the production of the other good). Show how a partial equilibrium model understates the effects of a change in price or quantity in one market when there are feedback effects from a related market. ° Explain when a General Equilibrium occurs. ° Define a Pareto efficient allocation. ° State the first and second theorems of welfare economics. ° Define Marginal Rate of Substitution (M RS), M arginal Rate of Technical Substitution (M RTS), and M arginal Rate of Transformation (MRT). ° List the 3 conditions needed for economic efficiency. ° Describe the equalities that must hold for each of the following types of efficiency: ° Efficiency in exchange. ° Efficiency in production. ° Efficiency in the output market. ° W hy do competitive markets satisfy the 3 conditions of efficiency? Use equalities to show your answer. ° Suppose that the MRTS for good x =2 and the MRTS for good y=3. Should society change the amount of x produced and the amount of y produced? If so, how? ° Explain why an allocation of goods is efficient only if the goods are distributed so that the M RS between any pair of goods is the same for all consumers. ° Practice problems in Pindyck and Rubinfeld, pp. 34-35: #2, 3 (skip the Edgeworth Box; use a chart like 16.1–note that there is more than 1 answer.)
Equity
° Using a utility possibilities frontier, illustrate that: 1) an efficient allocation need not be equitable;
- an inefficient allocation may be more equitable than an efficient allocation. ° Define a social welfare function verbally and in equation form. ° State 4 views of equity. ° Critique the idea of social welfare maximization as a method of attaining social goals.
Regression Analysis
° W rite down a regression equation that can be used to estimate the impact of a variable, X, on a dependent variable, Y. ° Explain the meaning of an estimated coefficient on the X variable. ° Show graphically a scatter plot of data with the regression line imposed. ° Predict the value of Y for a given value of X, given the least-squares estimated parameters. ° W hat is the nature of the Y variable when the appropriate estimation technique is probit or logit? ° W hat is the difference between (binomial) logit and multinomial logit? ° Define the marginal effect of X on Y, in general. ° W hat is the difference between cross-section, time series, pooled and panel data?
Student Presentations
The material presented in the oral presentations is covered on the exams. PowerPoint slides are posted on my webpage. Here are some types of questions that may appear on the exam.
° Choose a presentation, other than your own, and discuss the article presented thoroughly. Discuss the following issues:
- Primary question(s) addressed in the paper
- M ethod used to analyze the question
- Data source used in the article, if relevant
- Results , focusing on the implications for the primary question(s)
- Policy implications.
° For 3 presentations of your choice, other than your own, summarize the question and main results of the paper.
