Revision lecture
REVISION LECTURE EC202 http://darp.lse.ac.uk/ec202 7th May 2015 Frank Cowell May 2015 Frank Cowell: EC202 Revision Lecture 1 Overview... Revision lecture How to see what you need to do Styles of question Doing short questions Doing long questions May 2015 Frank Cowell: EC202 Revision Lecture 2 Objectives of the lecture A look back at Term 1 Exam preparation Reference materials used (1) • Exam papers (and outline answers) • 2010 1(a) • 2011 1(a), 3 • 2012 3, 4 • 2013 1(c) • 2014 1(d) Reference materials used (2) • CfD presentation 5.7 • Related to past exam questions May 2015 Frank Cowell: EC202 Revision Lecture 3 The exam paper Scope of exam material • what’s covered in the lectures… • … is definitive for the exam Structure and format of paper • similar to previous years • 6 short questions (answer 5) • 3 long questions in each of parts B and C • answer 3 long (at least one from each of B and C) Mark scheme • 8 marks for each short question • 20 marks for each long question • multipart questions: marks per part shown on the exam paper May 2015 Frank Cowell: EC202 Revision Lecture 4 Question style – three types 1 Principles • reason on standard results and arguments • can use verbal and/or mathematical reasoning 2 Model solving • a standard framework • you just turn the wheels 3 Model building • usually get guidance in the question • longer question sometimes easier? One type not necessarily “easier” or “harder” than another • part A usually gets you to do both types 1 and 2 • type 3 is usually only in parts B and C of paper May 2015 Frank Cowell: EC202 Revision Lecture 5 Overview... Revision lecture How to tackle the main types of question Styles of question Doing short questions Doing long questions May 2015 Frank Cowell: EC202 Revision Lecture 6 2014 1(d) Straightforward “principles” question Just say what you need to say • define “fairness” • describe key property of competitive equilibrium May 2015 Frank Cowell: EC202 Revision Lecture 7 2010 1(a) Straight “principles” Be sure to read the question carefully Be sure to give your reasons May 2015 Frank Cowell: EC202 Revision Lecture 8 2010 1(a) May 2015 Frank Cowell: EC202 Revision Lecture 9 2011 1(a) A simple model Be sure to draw a diagram… …and think May 2015 Frank Cowell: EC202 Revision Lecture 10 2011 1(a) May 2015 Frank Cowell: EC202 Revision Lecture 11 2013 1(c) Principles and model-solving Write down the principle Write down the basics of the model and solve Use standard definition of expected utility and variance Define ARA Differentiate u Evaluate ARA Multiply by x to get RRA May 2015 Frank Cowell: EC202 Revision Lecture 12 2011 3 Stating principles can come up in long questions Don’t ignore them in a rush to get to the model! There are sometimes easy marks just writing down the definition… …and then you can apply it to the problem May 2015 Frank Cowell: EC202 Revision Lecture 13 Overview... Revision lecture How to do well in exams Styles of question Doing short questions Doing long questions May 2015 •Preparing and planning •2012 Q3 •CfD 5.7 •2012 Q4 Frank Cowell: EC202 Revision Lecture 14 Planning Answers What’s the point? • take a moment or two: make notes to yourself • what is the main point of the question? • and the subpoints? See the big picture • balance out the answer • imagine that you’re drawing a picture • if pressed for time, don’t rush to put in extra detail Be an economist with your own time • don’t solve things twice • reuse results • answer the right number of questions! May 2015 Frank Cowell: EC202 Revision Lecture 15 Tips Follow the leads • examiners may be on your side! • so if you’re pointed in the right direction, follow it… Pictures • help you to see the solution • help you to explain your solution to examiner What should the answer be? • take a moment before each part of the question • check the “shape” of the problem • use your intuition Does it make sense? • again take a moment to check after each part • we all make silly slips May 2015 Frank Cowell: EC202 Revision Lecture 16 Long questions Let’s look at examples • taken from past papers • also from exercises in the book of “exam type” difficulty • covered in CfD Illustrates two types of question • 2012 Q3 and Ex 5.7 are straight model solving • 2012 Q4 incorporates some model building Look out for tips • use pictures to clarify solution • following hints in 2012 Q3 May 2015 Frank Cowell: EC202 Revision Lecture 17 Overview... Revision lecture Modelling choice under uncertainty Styles of question Doing short questions Doing long questions May 2015 •Preparing and planning •2012 Q3 •CfD 5.7 •2012 Q4 Frank Cowell: EC202 Revision Lecture 18 2012 Q3 (a) May 2015 Frank Cowell: EC202 Revision Lecture 19 2012 Q3 (a) For prices above min AC the FOC for max profit is: From which optimal output is: May 2015 Frank Cowell: EC202 Revision Lecture 20 2012 Q3 (a) May 2015 Frank Cowell: EC202 Revision Lecture 21 2012 Q3 (b) May 2015 Frank Cowell: EC202 Revision Lecture 22 2012 Q3 (b) May 2015 Frank Cowell: EC202 Revision Lecture 23 2012 Q3 (b) May 2015 Frank Cowell: EC202 Revision Lecture 24 2012 Q3 (c) May 2015 Frank Cowell: EC202 Revision Lecture 25 2012 Q3 (d, e) May 2015 Frank Cowell: EC202 Revision Lecture 26 2012 Q3 − assessment Make good use of a diagram to “see” the problem Re-use the solutions • one part of the problem… • …helps to build the next. Don’t be fazed by the presence of a discontinuity • everything is nice and regular either side of it. May 2015 Frank Cowell: EC202 Revision Lecture 27 Overview... Revision lecture A problem about price control Styles of question Doing short questions Doing long questions May 2015 •Preparing and planning •2012 Q3 •CfD 5.7 •2012 Q4 Frank Cowell: EC202 Revision Lecture 28 Ex 5.7: Question purpose: Illustration of labour supply model with very simple preferences method: Consumer optimisation with endogenous budget constraint May 2015 Frank Cowell: EC202 Revision Lecture 29 Ex 5.7: Worker’s problem Basic constraints on worker are • x is consumption • y is non-labour income • w is wage rate • ℓ is labour supply Worker’s problem can therefore be written as • found by substituting from above into utility function May 2015 Frank Cowell: EC202 Revision Lecture 30 Ex 5.7: Worker’s optimum Take log of maximand to get • α log(wℓ +y) + [1 − α] log(1 − ℓ) Differentiate with respect to ℓ This is zero if • − wℓ + αw + [α − 1]y = 0 • which implies ℓ = α + [α − 1]y / w But this only makes sense if ℓ is non-negative • requires w ≥ [1 − α]y / α • so optimal labour supply is May 2015 Frank Cowell: EC202 Revision Lecture 31 Ex 5.7: Interior maximum (leisure, consumption)-space x Max value of leisure Indifference curves Non-labour income Budget constraint Optimum w ≥ [1 −α]y / α 0 < ℓ* < 1 slope = w y 0 1 − ℓ* 1−ℓ 1 32 May 2015 Frank Cowell: EC202 Revision Lecture Ex 5.7: Corner solution Indifference curves as before x Non-labour income Budget constraint Optimum w < [1 − α]y / α ℓ* = 0 •y 0 1−ℓ 1 33 May 2015 Frank Cowell: EC202 Revision Lecture Ex 5.7: Points to note Treat leisure as a conventional good Has a natural upper bound • where labour is zero Have to allow for corner solution • where person chooses not to work Type of equilibrium depends on • wage rate • non-labour income May 2015 Frank Cowell: EC202 Revision Lecture 34 Overview... Revision lecture Modelling choice under uncertainty Styles of question Doing short questions Doing long questions May 2015 •Preparing and planning •2012 Q3 •CfD 5.7 •2012 Q4 Frank Cowell: EC202 Revision Lecture 35 2012 Q4 (a) May 2015 Frank Cowell: EC202 Revision Lecture 36 2012 Q4 (b) May 2015 Frank Cowell: EC202 Revision Lecture 37 2012 Q4 (c)… May 2015 Frank Cowell: EC202 Revision Lecture 38 …2012 Q4 (c) May 2015 Frank Cowell: EC202 Revision Lecture 39 2012 Q4 (d) May 2015 Frank Cowell: EC202 Revision Lecture 40 2012 Q4 (e) May 2015 Frank Cowell: EC202 Revision Lecture 41 2012 Q4 (f) May 2015 Frank Cowell: EC202 Revision Lecture 42 2012 Q4 − assessment It seems like a long question • broken into digestible pieces • makes model-building easier • shows you exactly what to do, stage by stage • important message…. “long” ≠ “difficult” Core of problem involves elementary things • carefully specify budget constraint in each part of the Q • plug into simple utility function • use FOC to get result • applies to parts (b)—(e) Finishing off • final part just involves simple differentiation of the solution • don’t forget the “explain why” in part (e) • see also Ex 8.12 May 2015 Frank Cowell: EC202 Revision Lecture 43
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