ECON 2-1 1-3

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what language does normative analysis use

"should"

how to calculate tax revenue

(tax)(new quantity)

Shifts in Demand:

1. Income (normal vs inferior goods)2. Preferences3. Price of Related Goods (substitutes vs complements)4. Expectations5. Congestion and Network Effects6. Type and Number of Buyers

Shifts in Supply

1. Input Price2. Productive and Technology Changes3. Price of Related Outputs (substitutes & complements)4. Expectations5. Type and Number of Sellers

Elasticity

1. is Price Sensitivity: A 1% change in price results in a ___% change in quantity supplied/demanded 2. Inelastic means elasticity is greater than 1, while elastic means elasticity is less than 1

Rationale Rule for Employers

Hire one more worker if MRP is greater than or equal to the wage. Keep hiring until MRP = wage

what is price detemrined by

Price is determined by Supply and Demand, We solve this by setting Q_d = Q_s

opportunity cost principle

True cost of something is the next best alternative you must give up

Interdependence Principle

a lot of outside factors play into your decsions

is there a DWL w taxes

always a DWL w taxes

Law of Supply:

as price increases, quantity supplied increases, and vice versa

Law of Demand

as price increases, the quantity demanded decreases, and vice versa

what is cs? what is Ps? how does this create an alternative defintion for ES?

cs= wtp (mb) - price ps= p-mc es= wtp - price + price - mc ----> mb-mc

Marginal Principle

decision about quantities are best made incrementally

Cost-Benefit Principle

do the benefits outweigh the costs

Income elasticity:

if e > 0, normal, if e < 0, inferior

Cross-Price elasticity:

if e > 0, substitutes; if e < 0, complements

When the definition of poverty focuses on relative poverty, a person is in poverty if the household income is:

in the bottom 10% of household incomes in the nation.

what is a necessity

inelastic demand curve, in between 0 and 1 for income elasticiity

Comparative advantage

is the ability to do a task at a lower opportunity cost

Absolute advantage

is the ability to do a task using fewer inputs

Positive analysis in economics:

is the branch of economic analysis that describes how the economy actually works.

Consumer surplus equals:

marginal benefit minus price.

Marginal revenue product

measures marginal revenue from hiring one extra worker (MRP = MP * Price)

where is DQL for underproduction

on the left of equilibrium, triangle pointing to equilibrium

where is DWL with overproduction

on the right of equilibrium, triangle pointing to equilibrium

When a poverty line is based on relative poverty, a household is poor if its income is less than:

one-half the median household income in the country.

whar are tarrifs on

only on imports, good for producer surplus

The elasticity of supply measures the responsiveness of:

quantity supplied to changes in price.

If a poverty line is set at a third of the median household income in a country, the poverty line is based on a _____ poverty standard

relative

Complex Changes in the supply and demand curves

remember that Expectations changes both Supply and Demand curves

Marginal product of labor

the extra production that occurs from hiring an extra worker

The university hopes to raise more revenue by increasing student housing fees. This plan will work only if:

the percent rise in price is larger in magnitude than the percent decline in quantity demanded .

The official poverty line depends on _____ and is adjusted every year to reflect changes in the cost of living.

the size and composition of a family

Economic Surplus

the total benefits minus total costs following a decision ES = CS + PS

*** People

unspecified are both suppliers and buyers


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