exam 2 review

necessity good

1>income elasticity>0

The imposition of price ceilings on a market often results in

an increase in expenditures in the black market

subsidy falls on producers/ sellers if

demand is elastic, supply is inelastic

subsidy falls on consumers/ buyers if

demand is inelastic, supply is elastic

total expenditure decreases=

elastic

The more elastic the supply of a product, the more likely that the actual benefit of a subsidy granted of the product will

go to buyers

normal good

income elasticity >0

luxury good

income elasticity >1

inferior good

income elasticity<0

total expenditure increases=

inelastic

the market pricing system corrects an excess supply by

lowering the product price and decreasing producer profits

When the marginal product of labor diminishes,

marginal cost rises

If an economic action generates more costs than benefits, the action

should not be undertaken from an efficiency standpoint

Suppose that a tax is placed on a particular good. If the sellers end up bearing most of the tax burden, this indicates that the

supply is more inelastic than demand

When the free-rider problem exists,

the market will devote too few resources to the production of the good

the actual burden of tax falls most heavily on

the side of the market that is more inelastic

Black markets that operate outside the legal system are often characterized by

the use of violence as a means of settling disputes

Suppose that the federal government levies a 50 cent excise tax on gasoline and that the demand for gasoline is highly inelastic while the supply is highly elastic. Under these circumstances, the actual burden of the tax

will fall primarily on consumers