ECON 2-1 1-3
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