Econ 202 Final
When a surplus exists in a market, sellers
lower price, which increases quantity demanded and decreases quantity supplied, until the surplus is eliminated
Market Power
the ability of a single economic person/firm to have a substantial influence on market prices
Property Rights
the ability of an individual to own and exercise control over scarce resources
A rational person does not act unless
the action produces marginal benefits that exceed marginal costs
Consumer surplus is
the amount a buyer is willing to pay for a good minus the amount a buyer actually pays for it
If a price ceiling is not binding, then
the equilibrium price is below the price ceiling.
Externality
the impact of one person's actions on the well-being of a bystander, example; pollution
Suppose you find $20. If you choose to use the $20 to go to a football match, your opportunity cost of going to the game is
$20 (because you could have used the $20 to buy other things) plus the value of your time spent at the game
Table 4-11 Price/Quantity Demanded/Quantity Supplied $10 10 60 $8 20 45 $6 30 30 $4 40 15 $2 50 0 The equilibrium price and quantity, respectively, are
$6 and 30 units
At the equilibrium price, total surplus is
(Q1)(P1)
Dead weight loss equation is
1/2(P3-P1)(Q2-Q1)
The loss of producer surplus for those sellers of the good who continue to sell it after the tax is imposed is
1/2(P3-P2)(Q2-Q1)
Which of the following activities is most likely to produce an externality?
A student has a party in her room in the student hall of residence
Suppose the government has imposed a price ceiling on sliced sandwich bread. Which of the following events could transform the price ceiling from one that is binding to one that is not binding?
An decrease in the price of peanut butter and jelly
Which of the following events must cause equilibrium quantity to rise?
Demand and supply both increase
Which of the following products would be least capable of producing an externality?
Food
Economic Princliples
How people make decisions 1. People face trade-offs 2. The cost of something is what you give up to get it 3. Rational people think at the Margin 4. People respond to incentives How people interact 5. Trade can make everyone better off 6. Markets are usually a good way to organize economic activity 7. Governments can sometimes improve market outcomes How the economy as a whole works 8. A country's standard of living depends on its ability to produce goods and services 9. Prices rise when the government prints too much money 10. Society faces a short-run trade-off between inflation and unemployment
During the last few decades in the United States, health officials have argued that eating too much beef might be harmful to human health. As a result, there has been a significant decrease in the amount of beef produced. Which of the following best explains the decrease in production
Individual consumers, concerned about their own health, decrease their demand for beef, which lowered the equilibrium price of beef, making it less attractive to produce
In which of the following cases should the United States produce more noodles than it wants for its own use and trade some of those noodles to Italy in exchange for wine?
Italy has a comparative advantage over the United States in producing wine
Suppose this demand curve is a straight, downward-sloping line all the way from the horizontal intercept to the vertical intercept. We choose two prices, P1 and P2, and the corresponding quantities demanded, Q1 and Q2, for the purpose of calculating the price elasticity of demand. Also suppose P2 > P1. In which of the following cases could we possibly find that (i) demand is elastic and (ii) a decrease in price from P1to P2 causes an decrease in total revenue?
P1<20 $16<P1<P2<$20
Pens are normal goods. What will happen to the equilibrium price of pens if the price of pencils rises, consumers experience an increase in income, writing in ink becomes fashionable, people expect the price of pens to rise in the near future, the population increases, fewer firms manufacture pens, and the wages of pen-makers increase
Price will rise
Which of the following is not a function of prices in a market system?
Prices ensure an equal distribution of goods and services among consumers
Trade-offs are required because wants are unlimited and resources are
Scarce
Which of the following involve a trade-off
Taking a nap Watching a football game on Saturday afternoon Going to university Buying a new car
Economists generally believe that rent control is
a highly inefficient way to help the poor raise their standard of living
Market Failure
a situation in which a market left on its own fails to allocate resources efficiently
Marginal Change
a small incremental adjustment to an existing plan of action
Which of the following causes the price paid by buyers to be different than the price received by sellers?
a tax on the good
The quantity sold in a market will increase if the government
a. decreases a tax on the good sold in that market. b. increases a binding price ceiling in that market. c. decreases a binding price floor in that market.
A demand curve reflects each of the following
a. highest price buyers are willing to pay for each quantity. c. value each buyer in the market places on the good. d. willingness to pay of all buyers in the market.
Correct statement
a.The wedge between the buyers' price and the sellers' price is the same, regardless of whether the tax is levied on buyers or sellers. b.A tax places a wedge between the price that buyers pay and the price that sellers receive. d.In the new after-tax equilibrium, buyers and sellers share the burden of the tax.
Foreign trade
allows a country to have a greater variety of products at a lower cost than if it tried to produce everything at home
Market Economy
an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets from goods and services
If price increases from $10 to $20, total revenue will
an increase by $120, so demand must be inelastic in this price range
Inflation
an increase in the overall level of prices in the economy
Tom produces baseball gloves and baseball bats. Steve also produces baseball gloves and baseball bats, but Tom is better at producing both goods. In this case, trade could
benefit both Tom and Steve
Producer surplus measures the
benefits to sellers of participating in a market
If demand is price inelastic, then
buyers do not respond much to a change in price
Buyers determine
demand
When two variables move in opposite directions, the curve relating them is
downward sloping, and we say the variables are negatively related
Since people respond to incentives, we would expect that, if the average salary of accountants increases by 50% while the average salary of teachers increases by 20%, then
fewer students will take degree courses in education and more will take accounting courses
A production function describes
how a firm turns inputs into output; A production function summarizes the exact relationship between required inputs and the level of output. A production function is a technological recipe for converting inputs into output. A production function shows the maximum level of output that can be produced from a given quantity of the required inputs.
Economics is best defined as the study of
how a society manages its scarce resources
Welfare economics is the study of
how the allocation of resources affects economic well-being
Raising taxes and increasing welfare payments
improves equity at the expense of efficiency
If the government removes a tax on a good, then the quantity of the good sold will
increase
If the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would
increase by more than $1,000
When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is
inelastic
Business Cycle
irregular and largely unpredictable fluctuations in economic activity, such as employment and production
John is an athlete. He has $120 to spend and wants to buy either a heart rate monitor or new running shoes. Both the heart rate monitor and running shoes cost $120, so he can only buy one. This illustrates the principle that
people face trade-offs
The adage, "There is no such thing as a free lunch," means
people face trade-offs
Rational People
people who systematically and purposefully do the best they can to achieve their objectives, given available opportunities; usually make decisions by comparing marginal cost and marginal benefit and take action if and only if the marginal benefit exceeds the marginal cost
When a binding price floor is imposed on a market,
price no longer serves as a rationing device
Incentive
something that induces a person to act, punishment or reward
Sellers determine
supply
When a tax is imposed on the sellers of a good, the
supply curve shifts upward by the amount of the tax
A tariff is a
tax on an imported good
Scarcity
the limited nature of society's resources
Equity
the property of distributing economic prosperity uniformly among the members of society
Efficiency
the property of society getting the most it can from its scarce resources; society is getting the maximum benefits from its scarce resources
Productivity
the quantity of goods and services produced from each unit of labor input
Economics
the study of how society manages its scarce resources
Suppose that gasoline prices increase dramatically this month. Lola commutes 100 miles to work each weekday.Over the next few months, Lola drives less on the weekends to try to save money. Within the year, she sells her home and purchases one only 10 miles from her place of employment. These examples illustrate the importance of
the time horizon in determining the price elasticity of demand
When a country has a comparative advantage in producing a certain good
then the ability to produce a good at a lower opportunity cost than another producer
Efficiency is attained when
total surplus is maximized
The y-coordinate of an ordered pair specifies the
vertical location of the point
Opportunity Cost
whatever must be given up to obtain some item; comparing the costs and benefits of alternative courses of action
An economy's production possibilities frontier is also its consumption possibilities frontier
when the economy is self-sufficient
The quantity demanded of a good is the amount that buyers are
willing and able to purchase