Econ Midterm 1-7
Law of Demand
$ goes / - demand goes \ $ goes \ - demand goes / (negative correlation, opposites)
Law of Supply
$ goes / - supply goes / $ goes \ - supply goes \ (positive correlation, same direction)
calculating tax Suppose that the U.S. government decides to charge wine consumers a tax. Before the tax, 40 million bottles of wine were sold every month at a price of $7 per bottle. After the tax, 34 million bottles of wine are sold every month; consumers pay $8 per bottle (including the tax), and producers receive $4 per bottle. The amount of the tax on a bottle of wine is ____ per bottle. Of this amount, the burden that falls on consumers is ____ per bottle, and the burden that falls on producers is ___ per bottle.
$4 = price consumer pay- price producers receive= 8-4=4 $1= 8-7=1 price now-price paid before=consumer burden $3= 7-4=3 = price producers made before v now= producer burden
Calculating Price Elasticity of Demand
% change in quantity demanded / % change in price
mid-point method formula
((end value-start value)/midpoint ) x100 = percent change
Despite their differences, with which proposition are two economists chosen at random most likely to agree? -Rent ceilings reduce the quantity and quality of available housing. -Having a single income tax rate would improve economic performance. -Immigrants receive more in government benefits than they contribute in taxes.
-Rent ceilings reduce the quantity and quality of available housing.
Which of the elements of this scenario represent a flow from a firm to a household? This could be a flow of dollars, inputs, or outputs. Check all that apply. -The $350 Lorenzo spends to purchase software from PC Pros -Neha's labor -The mojito Neha receives -The $250 per week Lorenzo earns working for Little Havana
-The mojito Neha receives -The $250 per week Lorenzo earns working for Little Havana
When cities prevent landlords from charging market rents, which of the following are common long-run outcomes?
-The quantity of available rental housing units falls. -Black markets develop. -Nonprice methods of rationing emerge. -less maintenance=quality suffers and housing units deteriorate more quickly
PT.2 Later, the teaching assistant in Hilary's math course gives her some advice. "Based on past experience," the teaching assistant says, "working on 35 problems raises a student's exam score by about the same amount as reading the textbook for 1 hour." For simplicity, assume students always cover the same number of pages during each hour they spend reading. Given this information, in order to use her 4 hours of study time to get the best exam score possible, how many hours should she have spent working on problems, and how many should she have spent reading? 0 hours working on problems, 4 hours reading 1 hour working on problems, 3 hours reading 3 hours working on problems, 1 hour reading 4 hours working on problems, 0 hours reading
1 hour working on problems, 3 hours reading (If she can do more than 35 problems in an hour, working on problems will help raise her grade more for that hour than reading would. The marginal gain from the first hour is 40 problems. She will stop there, because she will get only 30 problems done if she spends the second hour working on problems. Therefore, she should stop working on problems after 1 hour and spend her remaining time reading.)
market power or externality 1- A single grocery store is the only source of food in a small town, giving the store the ability to influence the price of food. 2- A person smoking in a restaurant emits second-hand smoke that harms other restaurant patrons.
1- market power 2- externality
who should pay the tax
1-To evaluate the first proposal, enter $4 into the Tax Levied on Employers field. The new number of workers hired is 138, and the new wage paid by employers to workers in this market is $8 per hour. Since employers have to pay $4 on top of that wage, it costs them $12 per hour to hire a research assistant. Since workers don't pay any tax directly, they take home the entire $8 per hour. 2-To evaluate the second proposal, enter $4 into the Tax Levied on Workers field. The new number of workers hired is still 138, but now, the new wage paid by employers to workers in this market is $12. Since employers don't pay any tax directly, it costs them $12 per hour to hire a research assistant. Since workers have $4 per hour taken out of their paychecks, they take home a total of $12−$4=$8$12−$4=$8 per hour after taxes. 3-To evaluate the third proposal, enter $2 into the Tax Levied on Employers field and $2 into the Tax Levied on Workers field. Once again, the new number of workers hired is 138, but the new wage paid by employers to workers is $10. Since employers have to pay $2 on top of that wage, it costs them $10+$2=$12$10+$2=$12 per hour to hire a research assistant. Since workers have $2 per hour taken out of their paychecks, they take home a total of $10−$2=$8$10−$2=$8 per hour after taxes. each options workers take home $8= None of the proposals is better than the others
PT.1 Consider two neighboring island countries Arcadia and Felicidad. each have 4 million labor hours available per month that they can use to produce rye, jeans, or a combination of both. Rye - Jeans (per hour) Arcadia- 8- 16 Felicidad- 5- 20 Arcadia's opportunity cost of producing 1 bushel of rye is _____ of jeans, and Felicidad's opportunity cost of producing 1 bushel of rye is ______ of jeans. Therefore, ______ has a comparative advantage in the production of rye, and ______ has a comparative advantage in the production of jeans.
2 pairs- 4 pairs- arcadia - Felicidad (ch.3 question 3 KNOW HOW TO DO THIS)
PT.2 Jake's opportunity cost of producing 1 bushel of alfalfa is______ bushels of barley, whereas Latasha's opportunity cost of producing 1 bushel of alfalfa is _____ bushels of barley. Because Jake has a _____ opportunity cost of producing alfalfa than Latasha, ______ has a comparative advantage in the production of alfalfa, and ________ has a comparative advantage in the production of barley.
3- 4- lower- Jake- Latashia
PT.2 -Suppose that each country completely specializes in the production of the good in which it has a comparative advantage, producing only that good. In this case, the country that produces rye will produce ____ million bushels per month, and the country that produces jeans will produce ____ million pairs per month. PT.3 -When the two countries did not specialize, the total production of rye was 23 million bushels per month, and the total production of jeans was 68 million pairs per month. Because of specialization, the total production of rye has increased by ____ million bushels per month, and the total production of jeans has increased by ____ million pairs per month.
32- 80 9-12 (ch.3 question 3 KNOW HOW TO DO THIS)
below equilibrium- to the left above equilibrium- to the right
An externality causes market failure because it forces resources to be allocated inefficiently. For resources to be allocated efficiently, the equilibrium output should be higher in order to reflect the benefits that the security firm confers on the local residents.
Quantity demanded- The amount of a good that buyers are willing and able to purchase at a given price Demand curve- A graphical object showing the relationship between the price of a good and the amount of the good that buyers are willing and able to purchase at various prices
Demand schedule- A table showing the relationship between the price of a good and the amount that buyers are willing and able to purchase at various prices law of demand- The claim that, with other things being equal, the quantity demanded of a good falls when the price of that good rises
Factors That Determine Demand shift •Price of a related good (complement or substitute) •Income of consumers •Tastes of consumers •number of consumers •Expectations of consumers
Factors That Determine movement along Demand - movement of price
how would you figure out which of the possible causes was the dominant cause of the decrease in the price of calzones?
If the equilibrium quantity of calzones increases, then the supply shift in the market for calzones must have been larger than the demand shift
PT.1 Jake and Latasha are farmers. Each one owns a 12-acre plot of land. The following table shows the amount of barley and alfalfa each farmer can produce per year on a given acre. Each farmer chooses whether to devote all acres to producing barley or alfalfa or to produce barley on some of the land and alfalfa on the rest. Barley - alfalfa Jake - 18 - 6 Latashia- 28- 7 ____ has an absolute advantage in the production of barley, and _______ has an absolute advantage in the production of alfalfa.
Latashia - Latashia (can produce more of both)
Ch6 Non-binding vs Binding
Price Ceiling binding= below the equilibrium price non-binding= above the equilibrium price Price Floor binding= is greater than the current market price. non-binding= is less than the current market price
Suppose that Spain and Switzerland both produce jeans and olives. Spain's opportunity cost of producing a crate of olives is 5 pairs of jeans while Switzerland's opportunity cost of producing a crate of olives is 10 pairs of jeans. -By comparing the opportunity cost of producing olives in the two countries, you can tell that _____ has a comparative advantage in the produterm-35ction of olives and _______ has a comparative advantage in the production of jeans. -Suppose that Spain and Switzerland consider trading olives and jeans with each other. Spain can gain from specialization and trade as long as it receives more than ______ of jeans for each crate of olives it exports to Switzerland. Similarly, Switzerland can gain from trade as long as it receives more than ______ of olives for each pair of jeans it exports to Spain. -Based on your answer to the last question, which of the following prices of trade (that is, price of olives in terms of jeans) would allow both Switzerland and Spain to gain from trade? Check all that apply. 12 pairs of jeans per crate of olives 6 pairs of jeans per crate of olives 2 pairs of jeans per crate of olives 9 pairs of jeans per crate of olives
Spain- Switzerland 5 pairs - 1/10 crate 6 pairs of jeans per crate of olives- 9 pairs of jeans per crate of olives
When both the demand and supply curves shift, the curve that shifts by the larger magnitude determines the effect on the undetermined equilibrium object.
TRUE
Which of the following is true regarding this economic model? -While simple, the circular-flow diagram can still be useful for the purposes of modeling how dollars and resources move throughout an economy. -Because it does not take into account the role of government, the circular-flow diagram is useless for the purposes of modeling how dollars and resources move throughout an economy. -Because it does not take into account international trade, the circular-flow diagram is useless for the purposes of modeling how dollars and resources move throughout an economy. -Because, in reality, the economy is very large, the simplicity of the circular-flow diagram makes it useless for the purposes of modeling how dollars and resources move throughout an economy.
While simple, the circular-flow diagram can still be useful for the purposes of modeling how dollars and resources move throughout an economy.
before tax - use equilibrium point
after tax- tax wedge point along demand curve
If the United States government lowers the income taxes on the wealthiest Americans, while decreasing welfare payments to the poorest Americans, the result will likely be __________ in efficiency and _________ in equality in the United States.
an increase; a decrease
total surplus =
area of a triangle 1/2 B H depending on shape is what formula is used
Determinants of Supply shift •Price of inputs •Production technology •Number of producers •Expectations of producers
determinates of supply movement along - change in price
Deborah: Most people recognize that the budget deficit has been rising considerably over the last century. We need to find the best course of action to remedy this situation. Carlos: I believe that a cut in income tax rates would boost economic growth and raise tax revenue enough to reduce budget deficits. Deborah: I actually feel that raising the top income tax rate would reduce the budget deficit more effectively. The disagreement between these economists is most likely due to ____ -differences in scientific judgment -differences between perception vs reality -differences in values
differences in scientific judgment (argument over a factual matter)
When a society gets the most it can from its scarce resources
efficiency
When economic benefits are distributed uniformly across society
equality
Suppose Neha earns $775 per week working as a programmer for PC Pros. She uses $8 to order a mojito cocktail at Little Havana. Little Havana pays Lorenzo $250 per week to wait tables. Lorenzo uses $350 to purchase software from PC Pros. Factor Market VS. Product Market -Neha earns $775 per week working for PC Pros. -Lorenzo spends $350 to purchase software from PC Pros. -Neha spends $8 to order a mojito cocktail.
factor market product market product market
Based on this model, households earn income when ____ purchase _____ in factor markets.
firm - factors
In a perfectly competitive market, all producers sell ____ goods or services. Additionally, there are ______ buyers and sellers. Because of these two characteristics, both buyers and sellers in perfectly competitive markets are price _____ .
identical- many- takers
Inelastic and Elastic Demand
if consumers change their purchasing behavior very little in response to a drastic change in price, demand is said to be inelastic; but if consumers change their purchasing behavior a lot in response to a small change in price, demand is said to be elastic.
Suppose that, in an attempt to combat severe unemployment, the government decides to increase the amount of money in circulation in the economy. This monetary policy _____ the economy's demand for goods and services, leading to _____ product prices. In the short run, the change in prices induces firms to produce ____ goods and services. This, in turn, leads to ______ level of unemployment.
increase- higher- more- lower
production possibilities frontier
inefficient- points INSIDE/BELOW the curve efficient- points located ON the curve unattainable- points located OUTSIDE/ABOVE the curve
Bakers are much______ likely to supply pastries to the market if property rights are not enforced.
less
In other words, the economy faces a trade-off between inflation and unemployment: Higher inflation leads to ______ unemployment and lower inflation leads to _____ unemployment.
lower - higher
Suppose the market for cars is unregulated. That is, car prices are free to adjust based on the forces of supply and demand. If a shortage exists in the car market, then the current price must be ____ than the equilibrium price. For the market to reach equilibrium, you would expect _________
lower- buyers to offer higher prices
MICRO vs MACRO -The government's decision on how much to spend on public projects -The optimal interest rate for the Federal Reserve to target -The effect of government regulation on a monopolist's production decisions
macro macro micro
hw CH 2 - question 5
make sure you know how to graph points, compare opportunity costs, and evaluate when a factor changes in the market
positive = substitute (normal good)
negative= complementary (inferior good )
price elasticity of supply
perfectly inelastic straight line up and down =0 greater than 1= elastic less than 1= inelastic unit elastic =1 perfectly inelastic straight line up and down =0
elasticity of demand
perfectly inelastic straight line up and down =0 less than 1 = inelastic greater than 1 =elastic unit elastic = 1 perfectly elastic= straight line left to right (infinity)
Positive (facts) vs. Normative Statements (opinions) -Lung cancer kills millions of people each year. -Too many people smoke. -If the government were to increase taxes on cigarettes, fewer people would smoke. -The government should increase taxes on cigarettes.
positive normative positive normative
Suppose that, in a competitive market without government regulations, the equilibrium price of rental cars is $58 per day. -Due to new regulations, car rental companies that would like to pay better wages in order to hire more workers are prohibited from doing so. -The government prohibits car-rental companies from renting out rental cars for more than $87 per day. -The government has instituted a legal minimum price of $87 per day for rental cars.
price ceiling- binding price ceiling- non-binding price floor- binding
consumer surplus -willingness of what the buyer will pay - what they actually pay
producer surplus- extra amount of money a producer gets above what they were willing to make from it
Which of the following government policies is least likely to increase the standard of living in the United States? -Investment in education and skills training for workers -Investment in tools and capital for workers -Raising the minimum wage paid to workers -Investment in technology
raising the minimum wage paid to workers (Since raising the minimum wage of workers does not increase their ability to produce, raising the minimum wage will not significantly impact living standards as compared with investments in capital, education, and technology.)
Suppose Bulgaria produces only smartphones and tablets. The resources that are used in the production of these two goods are not specialized—that is, the same set of resources is equally useful in producing both tablets and smartphones. The shape of Bulgaria's production possibilities frontier (PPF) should reflect the fact that as Bulgaria produces more tablets and fewer smartphones, the opportunity cost of producing each additional tablet - increases -decreases - remains constant
remains constant (represented by a straight line graph)
supply shifts (y axis)
right- decreasing left- increasing
demand shifts (x axis)
right- increasing left- decreasing
consumer surplus on a graph
shaded from market price to price consumers willing to pay
producer surplus on a graph
shaded from what they are willing to except to the market price
quantity supplied- The amount of a good that sellers are willing and able to supply at a given price supply curve- A graphical object showing the relationship between the price of a good and the amount that sellers are willing and able to supply at various prices
supply schedule- A table showing the relationship between the price of a good and the amount of it that sellers are willing and able to supply at various prices law of supply- The claim that, other things being equal, the quantity supplied of a good increases when the price of that good rises
Surplus (above equilibrium) shortage (below equilibrium)
surplus= pressure to move price downward shortage= pressure to move price upward
