Macroeconomics Chapter 10 Aplia
Facts:
1. An invisible hand leads buyers and sellers to an equillibrium that maximizes total surplus 2. Market power can cause markets to be inefficient 3. Extranalities can cause markets to be inneficient
What percent of total world trade is accounted for by countries that belong to the world trade organization?
97%
Gov. imposes price ceiling on phones.What could transform the price ceiling from one that is binding to on that is not binding?
A technological advance makes cellular phone production less expensive
Economists view the fact that florida grows oranges, texas pumps oil, and california makes wine as
Confirmation of the virtues of free trade
Filling out a survey. What would you do if price of fav. brand of toothpaste increased? Buy a different toothpaste. What if price of all toothpastes increased? Adjust spending somehwere else to be able to afford toothpaste.
Definition of a market in determining the price elasticity of demand
Supposed England exports cars to australia and imports cheese from mexico. This suggests that
England has a comparative advantage relative to Austraia in producing cars, and Mexico has a comparative advantage relative to England in producing cheese.
Haiti has absolute advantage in producing oranges but other countries have comparative advantage in producing oranges. When trading oranges,
Haiti will import oranges
If a country allows trade and, for a certain good, the domestic price without trade is lower than the world price
The country will be an exporter of the good
Elasticity is
a measure of how much buuyers and sellers respond to changes in market conditions
What cuases no hcange in producer surplus?
a nonbinding price ceiling in the market
When the gov. attempts to improve equality in an economy, the result is often
a reduction in efficiency
Person A grows flowers and makes vases, as does person B. But person A is better at poducing both goods. In this case, trade could
benefit both person A and B
Specialization and trade are closely linked to
comparative advantage
On a graph, the area below a demand curve and above the price measures
comsumer surplus
Justin builds fences for a living. His out of pocket expenses + value that he places on his own time amount to his
cost of building fences
Consumption of water that includes pesticide runoff from local farmers in an
extranality
Countries that restrict foreign trade
have more domestic market power firms
A country has a comparative advantage in a product if the world price is
higher than that country's domestic price without trade
An increase in prices causes and increase in total revenue when demand is
inelastic
The deadweight loss from a tax of $8 per unit will be smallest in a market with
inestalstic demand and inelastic supply
Owners of firms in young industries should be willing to incur temporary losses if they believe that those firms will be profitable in the long run
infant-industry argument
Total revenue
is unchanged as price increases when demand is unit elastic
The signals that guide the allocation of resources in a market economy are
prices
The income of a typical worker in a country is most closely linked to
productivity
When a tax is levied on a good, the buys and sellers of the good share the burden
regardless of how the tax is levied
Economics deals primarily with the concept of
scarcity
One result of tax, regardless of wether the tax is placed on buyers or sellers, is that the
tax reduces the welfare of both buys and sellers
Welfare economics is the study of how
the allocation of recources affects economic well-being
If a country allows trade and, for a certain good, the domestic price w/out trade is higher than the world price
the country will be an importer of the good
The bowed shape of the production possibilities frontier can be explained by the fact that
the opportunity cost of one god in terms of the other depends on how much of each good the exonomy is producing
A logical starting point from which the study of international trade begins is
the principle of comparative advantage
A supply curve can be used to measure producer surplus because it reflects
the seller's cost
Key determinant of the price elasticity of supply is
time horizon
Economists typically measure efficiency using
total surplus
Total surplus in a market is equal to
value to buyers - cost of sellers
An economy's production possibilities frontier is also its consumption possibilities frontier
when the economy is self sufficient
Maximum amount someone will pay for something
willingness to pay
