econ 202 ch. 4, Microeconomics Exam #1
a permanent shortage when the supply is purposely kept below equilibrium
ceiling price
an economy in which the government is directly involved
command
2 types of economies
command, free market
this theory states that specialization and free trade benefit all trading parties
comparative advantage
when 1 producer can produce more at a lower opportunity cost than another producer
comparative advantage
an example of an ineffective price ceiling would be the government setting the price of wheat at ___ per bushel when the market price is at $5.00 per bushel
$6.00
4 functions of an economic system
1. determie variety and quantities of outputs to produce 2. determine best uses of inputs to product outputs 3. determine how much of each output each individual receives 4. determine growth of outputs
an example of a price ceiling would be the government setting the price of sugar
below the equilibrium market price
price ceiling
a maximum price that sellers may charge for a good, usually set by government
price floor
a minimum price below which exchange is not permitted
if the equilibrium price of gasoline is $4.00 per gallon and the government will not allow oil companies to charge more than $3.00 per gallon of gasoline, which of the following will happen?
a nonprice rationing system such as ration coupons must be used to ration the available supply of gasoline
when 1 producer can produce more using fewer resources than another producer
absolute advantage
what is the most important factor in economic production?
access to capital goods
the total loss of producer and consumer surplus from underproduction or overproduction is:
deadweight loss
the rent for apartments in new york city has been rising sharply. demand for apartments in new york city has been rising sharply as well. this is hard to explain because the law of demand says that higher prices should lead to lower demand. do you agree or disagree?
disagree: an increase in demand would result in a higher equilibrium price. therefore, a sharp increase in the demand for apartments in new york city is entirely consistent with a sharp increase in rent.
occurs when quantity demanded = quantity supplied
equilibrium
occurs when there's a surplus (i.e. minimum wage)
floor price
an economy without government involvement
free market
what are the outputs in production?
goods and services
in this concept, everyone is pursuing his/her own interests. firms don't care about consumers' happiness, just profit. consumers don't care about firms, they just want satisfaction.
invisible hand
producer surplus:
is the difference between the current market price and the cost of production for the firm
consumer surplus:
is the difference between the maximum amount a person is willing to pay for a good and its current market price
what are the inputs in production?
land, labor, capital
states that a change in price will change the quantity demanded
law of demand
analyzing the additional costs/benefits arising from a decision
marginalism
set of interacting buyers and sellers who, through their voluntary interactions, determine the prices of products and the quantities which are sold
market
type of economics that is based on values and subjective
normative
companies will specialize in outputs with the smallest _
opportunity cost
the benefit you'd sacrifice by not using a product
opportunity cost
type of economics that is value free and objective
positive
2 types of economics
positive, normative
what are the 5 exogenous variables on the market?
preferences, income, number of buyers, prices of related goods, expected future changes in price
5 factors causing a change in demand
preferences, income, prices of related goods, number of buyers, expected future change in price
a resource is scare if it has a _
price
the adjustment of ___ is the rationing mechanism in market economies
price
a minimum price, set by the government, that sellers may charge for a good is known as
price floor
what are the 2 endogenous variables on the market?
price, quantity
2 types of changes (innovations) in technology
product, process
this graph shows all the combinations of goods/services that can be produced if all resources are used efficiently
production possibilities curve
when a price ceiling is imposed, the price system is prohibited from rationing the product in the market in which the ceiling was imposed. what other alternative rationing methods are available to determine who receives the scarce commodity?
queuing, favoring customers, and ration coupons
what is the consumer's objective?
satisfaction
3 determinants of supply
technology, input prices, number of sellers
if the price floor is set below the equilibrium price:
the floor will be ineffective
if the price ceiling is set below the equilibrium price:
there will be a shortage
if the market price of coffee is $3.00 per pound but the government will not allow coffee growers to charge more than $2.00 per pound of coffee, which of the following will happen?
there will be a shortage of coffee
if the price floor is set above the equilibrium price:
there will be a surplus
if the government imposes a maximum price that is above the equilibrium price,
this maximum price will have no economic impact
the measure of how happy the customer will be
total utility
among the methods of nonprice rationing are:
waiting in line, coupons, favored customers
people scalping tickets for a jazz festival will be successful at selling the tickets for a profit
when the price set by the festival organizers is less than the market equilibrium price
people scalping tickets for the super bowl will be successful at selling the tickets for a profit
when the price set by the national football league is less than the market equilibrium price
