Economics- Chapter 10, Chapter 15, Chapter 16 (31-63)

58. How do we determine the profit-maximizing quantity using the total profit approach?

Determine the quantity that maximized TR-TC

40. What are the causes of increasing income inequality in the U.S.?

-Changing demographics: Increase of single-adult households combined with increase in two-income households. Also, "assortative mating." -Globalization: Loss of middle-class industrial jobs due to movement of production overseas. Replacement by lower-paying service/retail jobs. -Technological change: Increasing wages to those with the skills to use modern technology, and lower wages to those without such skills. -Decline of union power: From a peak of 25% union membership down to around 10% now. -Policy-induced inequality: Higher inequality a result of deregulation, tax changes, trade policies.

32. What does a Gini coefficient of 0 indicate? What does a Gini coefficient of 1 indicate?

0= total equality 1= absolute inequality

33. What is a Lorenz curve? What is measured on each axis?

A Lorenz curve plots the cumulative percent of households on the x-axis, arranged from poorest to richest. The y-axis shows the cumulative percent of income received by a given percentile of households.

43. What are some policies that can reduce inequality?

Increased investment in human capital- (ex: investing in education) increasing knowledge, experience, and eventually cost. (POTENTIAL) if someone has more income, there will be more equality Tax reforms- changing the way taxes are structured Labor market policies: minimum wage laws, better part-time opportunities Increased provision of public services- increased investment in public services (roads, hospitals, etc)

59. How do we determine the profit-maximizing quantity using the marginal analysis approach?

Produce as long as MR is greater than or equal to MC.

60. What would a graph of profit maximization under perfect competition look like using marginal analysis?

Profit maximization occurs at the level of the production where the marginal cost rises to the level of marginal revenues (equal to price in a perfectly competitive market) MR=MC. a seller should increase production up to the point where MR = MC. As MR = P under perfect competition, we can also define the profit maximizing solution by setting P = MC.

57. What is the demand curve faced by a perfectly competitive firm?

Strait line (horizontal)- perfectly elastic

37. About what is the lowest Gini coefficient for income of any country? About what is the highest?

Sweden/Denmark- lowest gini (.25) Lesotho- lowest (.65)

31. What is a Gini coefficient? How is it calculated?

a measure of inequality, based on the Lorenz curve, that goes from 0 (absolute equality) up to 1 (absolute inequality). Greater inequality shows up as a larger area between the Lorenz curve and the diagonal line of absolute equality. a/(a+b)

56. What are the four conditions of perfect competition?

a. Each seller/buyer is small (relative to the market) as to have no influence on equilibrium price. b. All units sold are identical, so that purchase decisions are based solely on price. c. Sellers can freely enter or exit the market. d. Buyers and sellers have "perfect" information.

45. What is the difference between accounting and economic costs?

accounting costs:actual monetary costs paid by a producer as well as estimated reduction in the value of the producer's capital stock (fixed+variable= accounting) economic cost: the total cost of production, including both accounting and opportunity costs (forgone opportunities)

53. How would we calculate average cost?

cost per unit of output, =total cost divided by the quantity of output produced

48. What is diminishing marginal returns?

diminishing marginal return- the more you input, outputs increase at a decreasing rate (a situation in which each successive unit of a variable input produces a smaller marginal product) constant marginal returns: a situation in which each successive unit of a variable input produces the same marginal product increasing marginal returns: a situ- ation in which each successive unit of a variable input produc- es a larger marginal product

63. How can we determine the ultimate market price in a perfectly competitive market?

economic profits have to be driven to 0 as more producers enter the market, prices will lower. this price will equal marginal cost of one firm when price = average total cost, the profit per unit = 0 as long as price is greater than ATC, there are profits, and companies will enter the market.

55. What are economies of scale? What are diseconomies of scale?

economies of scale: situations in which the long-run average cost of production falls as the size of the enterprise increases (exceedingly limited in its services) diseconomies of scale: situations in which the long-run average cost of production rises as the size of the enterprise increases (a point at which enterprises are too big to be managed effectively)

44. What is the difference between fixed and variable costs?

fixed costs (sunk costs): production costs that cannot be adjusted quickly and that must be paid even if no production occurs variable costs: pro- duction costs that can be adjusted relatively quickly and that do not need to be paid if no production occurs

46. What is the difference between the short run and the long run regarding production?

fixed input: a production input that is fixed in quantity, regardless of the level of production variable input: a production input whose quantity can be changed relatively quickly, resulting in changes in the level of production production quantity depends on quantity inputs (land, labor, machinery, raw materials, etc.) short run- (in terms of production processes) a period in which at least one production input has a fixed quantity long run- (in terms of production processes) a period in which all production inputs can be varied in quantity --> more control over spending and, therefore, production

39. What has been the recent trend (last decade or so) regarding the world Gini coefficient for income? Explain this in relation to trend in Gini coefficients for most countries.

global economic inequality has generally been decreasing over the last couple of decades even as within- country inequality has been increasing. comparisons between industrialized and non industrialized nations (under developed countries are becoming more developed--> getting closer to their peers even if their peers are more unequal) (1)any one country does not represent the full range of income in the world. (2) large countries like china have increasing inequality --> creation of a global middle class. this creates more overall equality

42. What is the consensus regarding the relationship between economic inequality and economic growth rates?

higher inequality lowers growth

38. About what is the world Gini coefficient for income? How does this relate to country-level Gini coefficients

income in industrialized nations is much higher than in developing countries (it is better to be poor in a rich country than rich in a poor country) (top 10 of the world in income- a large percentage of the US)

62. How can we relate the market supply-and-demand graph to the market graph for an individual firm under perfect competition?

individual firm- price is constant supply moves onwards slope compare them side by side

34. What has been the trend regarding income inequality in the U.S. in recent decades?

inequality is increasing overtime highest it has been is .47

54. What is the normal shape of a long-run average cost curve?

long-run average cost: the cost of production per unit of output when all inputs can be varied in quantity u shaped curve- minimum and maximum efficient scale 1. What are economies of scale? What are diseconomies of scale?

52. How would we calculate marginal cost?

marginal cost= cost of additional product (variable cost)/marginal return

47. What is a production function? What is the shape of a typical production function graphically?

relationship between inputs and outputs over time. (one input at a time)

50. What does a total cost curve show?

relationship between the total cost of production (variable and fixed cost) and the level of output

49. How would we calculate marginal product?

subtraction of each successive output (additional yield of each uni of change) marginal product: the additional quantity of output produced by increasing the level of a variable input by one, holding all other inputs constant

41. What is the relationship between the top marginal tax rate and inequality trends?

tax rates on those at the highest income levels have tended to decrease in recent decades. as the top marginal tax rate decreases, income inequality increases (tax rates have a significant impact)

51. What is the shape of a typical total cost curve?

tends to get steeper over time positive slope ** sometimes decreasing at the range of decreasing marginal cost, then increasing steadily at the range of constant marginal cost until significant increase at the range of increasing marginal cost

61. What will happen if economic profits exist in a perfectly competitive market?

they cannot persist -With free entry and exit, anyone can easily become a farmer, switching from any other profession. -With perfect information, everyone is aware that farming is providing higher profits than other opportunities. -Another implication of perfect information is that everyone has access to information that will allow him or her to produce corn as efficiently as possible (i.e., at the lowest cost). -All bushels of corn are identical, so anyone producing corn can sell as much as he or she wants at the market price.

36. What has been the trend regarding income inequality for most countries in recent decades?

though there has been an increase in inequality, it is not too extreme. over the past 20 or so years, this inequality has been relatively stable

35. What normally has a higher Gini coefficient: income or wealth?

wealth distribution is higher- meaning that wealth greater gini coefficient than income (people at the bottom may have income, but little to no wealth- creating greater inequality)