Exam 2 quiz materials

Which price control applies to what happen in S.C. post-Hugo?

A price ceiling was applied to goods after Hugo; prices were set below Pe to generate a shortage.

AVC and ATC curves converge because ____ are falling to/approaching ____ (cet. par).

AFC, zero

What sort of non-price allocating devices were used in post-Hugo Charleston?How did this impact allocation to HVU(s) and impact duration of recovery?

At artificially low/controlled price allocation by connections, location, que, etc. so less likely to allocate to H.V.U., decreased incentive to supply. Higher FP (higher opportunity cost) slows recovery (cet. par.) as que, etc. could have been devoted to recovery efforts.

What happens (regardless of price control enforcement) to Charleston business people who "gouge" prices?

Business people who 'gouge' (P above Pe) will be disciplined by consumers who do not patronize their stores/ establishments after the crisis. They will increase profit in the short run but decrease long run profit/ value of the firm.

Give two specific examples of FC and two examples of VC.

FC examples: 1. machinery 2. production space VC examples: 1. labour 2. utilities

Draw and explain an ATC and AVC curve on the given MC curve and show a firm's short run supply curve. Explain why the SSR looks like what you've drawn.

It is foolish for P-takers to stop prod. on downward slop bc they will only experience losses. P taken below AVC shutdown firm to only lose FC. P taken between ATC and AVC cover some FC. P taken above ATC generates pos. profit as a higher P covers more cost to motivate supply, cet. par.

Two plants are used to produce a specific quantity (10,000 units/day) which is a required input in a firm's larger production process. How much will you assign/dedicate to produce in each plant? Why? (draw a diagram) Given economics is a behavioral science, what sort of incentive structure (hint: often paid on output) would you put in place for the plant managers?

Lower the TC of input by producing less in one plant where MC is higher to produce, and producing more in another plant where MC is lower. Plants who lower their MC of input over other will get more allocated to them, cet. par.

Write a sentence with respect to why the MC curve must pass through the minimum points of a firm's ATC and AVC curves?

MC begins as a decreasing result also decreasing the averages. An increasing MC doesn't raise the averages until MC exceeds the averages to bring them up as MC must pass through the minimum points of ATC and AVC.

What sort of non-price allocating devices are used with a price ceiling (Hugo's S.C. mandated price control)? How does full v. money price apply?

Occupation, location, and time in line are non-price allocating criteria used with price ceilings. Lower prices mean higher demand resulting in more time in line. Waiting in line raises full price (considers opportunity costs) even though MP is lower or unchanged; this results in items not being allocated to their HVU (less likely to allocate to those who need it most).

What is the money price of something you want but is not available?

P is infinity for things wanted but unavailable. Post-Hugo Charleston could have benefited from stuff sent, not money (money cannot buy goods that don't exist in a shortage).

Douglas Woodward's honors Econ class asked 'Why should they (volunteers and charities) have to coexist with opportunists turning a quick profit?' Keeping in mind this is an Econ class (not ethics, psych, etc.) please address their query.

Pc make Qs decrease so both 'rich and poor' go to volunteers and charities for supplies. Without Pc, Qs increases so 'rich' can purchase goods , leaving more supplies from volunteers and charities for the 'poor' (which is the volunteers and charities H.V.U.).

What happened to supply and demand curves in pre/post Hugo Charleston for items such as batteries, ice, etc.? (Draw diagrams)

Post Hugo demand and supply curves were LESS responsive to price changes (steeper). The choke price of the demand curve rose despite the price ceiling. Lower prices covered less cost, influencing production to decrease (shortage).

What happens to profits over units zero through ten? (on worksheet) At what unit [ q* ] were firm profits maximized? What happened to profits if the firm produced one more than q*? One less?

Profits began extremely negative due to fixed costs and increased until a breakeven profit around unit 4. Profit then turned positive and was maximized at unit q* = 9 at $1.96. Producing one more unit causes total profit to decrease; producing one less unit will cause profit to decrease.

According to the "Minimum Wage's Disreputable Origins," in the two years following a 33% increase in the federal minimum wage, non-white teen unemployment went from 14 to 24 percent, keeping in mind the non-price allocating devices that the post-Hugo Charleston price control imposed, explain why.

Since Qs > Qd of unskilled labor, discriminators (those looking for unskilled labor) were less disciplined by market forces as hiring criteria.

Why are price floors/supports so persuasive and successful in our economy?

The Calculus of Consent applies: Consumers (large group) consent to the price change because the C.S. from each of them is minute. Producers (small group) have a lower MC of organization to lobby for wealth transfers in their favor - huge in the aggregate.

Automatic ice-makers add $150 to the purchase price of refrigerators. LG's 18 cu. in. fridge is priced at $850; the same unit in stainless steel is $1,350. According to the A-A Theorem, which fridge will have more ice-makers included? (explain with addition of calculations) How may results of this sort impact LG's decision calculus with respect to setting up their production process?

The stainless steel fridge will have more ice-makers included because they have a lower relative price of adding an ice-maker. LG will make the stainless steel fridge with the ice-maker standard equipment to lower the full cost of the production process (offering more production options is more costly).

________ often lobby for minimum wage hikes to ________ competition for skilled labor as they have a lower MC of organization (think Calculus of Consent) for favorable transfers of this sort, cet. par.

Unions, Decrease

In economics, the goal of the firm is to ____________________. This occurs where _____ = _______ (cet. par.)

maximize profit, MR, MC

Inflation _________ the effectiveness of minimum wage (cet. par.) because the mandated nominal wage becomes ______ binding/distorted in real terms.

reduces, less