Micro midterm

value of the product's next highest valued use

equilibrium P

If Pworld>Pdom

exports

graph if there is a tariff

graph with 2 lines under equilibrium

Market for pollution ex: tax supply is

horizontal

Qs-Qd=

how much is exported

If Pworld<Pdom

imports

In a free market the price of a good is equal to the value of the good

in its next highest-valued use

If you think the future price of a good will be high, the price today will

increase

What decreases the volume of international trade

increasing tariffs

what decreases the volume of international trade

increasing tariffs

An external cost

is a cost paid by people other than the producer or consumer trading in the market

Pigouvian Tax

is levied on a good that creates a negative externality and should be set equal to the external cost to eliminate the deadweight loss

consumer surplus

left of demand, above world supply, under equilibrium P

A tariff increases domestic production by

left side quantity difference

value of wasted time

left square

amount of the tariff which would completely eliminate imports

little bottom left triangle

dead weight loss =

little right triangle

rights triangle

lost gains from trade

external benefit =

low price-new equilibrium price

If the price increases today, the future price will be

lower

Marginal social cost =

marginal cost to sellers + external cost

value of deadweight loss by the loss of foreign trade

middle triangle

price floor example

minimum wage

price ceilings

misallocate resources because consumers who buy the product may not be the ones who value it the most

efficient level of output=

new equilibrium

If tariff equates Ptar and Pdom

no imports or government revenue

external cost=

p2-p0

social benefit

private benefit + external benefit

if tariff what is decrease in CS

quadrilateral under equilibrium (ABCD)

Protectionism

restricts trade through policies that favor domestic producers

External cost example

second hand smoke

cost equation

social cost = private cost + external cost

efficient quantity in a market

social cost equilibrium Q

total value of wasted time

square left of equilibrium

external cost

supply and demand equilibrium P

Tariff

tax on imported goods

As a result of U.S. quotas on sugar imports, all of the following are true, except:

the gains to American producers are greater than the losses to American consumers.

If the United States bans the importation of Japanese automobiles:

there will likely be more U.S. auto workers but fewer Americans working in other industries.

What is the great economic problem

to satisfy as many of our wants as possible with our scarce resources

lost CS

top triangle just left of point

DWL

triangle just left or right of equilibrium point

External benefit DWL

triangle left of Dsoc

If tariff equates Ptar and Pdom. DWL is

triangle under equilibrium point

Market for pollution ex: tradeable allowances supply is

vertical

Markets coordinate in a way that links buyers and sellers who rely primarily on

voluntary cooperation and undirected actions

left triangle

wasted resources

A $1 tariff generates government revenue of

world supply with tariff line length

if tariff what is Dead Weight Loss

B+D (bottom side triangles under equilibrium)

The proposition that private parties with clearly defined property rights and low transaction costs can resolve externalities problems on their own is called the

Coase theorem

trade quota

a quantity restriction on imported goods

In the case of an external cost, the social cost curve lies________ the supply curve.

above

Deadweight loss can be eliminated if the government

added a $10 tax per unit

Internalizing the externalities

adjust the incentives to the buyer or seller

A free market maximizes the gains from trade, the sum of consumer and producer surplus, meeting all of the following conditions except:

all buyers who are willing to pay positive prices are able to receive goods from trade.

if tariff what is increase in PS

bottom left quadrilateral (A)

lost PS

bottom triangle just left of point

externality

cost or benefit that falls on bystanders Ex: taking antibiotics

when a price ceiling is in effect

demanders cannot signal their needs to suppliers

not an effective price floor

deregulation

The text states: "The great economic problem is to arrange our limited resources to satisfy as many of our wants as possible. How does a market achieve this goal?"

The forces of demand and supply use price as a signaling device that directs resources to their highest value uses.