Unit 5-6 Econ Test

Calculate the deadweight loss at output 50. Show work.(Graph 6.1)

$0 There is no deadweight loss. 50 is the socially optimal quantity.

Calculate the deadweight loss at output 20. Show work.(Graph 6.1)

$135=½(30) × $9

Calculate the deadweight loss at output 60. Show work.(Graph 6.1)

$15 = ½ (10) × 3

Using numbers on the graph, identify the marginal external benefit or external cost. (Graph 6.2)

$40. The external cost is vertical distance between the cost curves.

Calculate the deadweight loss. (Graph 6.2)

$400 = ½(20) × $40

Calculate the deadweight loss at output 70. Show work.(Graph 6.1)

$60 = ½(20) × $6

Identify the shifters of labor demand.

- Change in the demand for the product - Change in the productivity of the resource - Change in the price of related resources (substitute and complementary resources)

Identify the shifters of labor supply.

- Number of qualified workers (including immigration) - Government regulation/licensing - Cultural expectations

What is a factor market

A factor market is where businesses purchase the resources they need to produce goods or services.This is also called an input market or resource market.

What is the difference between a per-unit tax and a lump-sum tax?

A per-unit tax is a tax for each unit produced. If more units are made, the amount of the tax increases. A lump-sum tax is a fixed one-time tax. The tax is the same no matter how many units are made.

Explain the difference between a production externality and a consumption externality.

A production externality arises from the production process resulting in two cost curves. A consumption externality arises from the consumption process resulting in two benefit curves.

Define Gini Coefficient.

A statistical measurement of income equality where perfect equality is 0 and perfect inequality is 1. On the graph, it is Area A divided by the sum of areas A and B.

Identify three sources of income inequality.

Abilities, human capital, inheritance, effects of discrimination, access to financial markets, mobility, etc.

Would a lump-sum tax cause the deadweight loss to increase, decrease, or stay the same. Explain. (Graph 6.4)

Deadweight loss would stay the same. A lump sum tax would increase the AlC but not change the MC or MR so the quantity would stay the same.

Technological advancements lower the price of robots that can make pizza.

Demand: Decrease Supply: NC Wage: Decrease Quantity: Decrease

The price of burgers increases, causing the price of pizza to increase.

Demand: Increase Supply: NC Wage: Increase Quantity: Decrease

The government requires pizza cooks to pass an exam to get certified to make pizza.

Demand: NC Supply: Decrease Wage: Increase Quantity: Decrease

Instagram influencers encourage teenagers to get jobs at pizza restaurants.

Demand: NC Supply: Increase Wage: Decrease Quantity: Increase

The government establishes a binding minimum wage that affects pizza cooks.

Demand: NC Supply: NC Wage: Increase Quantity: Decrease

What does Line 1 represent? (6.5 Lorenz Curve)

Line 1 represents perfect income equality

What does Line 2 represent? (6.5 Lorenz Curve)

Line 2 represents actual income equality in the country.

If the government sets a price ceiling at the socially optimal price, will the monopoly need a per-unit tax, a lump-sum tax, a per-unit subsidy, or a lump-sum subsidy? Explain. (Graph 6.4)

Lump-sum subsidy. At the socially optimal quantity the firm is making a loss. A lump-sum subsidy would keep the firm from closing.

Number Of Workers | Total Product ---------------------- ---------------- 0 0 1 5 2 15 3 20 4 23 5 24

MRP ------ - $25 $50 $25 $15 $5

What is the least cost rule when combining resources?

Marginal Product Labor / Price Of labor = Marginal Product of Capital / Price of Capital

Is this a positive externality or a negative externality? Explain.(Graph 6.2)

Negative externality. The MSC >MPC. There are external costs on a third party.

Identify the price and quantity produced by the free market.(Graph 6.2)

P = $50, Q = 40

Identify the unregulated price and quantity. (6.4 Graph )

P = P1, Q = Q1

Identify the fair-return price and quantity. (6.4 Graph )

P = P2, Q = Q2

Identify the allocatively efficient price and quantity. (6.4 Graph )

P = P3, Q = Q3

Identify the socially optimal price and quantity. (Graph 6.1)

P =$10, Q=50

Identify the socially optimal price and quantity.(Graph 6.2)

P= $70, Q = 20

Assume a market produced 40 units. Identify a government policy that could eliminate deadweight loss.(Graph 6.1)

Per-unit subsidy.

Assume a market produced 70 units. Identify a government policy that could eliminate deadweight loss.(Graph 6.1)

Per-unit tax.

Is this a consumption externality or production externality? Explain. (Graph 6.2)

Production externality. The external cost arises from the production process resulting in two cost curves instead of two benefit curves.

How much is the profit or loss?

Profit = $40 = $100-$60 = TR-TC

Draw a perfectly competitive labor market and firm. Label the wage W1 the quantity in the market QM and the quantity for the firm OF.

Q 17 Check packet

Draw a monopsony and label the unregulated wage and quantity.

Q23 Check Packet

What are regressive taxes?

Taxes that take a larger percent of income from low income groups. Takes more percent from poor people.

What are proportional taxes?

Taxes that take the same percent of income from all income groups. Takes the same percent from everyone.

Why is the supply for labor upward-sloping?

The number of workers that are willing and able to sell their labor increases as the wage increases.

Why is the demand for labor downward-sloping?

The number of workers that businesses are willing and able to hire increases as the wage falls.

Assume a firm hires the cost-minimizing combination of labor and capital. The marginal product of the last worker is 60 units and the marginal product of the last unit of capital is 20 units. If the wage rate is $30 per hour, what is the price of capital? ________ If the wage falls to $10 per hour, the company should hire _____ workers and _____ capital.

The price of capital is $10 more & fewer

A binding minimum wage leads to relatively less unemployment when the demand for labor is inelastic.

True.

A monopsony hires less workers and pays lower wages than a competitive labor market.

True.

Assume bricks and wood are substitute resources. If the price of bricks increases, the price of wood will increase.

True.

Per Unit Subsidy What will happen to Variable Cost: Fixed Costs: MC: ATC: Output:

Variable Cost: Decrease Fixed Costs: NC MC: Decrease ATC: Decrease Output: Increase

Per-Unit Tax What will happen to Variable Cost: Fixed Costs: MC: ATC: Output:

Variable Cost: Increase Fixed Costs: NC MC: Increase ATC: Increase Output: Decrease

Lump Sum Subsidy What will happen to Variable Cost: Fixed Costs: MC: ATC: Output:

Variable Cost: NC Fixed Costs: Decrease MC: NC ATC: Decrease Output: NC

Lump Sum Tax What will happen to Variable Cost: Fixed Costs: MC: ATC: Output:

Variable Cost: NC Fixed Costs: Increase MC: NC ATC: Increase Output: NC

Assume this firm develops a process that makes only their workers more productive. What will happen to the wage and quantity of workers hired?

Wage stays the same, quantity will increase.

The idea that the demand for resources is determined by the products they produce is called ______ demand.

derived

The _________ enacts policies to addresses market failures and the problems that arise from externalities, public goods, monopolies, and income ________

government inequality

Negative externalities generate a quantity that is _______ than the socially optimal quantity.

greater

The four factors of production are

land , labor, capital, entrepreneurship.

Positive externalities generate a quantity that is _____ than the socially optimal quantity.

less

A market controlled by only one buyer is called a _______

monopsony.

A _______ externality occurs when the production or consumption of a product results in a cost to a third party.

negative

A _______ externality occurs when the production or consumption of a product results in a benefit to a third party.

positive

Externalities occur because rational decision makers often respond to _________ benefits and costs rather than ______ benefits and costs.

private external

Due to the free rider problem, private individuals usually lack the incentive to produce _______ goods

public

The four factor payments _______________

rent , wage, interest , and profit.

Firms maximize profit by hiring workers when the marginal ________ product equals the ______________ cost

revenue resources / factor

Markets are socially optimal, with no deadweight loss, when the marginal _____ benefit equals the marginal ______ cost.

social social

The ________ of labor for firms in perfect competition is perfectly elastic.

supply

In a perfectly competitive labor market, workers have identical skills and are wage ______

takers

A binding minimum wage can cause ________ since businesses often hire fewer workers.

unemployment

Workers in perfectly competitive labor markets work for the same _____ which is set by the ______.

wage market

Identify two policies that can mitigate the effects of a negative externality.

A Per unit tax, regulation limiting output

Assume perfectly competitive product and labor markets. If the price of the product is $5 and the wage is $20, how many workers should be hired?

3 workers. Where MRP = MRC

Identify two policies that can mitigate the effects of a positive externality.

A Per unit subsidy, regulation promoting more output

________ laws are designed to prevent monopolies and make markets more competitive.

Antitrust

Draw the supply and demand for cooks and show a binding minimum wage. Label the equilibrium wage (Wl) and quantity (01) and the minimum wage (WM) and quantity (OM).

Check Packet

Explain the difference between the factor market and the product market.

Factor markets are where the factors of production are sold households to businesses. Product markets are where goods/services are sold by businesses.

If the demand for houses increases, the wage of carpenters will increase and the quantity will decrease.

False.

What is the difference between income inequality and wealth inequality?

Income inequality involves annual earnings. Wealth inequality looks at how accumulated assets are distributed.

How would an increase in job training for low-skilled workers affect income inequality and the Gini coefficient?

Inequality would decrease and the Gini Coefficient would decrease.

What are progressive taxes?

Taxes that take a larger percent of income from high income groups. Takes more percent from rich people.

Would the Gini Coefficient increase, decrease or stay the same if the government made income taxes more progressive and increased payments to those in poverty?

The Gini Coefficient would decrease.

If the government sets a binding minimum wage, will the MRP of the last worker hired increase, decrease, or stay the same? Explain.

The MRP of the last worker hired will increase. Workers with lower MRPs will no longer be hired since the minimum wage increased. Only workers with higher MRP will continue to have a job.

Define marginal resources cost (MRC).

The additional cost from hiring one additional resource/worker. Also called marginal factor cost (MFC).

Define marginal revenue product (MRP).

The additional revenue generated by hiring one additional resource/worker.