Micro Final

The deadweight loss is given by______________

(1/2)(P1 - P0)(Q* - Q1).

Percent change in Price Formula

(P2-P1)/P1

Percent change in Quantity Formula

(Q2-Q1)/Q1

price elasticity of demand formula

(Q2-Q1)/[(Q2+Q1)/2] / (P2-P1)/[(P2+P1)/2]

Léon Walras

- Took up the challenge of making economics into a science. -His device for simplifying the economy so that it could be expressed mathematically was to represent interactions among economic agents as if they were relationships among inputs and outputs, and to focus entirely on the economy in equilibrium -The pure theory of economics,' he wrote, 'resembles the physico-mathematical sciences in every respect.'

Which of the following variables have followed the so-called 'hockey-stick' trajectory—that is, little to no growth for most of history followed by a sudden and sharp change to a positive growth rate?

-GDP per capita -labour productivity -atmospheric CO2

Characteristics of a perfectly competitive market?

-Many undifferentiated sellers -Sellers must act independently -Many buyers wanting to buy the good -Good is homogeneous

A health insurance market, in which the insurers do not know whether or not the applicants for insurance are habitual smokers.

-Online sales of nutritional supplements, when consumers cannot tell whether their contents are as claimed by sellers. -A health insurance market, in which the insurers do not know whether or not the applicants for insurance are habitual smokers.

effect of a tax

-Producer surplus falls -Consumer surplus fall -Total surplus is lower

Which of the following are examples of markets?

-auction websites such as eBay -touts selling tickets outside concert halls -sale of illegal arms

Which of the following are examples of private property?

-computers belonging to your college -shares in a company

Total employment rent

= Employment rent per hr. X Expected lost hrs. of work time

Net utility per hour

= wage - disutility effort per hr.

Which of the following is an example of a negative externality?

A commuter driving to work instead of taking public transportation

The figure shows the marginal private cost and marginal social cost of producing bananas while using pesticides. The per-tonne price of bananas is constant at $400.

A is the banana producers' profit-maximizing outcome.

A single firm that can supply the whole market at lower average cost than two firms

A natural monopoly

What is market failure?

A situation in which the allocation of goods and services by a free market is not efficient, often leading to a net loss of economic value.

The figure depicts the efficiency wage equilibrium of a worker and a firm

At A, given that the firm pays the hourly wage of $12, the worker's best response is to exert an effort of 0.5

Again, refer to the figure below.

At B, the decrease in price that keeps profits constant when one extra car is sold is larger than the decrease in price required to sell one extra car

The government could implement four different policies to ensure the Pareto efficient outcome. When 38,000 bananas are produced, the difference between the marginal social cost (MSC) and the marginal private cost (MPC) is $105. In which of the following policies do the banana producers make the highest profit?

Coasean bargaining when the banana producers have the right to pollute.

Rival and Non-Excludable

Common-pool resources (fish stocks in a lake, common grazing land

Suppose that someone comes to your home and asks you to donate to the Make-A-Wish Foundation (or some other charity) and given your altruistic preferences, you are more than happy to donate. However, since the person does not know your preferences, they say "If you donate, you can write the donation off on your taxes as a deduction" (trying to incentivize you to donate) but this makes you want to donate less. This is an example of:

Crowding out

What is a constant returns to scale

Doubling the input leads to doubling of the output labor

Which of the following statements about merit goods is correct?

Emergency healthcare is a merit good

Which of the following is the best example of a non-excludable public good?

Free Wifi

Which of the following goods is not allocated by markets in the U.S. because doing so is widely viewed as repugnant?

Human Kidneys

Which of the following statements is true?

In a labor contract one side of the contract has the power to issue orders to the other side

Which of the following statements is correct?

It is easier for rich people to get loans because they are able to provide equity or collateral

Profits are maximized when_____________

MR=MC

Which of the following statements are correct?

Market failures happen because market prices do not always take into account of the full effect of their actions on others.

Non-rival and Non-excludable

Non-excludable public goods and bads (view of a lunar eclipse, public broadcasts, rules of arithmetic or calculus, national defence, noise and air pollution)

Arthur Pigou

One of the first neoclassical economists to focus on welfare economics

Price-taking firms choose the quantity where________

P=MC

A firm's fixed cost is $0 and marginal cost is $20

Producing $2000 units with a price is $40

Non-rival and excludable

Public goods that are artificially scarce (subscription TV, uncongested tollroads, knowledge subject to intellectual property rights)

What shifts up the best response curve?

Recession

What shifts the response curve to the right?

Rise in unemployment benefit which increases the reservation wage

Consider the situation where the noise of a factory's production affects nurses in the dormitory next door. If there are no transaction costs to impede Coasean bargaining, which of the following statements is correct?

The nurses would be better off in the bargained allocation if they initially had a right to undisturbed sleep than they would if the factory has the right to make noise.

The figure depicts the demand curve of a firm producing cars, together with its marginal cost, average cost, and isoprofit curves.

The deadweight loss in the profit-maximizing outcome is $23,580.

The diagram depicts the demand curve of a product. Assume there are 100 potential buyers

The diagram represents Law of Demand

Which of the following contributes to a firms diseconomies of scale

The difficulty of monitoring workers effort as the number of employees increases

Figure 8.8 shows the equilibrium of the bread market to be 5,000 loaves per day at price €2. A year later, we find that the market equilibrium price has fallen to €1.50. What can we conclude?

The fall in price could have been caused by a shift in either curve.

Relatively elastic

The higher the elasticity of demand the less the firm will raise the price

Relatively inelastic

The lower the elasticity of demand, the more the firm will raise the price above the marginal cost to achieve a high profit margin

Figure 8.5 shows a price-taking bakery's marginal and average cost curves, and its isoprofit curves. The market price for bread is P*= €2.35. Which of the following statements is correct?

The marginal cost curve is the firm's supply curve.

Look again at Figure 8.18, which shows the market for Choccos and for all chocolate bars. Based on the two diagrams, which of the following statements is correct?

The market marginal cost (MC) curve is approximately the sum of the MC curves of all the producers of the chocolate bars.

The figure depicts the demand curve of a firm producing cars, together with its marginal cost, average cost, and isoprofit curves.

The total cost of producing 32 cars is $110,720.

Figure 8.17 shows the effect of a tax intended to reduce the consumption of butter. The before-tax equilibrium is at A = (2.0 kg, 45 kr) and the after-tax equilibrium is at B = (1.6 kg, 54 kr). The tax imposed is 10 kr per kg of butter. Which of the following statements is correct?

The very elastic supply curve implies that the incidence of the tax falls mainly on consumers.

Cooperative Firms

Their workers are the owners of the capital goods and other assets of the company. Select the managers

The figure below shows a demand curve for Cheerios

There is no demand if the price is set above $7.20

In Guadeloupe and Martinique, the use of pesticide chlordecone on banana plantations devastated fishing communities downstream. Which of the following statements is correct?

This was an example of a social dilemma.

True or False: A steeper demand curve corresponds to a lower elasticity

True

The market for robots is competitive and the market price is $340. The initial output is 120 but the government uses a Pigouvian tax to reduce this to the efficient level of 80. Which of the following statements is correct?

Under the Pigouvian tax, the factory's surplus will be $6,400.

What shifts the response curve to the left?

Unemployment rises and reservation wage falls

Decreasing returns to scale

When an increase in all inputs leads to less than proportional output

Increasing returns to scale

When an increase in all inputs leads to more than proportional output

At what price will the market clear?

When the quantity demanded is equal to the quantity supplied.

Where do price-setting firms set chosen price?

Where MR=MC and above AC

Pigouvian Tax

a tax imposed on an activity that creates a negative externality

repugnant markets

an area of commerce that is considered by society to be outside of the range of market transactions and that bringing this area into the realm of a market would be inherently immoral or uncaring. (For example a market in human organs)

total surplus =

consumer surplus + producer surplus + government revenue

Capitalism

economic system that combines centralization with decentralization.

merit goods

goods that should be made available to all people, regardless of willingness-to-pay. (K-12 schooling, trial by jury, police and fire protection)

When the supply of bread increases___________________

more firms enter

Non-rival

one person's use does not reduce others' use

Rival

one person's use reduces others' use

Excludable

people can be excluded from using the good

Non-excludable

people cannot be excluded from using the good

not firms

play a lesser role in a capitalist economy include family businesses, in which most or all of the people working are family members, non-profit organizations, employee-owned cooperatives, and government-owned entities

Rival and Excludable

private goods (food, clothes, houses)

firms that make up a capitalist economy

restaurants, banks, large farms that pay others to work there, industrial establishments, supermarkets, and internet service providers.

A fall in the oil price would___________________

shift down the supply curve for plastics

As a result of the tax____________

the consumer surplus is reduced by (1/2)(Q1 + Q*)(P1 - P*)

External costs

the costs of a market activity paid by people who are not participants

Elasticity of demand is calculated as:

the percentage change in quantity divided by the percentage change in price

equilibrium price

the price that balances quantity supplied and quantity demanded

Economics

the study of how people interact with each other and with their natural surroundings in producing their livelihoods, and how this changes over tim