Econ Unit 2
Economic surplus
(Consumer surplus + Producer surplus)
consumer surplus
(Marginal benefit - price)
Producer surplus
(Price - Marginal cost)
Gini Coefficient
A measure of income inequality within a population, ranging from zero for complete equality, to one if one person has all the income.
binding price floor
A minimum legal price that is set above the existing equilibrium price. Since the market equilibrium price is lower than the price floor, the floor restricts trade and is said to be binding.
where one person's use of the good does not reduce another person's ability to use the same unit of the good.
A nonrival good is a good:
natural resource
A public school (meaning: it does not charge tuition) in the Washington, DC area is overcrowded. Students must frequently share resources like textbooks, and there are no empty desks available.
additional income earned is taxed at lower rates as additional income is earned.
A regressive tax is a tax where:
Step one in analyzing externalities
Assess the externalities
$90
Bae is willing to pay up to $160 for a particular pair of boots. She is able to buy the boots for $120. The marginal cost of producing the boots is $70. How large is the economic surplus associated with her purchase of the boots?
negative extranality
Cap and Trade polices are typically used to address goods with________
the difference between what people are willing to pay and what they actually pay for the quantity they actually buy.
Consumer surplus is best described as
Maximizing Economic Surplus
Efficiency focuses on
fairness
Equity deals with
Step two in analyzing externalities
Find the socially optimal outcome
most efficient outcome.
From an economic perspective, the outcome that yields the greatest economic surplus is the:
public goods
Goods that are neither excludable nor rival in consumption
opportunity cost formula
Hours this takes/Hours required to produce alternative output
less than the market equilibrium
If a restrictive quota is imposed on a market with no externalities, the quantity that gets exchanged is
Greater than
If a restrictive quota is imposed on a market with no externalities, the quantity that gets exchanged is less than the market equilibrium then the price of the good would be_____ than the market equilibrium price.
whoever (either buyers or sellers) have the smallest price change
If a tax is imposed on a market, we can tell who has the most inelastic response (in terms of the price paid or price received) based on
Marginal social benefit = Marginal social cost
If the cap and trade policy is well designed, then by capping production the production is limited to a quantity where.
Sellers, buyers
If there are no externalities and there is deadweight loss then welfare is reallocated from _____to ___
Is
If there are no externalities in this market, there____deadweight loss
not enough is being exchanged.
In general, if marginal benefit exceeds marginal cost
.22
In which country is income distributed the most equally? Enter Gini Coefficient (Maxistan - .22) (Sadiestan - .74) (Burginville - .85) (Marthaland - .52)
permanent income
Juan is 80 years old. Over Juan's adult lifetime, he accumulated savings for several decades and is using that savings to cover his expenses in retirement. Early in life when his income was low, he borrowed funds several times to cover his expenses, paying back the loans over the next few years. Juan's consumption pattern over his lifetime was influenced heavily by his:
results in deadweight loss
Market failure occurs any time the outcome in the market
an inefficient outcome.
Market failure occurs when market forces lead to:
Economic burden tax
Old equilibrium price- New equilibrium price
at a price below the value of the benefit they receive from the item.
People gain consumer surplus when they purchase an item:
Cap and trade
Policy that limits the market quantity to the optimal quantity and allow more efficient producers to sell tradable permits to less efficient producers.
Step three in analyzing externalities
Predict the equilibrium outcome
$0
Pule purchases four bottles of bathroom cleaner for $3 each. The maximum prices she would have been willing to pay for each bottle are $6 for the first bottle, $5 for the second bottle, $4 for the third bottle, and $3 for the fourth bottle. The marginal cost of producing the bottles is $2.50. What is Pule's consumer surplus on the fourth bottle of bathroom cleaner?
Positive
Question about whether an outcome is efficient or not are positive
Normative
Questions about whether an outcome is equitable or not are?
Marginal external cost
Sellers are not required to cover this cost
Marginal private cost
Sellers are required to cover this cost
supply is more elastic relative to demand.
Sellers bear a smaller incidence of a tax when:
Total surplus is reduced.
Suppose there is a market where there are no externalities. The world price of this good is lower than the domestic price. If this country decides to end free trade and imposes a tariff on this market, which of the following is a consequence of this action?
Theopolis
The Gini Coefficient of two countries is below: Maxistan: 0.6 Elijastan: 0.5 Theopolis: 0.4 Which country has the most income inequality?
Progressive marginal income tax system
The United States has this kind of income tax system?
Only one person can get a dose of vaccine, making it rival, and public goods are non-rival
The government is providing COVID19 vaccines free of charge to any person who is eligible. Which of the following best describes why COVID19 vaccines are not a public good?
the division of the economic burden of a tax between buyers and sellers.
The incidence of a tax is
is most efficient for society as a whole, including for buyers, sellers, and bystanders.
The socially optimal outcome is the outcome that:
lack of excludability
The tragedy of the commons arises primarily due to
Progressive marginal income tax system
This type of tax system taxes people with higher incomes more than lower income people
It has a highly unequal distribution of income.
What conclusions can we draw about a country with a high Gini coefficient?
buyers, sellers
When a tax is imposed on sellers in a market with no externalities the Surplus is reallocated away from ______ to _____
higher
When a tax is imposed on sellers in a market with no externalities then the marginal benefit is ______ than marginal cost
Less
When a tax is imposed on sellers in a market with no externalities then the quantity that is sold is ______ than the efficient quantity.
Inelastic
When a tax is imposed on sellers in a market with no externalities, the economic burden falls on who has a more _____ curve
deadweight loss
When a tax is imposed on sellers in a market with no externalities, then there is a _____________
More of all goods will be produced than if everyone produced everything for themselves.
When people focus their efforts, on the tasks they have a comparative advantage in, what will happen to output?
creates a line of communication between buyers and sellers.
When price functions as a signal, it
Deadweight loss
When the economic surplus in a market is less than it would be if the market were efficient, the market is experiencing:
negative consumption externality
When the private benefits of consumption are greater than the public benefits of consumption
Postive consumption externality
When the social benefits of consumption are greater than the private benefits of consumption
Cap and trade, taxes
Which of the following are ways you could limit the production of a good with negative externalities that makes producers internalize the externality? Choose all that apply.
three times the cost of the USDA thrifty food plan
Which of the following best describes how the Official Poverty Measure (OPM) is calculated?
the cost of the USDA Thrifty Food plan
Which of the following is included when calculating the official poverty measure?
Efficiency means minimizing surplus.
Which of the following statements is FALSE regarding economic efficiency?
Goods with positive externalities
Which types of goods do markets tend to produce too much of? (In other words, which of these leads to a market quantity that is higher than the efficient quantity?)
Because they lead to suboptimal outcomes.
Why are externalities considered a cause of market failure?
rival good
a good for which consumption by one person does diminish the quantity or quality of consumption by others
excludable good
a good for which it is easy to prevent consumption by those who do not pay
price elasticity of demand
a measure of the sensitivity of demand to changes in price
equilibrium world price
determined by the intersection of one nation's export supply curve and the other nation's import demand curve
private goods
goods that are both excludable and rival in consumption
club goods
goods that are excludable but not rival in consumption
Tragedy of the Commons
situation in which people acting individually and in their own interest use up commonly available but limited resources, creating disaster for the entire community
comparative advantage
the ability to produce a good at a lower opportunity cost than another producer
absolute advantage
the ability to produce more of a given product using a given amount of resources
opportunity cost
the most desirable alternative given up as the result of a decision
price elasticity of supply
the responsiveness of the quantity supplied to a change in price
non-binding price ceiling
when a price ceiling is above the equilibrium price
