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Econ - Mid Term 1 > Econ > Flashcards

Econ Flashcards

1
Q

Key elements of economic analysis?

A

Axiom, Assumption, deductions, results, compare against data

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2
Q

Characteristics of a good economic model?

A

Transparent & infallible reasoning. Reasonable predictive power, and simplicity

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3
Q

Normal good

A

you consume more of it with higher income

ex. designer clothing, ski vacations

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4
Q

Inferior good

A

demand for good rises when income falls (bus rides

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5
Q

Complements

A

using more of one good requires more use of another good (printer and ink cartridge)

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6
Q

Substitutes

A

using more of one good, reduces the demand for another (Pepsi and Cola)

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7
Q

Market in perfect competition

A

no buyer/seller can affect price and every buyer/seller is a price taker

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8
Q

Market in imperfect competition

A

some buyer/sellers can affect price and some buyers/sellers are price setter (not parietal optimal)

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9
Q

If some buyer in a market is a price taker, which schedule is not defined?

A

Demand schedule

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10
Q

If some seller in a market is not a price taker, which schedule is not defined?

A

Supply schedule

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11
Q

Why is elasticity a more useful measure of curvature of demand and supply curves than slope?

A

Slope you cannot compare across goods and markets, elasticity is unites and you can compare across goods and markets

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12
Q

Price elasticity of demand

A

[Q(B) - Q(A)] / .5 [Q(A) +Q(B)]
________________________

[P(B) - Q(A)] / .5 [P(A) +P(B)]

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13
Q

Price elasticity of supply

A

[Q(2) - Q(1)] / .5 [Q(1) +Q(2)]
________________________

[P(2) - Q(1)] / .5 [P(1) +P(2)]

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14
Q

Demand for cotton is INELASTIC. If the price of cotton falls, what happens to the consumer spending on cotton?

A

Consumer spending goes down

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15
Q

Demand for beef is ELASTIC, if the price of beef increases, what happens to the consumer spending on beef?

A

It will stay the same

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16
Q

Equilibrium

A

State from which there is no tendency to change, you cannot trade out of equilibrium = INVISIBLE HAND

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17
Q

Market equilibrium

A

supply in the market is equal to demand

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18
Q

Price Adjustment rule of Walrasian Auctioneer

A

Excess demand - shut down market and raise the price and try again, keep going till equilibrium is reached

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19
Q

What is sold and what is bought as the price moves towards its new equilibrium?

A

Nothing, until equilibrium is reached

20
Q

Excise tax - what do we assume about the tax revenue? What does this assumption imply?

A

If there is a tax revenue, it is not going back to the people who have given it. Assumption implies that the demand curve does not change

21
Q

In which 2 cases do buyers bear the burden from an excise tax?

A

When demand is perfectly inelastic or supply is elastic

22
Q

In which 2 cases do sellers bear the burden from an excise tax?

A

When demand is perfectly elastic or supply is inelastic

23
Q

Price floor

A

always above the equilibrium - excess supply - surplus

24
Q

Price ceiling

A

always below the equilibrium - market shortage - rent control

25
Q

Pareto Improvement

A

if someone is better off and no one is hurt

26
Q

Pareto Optimal

A

a situation in which and other situation would make someone worse off

27
Q

1st welfare theorem

A

free trade for a competitive economy leads to a Pareto Optimal allocation

28
Q

2nd welfare theorem

A

any pareto optimal situation can be achieved with an appropriate redistribution of income and free trade

29
Q

2nd welfare theorem - how would a transfer/gift of goods be a better way to redistribute income (better than manipulate the market place)?

A

Manipulation in the market place will always lead to dead weight loss

30
Q

positive externality

A

make others better off

31
Q

negative externality

A

make others worse off

32
Q

Coase’s theorem

A

an equilibrium with externalities will be pareto optimal regardless of who gets the property rights IF:

  1. Property rights are specified
  2. Free trade is permitted
  3. There is no transaction/bargaining cost
33
Q

public good

A

all consumers who get utility from a good consume the same units

34
Q

local public good

A

some consumers can be excluded

35
Q

What is a normative issue in the world with a public good? Positive issue?

A

How mush of the good CAN we provide (economic) vs. How much of the good SHOULD we supply (political)

36
Q

In an equilibrium, P & Q are…

A

the same!

37
Q

When situation is pareto optimal, social benefits = social cost.
What is the criterion for the optimal provision of a good?

A

SB=SC - pareto optimal
SB>SC - build more
SB

38
Q

possible changes that could achieve optimality in the market failure problem for a steel plant…

A
  1. Tax them -> waste
  2. Force them to clean the water (gov regulation)
  3. Internalization - firms merge
  4. Define property rights and allow free trade - who has the right to pollute/not be polluted on
39
Q

Market failure

A

a situation that leads to an equilibrium that is not pareto optimal

40
Q

Tax incident

A

sellers hurt to the extent Ps falls, buyers hurt to the extent Pd rises – cost to interfering in the market!

41
Q

Taxes who had the burden?

A

burden depends on price elasticity of supply and demand
more elastic = less burden
less elastic = more burden

42
Q

Rational person

A

a person is rational if he/she has some idea of his/her likes/dislikes and will act accordingly

43
Q

Unemployment

A

willing and able to work, but cannot get work

44
Q

price elasticity of a horizontal demand curve
vs
price elasticity of a vertical demand curve

A

infinity

0

45
Q

normal vs inferior goods in a market

A

A good x is said to be normal if higher income causes higher demand for good x.

A good y is said to be inferior if higher income causes lower demand for good y.

46
Q

exogenous variable

A

sufficiently important, but not determined int he model, value is constant, if value changes — there is a shock

47
Q

endogenous variable

A

is one whose value is determined

within the model

Econ - Mid Term 1 (1 decks)

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