Exam 1 Flashcards
When society requires that firms reduce pollution, there is
A tradeoff because of redued incomes o the firms’ owners and workers
Resources are
Scarce for households and scarce for economies
Efficiency means
Society is getting the maximum benefits from its scarce resources
When the government redistrubutes income from the wealthy to the poor
People work less and produce fewer goods and services
What you give up to get an item
Opportunity Cost
There is no such thing as a free lunch means
people face tradeoffs
If the cross price elasticity of two goods is positve, the two goods are
substitutes
Price elasticity is computed as
The percentage change in quantity demanded of bread divided by the percentage change in the price of bread
Increase in income results in a decrease in the quantity demanded of a good, then for that good, the
income elasticity of demand is negative
Cross price elasticity of demand measures how
the quantity demanded of one good changes in response to a change in the price of another good
Key determinant of the price elasticity of supply is the
Time Horizon
In general, elasticity measures
How much buyers and sellers respond to changes in market conditions
Necessitites such as food and clothing tend to have
Low price elasticites of demand and low income elasticities of demand
Willingness to pay
measures the value that a buyer places on a good
Consumer surplus equals the
the value to buyers minus the amount paid by buyers
Welfare Economics is the study of how
Allocation of resources affects economic well being
Total surplus is represented by the area
Between the demand and supply curves up to the equilibrium
When tax is imposed on buyers of good, demand curve shifts
Downward by the amount of the tax
Efficiency in a market is achieved when
the sum of producer surplus and consumer surplus is maximized
In market economy, supply and deand determine
Both quantity of each good produced and the price at which it is sold
A table that shows the relationship between the price of a good and the quantity demanded of that good is called
a demand schedule
what causes the equilibrium price to fall
Demand decreases and supply increases
In a mrket economy, supply and demand determine
Both the quantity of each good produced and the price at which it is sold
A group of buyers and sellers of a particular good or service is called
Market
An increase in the price of a good will
Increases quantity supplied
In a given market, how are the equilibrium price and the market clearing price related
They are the same price
There is no shortage of scarce resources in a market economy because
Prices adjust to eliminate shortages
Elasticity is
a measure of how much buyers and sellers respond to changes in market condiditons
The price elasticity of demand measures
Buyers’ responsiveness to a change in the price of a good
A key determinant of the price elasticity of supply is
The ability of sellers to change the amount of the good they produce
A decrease in supply will cause the smallest increase in price when
Both supply and demand are elastic
A price ceiling is
A legal maximum of the price a which a good can be sold
What can be used to measure a market’s efficiency, the sum of consumer and producer surplus, and value to buyers minus the cost to sellers
Total surplus
Market failure is the inability of
Some unregulated markets to allocate resources efficiently
