Exam #I

Question 1

Positive economics

Answer 1

An issue that can be checked with data.

Example: If we raise the minimum wage, more people can be unemployed? You have to check with data from the past, to get the answer.

Question 2

Normative economics

Answer 2

One’s own opinion about economic issues.

Example: The minimum workers deserve $25 per hour.
Opinion that does not have or need data to support it.

Question 3

Opportunity cost

Answer 3

The next best thing you are willing to give up when making a choice.

Question 4

The FREE labor condition.

Answer 4

JOC can succeed even if you don’t start being rich, and no one can stop you.

Question 5

If we raise the minimum wage to $20 per hour…

Answer 5

1. Some workers may be replaced with technologies.
2. Some stores/businesses may charge more.
3. Low skill workers are most likely to face unemployment.
4. . Prices will increase, so a decrease in consumerism.

Question 6

Normal good

Answer 6

Something a typical person is willing to buy more of it if heir income increases

Example: New house, pay for vacations.

Question 7

Inferior food.

Answer 7

If the income of a person increases, they are less likely to buy this product.

Example =bus rides.

Question 8

GIFFEN GOOD!!!

Answer 8

Suggested by Robert giffen. a type of inferior good where a price increase causes quantity sold to increase too.

Examples: rice, salt, potatos.

Decrease of hability to afford any of the normal goods, instead of this.

Question 9

Demand

Answer 9

Willingness to pay.

Question 10

The law of increasing opportunity cost.

Answer 10

To increase output you must use additional inputs with a greater opportunity cost.

Example: “ pay them as good as much as people can earn somewhere else to make them stay”.

Question 11

Factors of production

Answer 11

1. Land
2. Labor
3. capital

Question 12

P.P.F stands for

Answer 12

Production possibility frontier. A graph that shows all the different combinations of output of two goods that can be produced using available resources and technology.

Question 13

Consumer surplus

Answer 13

C.s = The difference between one’s maximum willingness to pay, and the price actually paid.

Question 14

Producer surplus.

Answer 14

Price received - one’s willingness to accept.

Question 15

Gains from trade

Answer 15

Consumer surplus + producer surplus.

Question 16

The invisible hand.

Answer 16

Suggested by Adam smith: The consumer products that sou want will bemade by someone who wants to make a profit.

Question 17

Exchange economy.

Answer 17

Suggests that specialization in labor is letter when there is exchange.

Wilfredo Pareto: “ only voluntary exchange proves increased utility”. That means voluntary exchange benefits both sides.

Question 18

The utilitarians.

Answer 18

Greatest good for the greatest #of people by observing other people’s utility

Question 19

Tax incidence

Answer 19

It is who pays the tax, not how it is collected.

Question 20

Fiscal illusion.

Answer 20

Collecting a tax in a way that makes a program appear less expensive than it’s final cost.

Question 21

Tax evasion vs tax avoidance:

Answer 21

Tax evasion is to not pay taxes that are legally due und tax avoidance is to make different choices that would reduce taxes that would otherwise be owned if not.

Question 22

Tax efficiency:

Answer 22

Tax that causes little or no decrease in quantity sold.

Question 23

Laffer curve

Answer 23

The Laffer curve is a curve depicting the relationship between tax rates and revenue, based on a theory by economist Arthur Laffer.

Question 24

Government employee.

Answer 24

Can not berated. Is a teacher or a principal productive enough?

Question 25

Types of taxation

Answer 25

Regressive, proportional and progressive

Question 26

Regressive tax

Answer 26

If your income increased, this tax as percent of your income devices.
Example: telephone tax, and electric bill tax.

Question 27

Proportional tax

Answer 27

As your income increases, the tax stays the same
Ex: sales tax

Question 28

Progressive Tax

Answer 28

As income increases, this tax increases too.
Ex: federal tax

Question 29

Elasticity of demand formula.

Answer 29

% quantity sold / % in price. That equals effect/cause

Question 30

Horizontal equity in taxation vs vertical equity in taxation

Answer 30

Horizontal equity In taxation means that people of equal incomes should pay the same in taxes, and vertical equity in taxation means that as one’s income increases, should one pay more tax is a percent Of income.

Question 31

Fiscal substitution.

Answer 31

Reducing city and state fundingin response to on increase in federal funding.

Question 32

First degree price discrimination

Answer 32

Charge each separate customer their personal maximum willingness to pay.

Question 33

Second degree price discrimination.

Answer 33

There are 2 different sets of prices:
1. High price for customers with a high willingness to pay.
2. Low price for customers with aloo willingness to pay.

Question 34

Elasticity Of demand formula

Answer 34

ED= (Q1-Q2/Q1+Q2) / (P1-P2/P1+P2)

Question 35

Elasticity of demand

Answer 35

• if demand is < 1 it is inelastic.
• if demand is >1 is elastic.
• ifdemand is = 1 it is a unit elastic.

Question 36

Economy of scale

Answer 36

Mass production reduced the cost per unit of output.