Exam #I Flashcards
Positive economics
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.
Normative economics
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.
Opportunity cost
The next best thing you are willing to give up when making a choice.
The FREE labor condition.
JOC can succeed even if you don’t start being rich, and no one can stop you.
If we raise the minimum wage to $20 per hour…
- Some workers may be replaced with technologies.
- Some stores/businesses may charge more.
- Low skill workers are most likely to face unemployment.
- . Prices will increase, so a decrease in consumerism.
Normal good
Something a typical person is willing to buy more of it if heir income increases
Example: New house, pay for vacations.
Inferior food.
If the income of a person increases, they are less likely to buy this product.
Example =bus rides.
GIFFEN GOOD!!!
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.
Demand
Willingness to pay.
The law of increasing opportunity cost.
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”.
Factors of production
- Land
- Labor
- capital
P.P.F stands for
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.
Consumer surplus
C.s = The difference between one’s maximum willingness to pay, and the price actually paid.
Producer surplus.
Price received - one’s willingness to accept.
Gains from trade
Consumer surplus + producer surplus.
The invisible hand.
Suggested by Adam smith: The consumer products that sou want will bemade by someone who wants to make a profit.
Exchange economy.
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.
The utilitarians.
Greatest good for the greatest #of people by observing other people’s utility
Tax incidence
It is who pays the tax, not how it is collected.
Fiscal illusion.
Collecting a tax in a way that makes a program appear less expensive than it’s final cost.
Tax evasion vs tax avoidance:
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.
Tax efficiency:
Tax that causes little or no decrease in quantity sold.
Laffer curve
The Laffer curve is a curve depicting the relationship between tax rates and revenue, based on a theory by economist Arthur Laffer.
Government employee.
Can not berated. Is a teacher or a principal productive enough?
Types of taxation
Regressive, proportional and progressive
Regressive tax
If your income increased, this tax as percent of your income devices.
Example: telephone tax, and electric bill tax.
Proportional tax
As your income increases, the tax stays the same
Ex: sales tax
Progressive Tax
As income increases, this tax increases too.
Ex: federal tax
Elasticity of demand formula.
% quantity sold / % in price. That equals effect/cause
Horizontal equity in taxation vs vertical equity in taxation
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.
Fiscal substitution.
Reducing city and state fundingin response to on increase in federal funding.
First degree price discrimination
Charge each separate customer their personal maximum willingness to pay.
Second degree price discrimination.
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.
Elasticity Of demand formula
ED= (Q1-Q2/Q1+Q2) / (P1-P2/P1+P2)
Elasticity of demand
• if demand is < 1 it is inelastic.
• if demand is >1 is elastic.
• ifdemand is = 1 it is a unit elastic.
Economy of scale
Mass production reduced the cost per unit of output.
