lecture 17

Question 1

explain what profits can be

Answer 1

• 𝑃𝑟𝑜𝑓𝑖𝑡𝑠 = (𝑃 − 𝑎𝑡𝑐) q
• profist are positive, negative or zero depending on wheter P-atc is positvive, negative or zero at the quantity produced by the firm

Question 2

when are negative, postive and zero economic profits?

Answer 2

in the graph
q1, p1- when mc=mr
- negative → o1 < atc at q1
- positive → p1 > atc at q1
- zero → p1 = atc at q1

Question 3

what are the market adjustment and the signals sent by profits?

Answer 3

if there are:
- negative profits → some firms will reduce the scale of their operations, or exit (moving the industry supply curve to the left)
- positive profits → some firms will expand the scale of their operations, or new firms will enter (moving the industru supply curve to the right)
- zero profits → there are no forces tending to cause either contraction or expansion of the industry
(the industry is in long-run equilibrium)

Question 4

What happens in a market with taxes and subsidies?

Answer 4

• the government does not produce nor consume. it has the power to impose taxes or subsidies
• a tax means that the price paid by the consumer differs from the price received by the producer

Question 5

What is the effect of a tax in the market if the tax was collected from the firm?

Answer 5

• the equilibrium quantity decreases
• the price paid by consumers increases, while the price receivedd by producers decreases
• supply shift upward

Question 6

What is the effect of a tax in the market if the tax was collected from the consumers?

Answer 6

• demand curve shifts downward
• the equilibrium would be the same as the equilibrium from the firms

Question 7

what is there to see in welfare analysis of a tax?

Answer 7

• consumer surplus
• producer surplus
• government revenue
• toatal surplus
• Deadweight loss

Question 8

what is the economic tax incidente?

Answer 8

• who actually finances the tax
• describes how the economic burden of the tax is distributed among consumers and producers
• the effect of a tax on the welfare of buyers, sellers, or both
• the economic incident of a tax will be larger on the side of the market that is relatively more inelastic

Question 9

If demand is more inelastic than supply, the economic incidente of the tax is larger for consumer or for producers?

Answer 9

for consumers

Question 10

If supply is more inelastic than demand, the economic incidente of the tax is larger for consumer or for producers?

Answer 10

for producers

Question 11

what is a subsidy?

Answer 11

• negative tax

Question 12

what are price controls? What types exist?

Answer 12

government, sometimes, intervene by regulating prices, either legally fixing prices or imposing upper or lower limits for prices
- price ceiling → maximum price that producers can charge for a good or service
- price floor → minimum price that buyers must pay in order to acquire a good or service

Question 13

what happens if the government imposes a price ceiling?

Answer 13

• this will cause a shortage in this housing market
• at the new price, the quantity demanded is larger thant the quantity of houses supplied

Question 14

what happens if the government implements a price floor?

Answer 14

• this will cause a surplus in the market
• at the new price, que quantity supplied is larger than the quantity demanded