Mid Term 2 Flashcards

1
Q

consumer surplus

A

between the demand curve and the market price

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2
Q

producer surplus

A

willing to supply if price is greater than the opportunity cost. is the area above the supply line but below the market price

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3
Q

total surplus

A

CS+PS value to buyers minus cost to sellers. an allocation that maximizes TS is said to be efficient

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4
Q

benevolent Social planner

A

all powerful and seeks to maximize economic well being of everyone in society may also care about equity but efficiency first

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5
Q

Market Equilibrium

A

when supply is equal to demand. market allocates the supply of goods to those who value them the most and allocates demand of goods to sellers with lowest costs

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6
Q

BSP cannot…

A

increase well being by reallocation among buyers or sellers

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7
Q

Free market

A

produces quantity of goods that maximizes TS, prices are determined by unrestricted competition between private companies

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8
Q

Chapter 7 summary

A

Forces of supply and demand allocate resources efficiently, buyers and sellers only care about the outcome, market outcome maximizes TS, markets are competitive no market power, no externalities outcomes matter only to market participants, use welfare tools to look at effect of government policies

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9
Q

Tax revenue

A

T x Q which is the rectangle in between supply and demand curve

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10
Q

Welfare

A

the study of how the allocation of resources affects economic wellbeing

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11
Q

dead weight loss

A

area beside tax in between supply and demand curves, lost from total surplus

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12
Q

dead weight loss

A

area beside tax in between supply and demand curves, lost from total surplus. result of market distortion. market shrinks

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13
Q

Price elasticities

A

the more elastic the more buyers and sellers exit

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14
Q

Laffer curve

A

shows most effective way to explain where more TQ could be gained by raising or lowering the tax

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15
Q

world price

A

the price of a good that prevails in the world market for that good

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16
Q

tariff

A

a tax on goods produced abroad and sold domestically

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17
Q

benefits of international trade

A

variety of goods, lower cost through economies of scale
increased competition
enhanced flow of ideas

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18
Q

Arguments for restricting trade

A
jobs
national security
infant industry
unfair competition
protection as a bargaining chip
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19
Q

externalities

A

the uncompensated impact of one person’s actions on the well being of a bystander

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20
Q

Social optimum

A

In the presence of a negative externality, the social cost of the good exceeds the private cost. the optimal quantity therefore drops

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21
Q

internalizing the externality

A

alter incentives so that people take account of the external effects of their actions

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22
Q

corrective taxes

A

taxes enacted to correct the effects of negative externalities

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23
Q

corrective taxes vs permits

A

taxes set price, permits set quantity

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24
Q

subsidies

A

how the government balances positive externalities

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25
Q

caose theorem

A

if private parties can bargain without the cost over the allocation of resources, they can solve the problem of externalities on their own

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26
Q

transaction costs

A

the costs that parties incur in the process of agreeing to and following through on a bargain

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27
Q

excludability

A

the property of a good whereby a person can be prevented from using it

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28
Q

rival in consumption

A

where one person’s use of a good diminishes the other peoples use

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29
Q

private goods

A

goods that are excludable and rival (ice cream)

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30
Q

public goods

A

not rival and not excludable (fire alarm)

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31
Q

common resource

A

rival but not excludable (fish in the ocean)

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32
Q

club goods

A

excludable but not rival (Cable tv)

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33
Q

free rider

A

a person who receives benefit of a good but avoids paying for it

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34
Q

cost benefit analysis

A

compares the costs and benefits to society of providing a public good

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35
Q

tragedy of the commons

A

why common resources get used more than is desirable from the standpoint of society as a whole (over fishing)

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36
Q

budget deficit

A

an excess of government spending over government receipts

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37
Q

budget surplus

A

if revenue exceeds spending

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38
Q

average tax rate

A

total taxespaid over total income

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39
Q

marginal tax rate

A

the extra taxes on an additional dollar of income

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40
Q

lump sum tax

A

same for everyone

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41
Q

benefits principle

A

taxes should fall to the amount a person can burden

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42
Q

vertical equity

A

tax payers with greater ability to pay should pay larger amounts

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43
Q

horizontal equity

A

taxpayers with similar ability to pay should pay the same amount

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44
Q

proportional tax

A

everyone pays the same tax

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45
Q

regressive tax

A

a tax where higher income tax payers pay a smaller percentage of their income

46
Q

progressive tax

A

a tax where high income taxpayers pay a higher percentage of their income than low income families

47
Q

Efficiency

A

The property of society getting the most it can from the the scarce resources

48
Q

Equity

A

The property of distributing economic prosperity fairly among members of society

49
Q

Opportunity cost

A

What you give up

To get something

50
Q

Rational people

A

Systematic and purposefully do the best they can to achieve their objective

51
Q

Marginal changes

A

Small changes to a plan of action

52
Q

People respond to incentives

A

Induced a person to act

53
Q

Market economy

A

Allocated resources through the decentralized deductions of many firms and households as they interact in markets for goods and services

54
Q

Property rights

A

Ability to own a scarce resource

55
Q

Market failure

A

Market left on its own fails to

Allocate resources

56
Q

Externality

A

Impact on wellbeing of a bystander

57
Q

Market power

A

Single economic actor to have substantial sway on market

58
Q

Circular flow diagram

A

A visual of an economy that shows how dollars flow through markets among households and firms see page 22

59
Q

Production Possibilities frontier

A

Shows combo of output an economy can possibly produce with given goods and services available

60
Q

Micro

A

How households and firms make decisions

61
Q

Positive statements

A

Attempt to describe world as is

62
Q

Normative statements

A

Attempt to prescribe how the world should be

63
Q

Absolute advantage

A

The comparison among producers of a good according to their productivity (smaller quantity of input is AA)

64
Q

Comparative advantage

A

Comparison among producers of goods according to their opportunity cost (whoever gives up less of another good to produce a good has CA)

65
Q

Market

A

Group of buyers and sellers of a particular good or service

66
Q

Competitive market

A

Many buyers and many sellers so that each has a negligible impact on market price

67
Q

Perfectly competitive market 2 parts

A

All goods are same and everyone is price taker

68
Q

Quantity demanded

A

Amount of goods buyers are willing and able to purchase

69
Q

Law of demand

A

Other things equal, the quantity demanded of a good falls when the price rises

70
Q

Demand schedule/curve

A

Shows relationship between price and quantity demanded of a good

71
Q

Normal good

A

An increase in income leads to an increase in demand

72
Q

Inferior good

A

An increase in income leads to a decrease in demand

73
Q

Substitute goods

A

An increase in the price of one leads to an increase in the demand for the other

74
Q

Complements

A

Increase in price of one leads to decrease in demand for the other

75
Q

Law of supply

A

The quantity supplied of a good roses when the price of a good rises

76
Q

Equilibrium

A

Price supplied = quantity demanded

77
Q

Surplus and shortage

A

Don’t fuck this up

78
Q

Law of supply and demand

A

Price of any good adjusts to bring the quantity supplied and the quantity demanded into balance

79
Q

Elasticity

A

The measure of responsiveness of quantity supplied or demanded to one of its determinants

80
Q

A measure of how much a quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in Qd divided by the percentage change in price

A

Price Elasticity if demand

81
Q

Price elasticity demand

A

%change in Qd / %change in Proce

82
Q

Total revenue

A

Amount paid buy buyers and received by sellers of a good, computed as the Price x Qsold

83
Q

Elastic if I inelastic if

A

If greater than one. Unelastic, unit of it equals one

84
Q

Time horizon definition of market necessities vs luxuries available close subs

A

Pg 92

85
Q

Tax incidence

A

How tax burden is shared among the market

86
Q

Tax on buyers and sellers comp

A

Buyers drops DCurve sellers raises SCurve

87
Q

Tax burden with elasticity

A

Elastic supply on buyers

Elastic demand on sellers

88
Q

Total cost

A

Market value of inputs used by a firm

89
Q

Total revenue

A

Output of sales

90
Q

Profit is

A

TR - TC

91
Q

Explicit costs

A

Input costs that require outlay of money by firm

92
Q

Implicit costs

A

Don’t require outlay of money

93
Q

Econ profit

A

Is profit including losses from implicit and explicit costs

94
Q

ATC MC

A

TC/Q

ChangeTC / change Q

95
Q

Long term short term economies and ATC

A

Short ATC falls as output increases (specialization)
Long ATC rises as output rises (to stretched out, not productive)
Always U shaped
Long term firms can pick but not short

96
Q

Sunk cost

A

Already been committed and can’t be recovered

97
Q

Exit market short and long term

A

MC

98
Q

Monopoly

A

Sole seller with no close substitutes

99
Q

Natural monopoly

A

When a firm can supply an entire market at lower cost than two or more could. (Distribution of water)

100
Q

Monopoly profit

A

P-ATC x Q

101
Q

Price discrimination

A

Selling same good for different price to different buyers

102
Q

Monopolistic competition

A

Many firms selling similar but not identical products

103
Q

Oligopoly

A

Few sellers offer similar or same product

104
Q

Oligopoly Nash equilibrium and prisoners dilemma shows what theory

A

Game theory(how people act in strategic situations)

105
Q

Capital

A

Equipment and structures used to produce goods and services

106
Q

Human capital

A

Accumulation of investments in people

107
Q

Compensating differential

A

Shit jobs more money

108
Q

Efficiency wages

A

Pay above equilibrium for added results

109
Q

Unions

A

Workers make 10-20 percent more

110
Q

In kind transfer

A

Given to poor but not money

111
Q

Liberalism

A

Make decisions behind the veil of ignorance