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Microeconomics > Midterm > Flashcards

Midterm Flashcards

1
Q

Opportunity Cost

A

What are you giving up?

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2
Q

Marginal Analysis

A

Comparing marginal benefit to marginal cost (if mb>mc take the action)

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3
Q

Competitive Market

A

A market in which there are many buyers and sellers of the same good or service. No individual can noticeably impact the price (well described by supply and demand)

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4
Q

5 key elements of supply and demand model

A

supply curve, demand curve, 2 sets of factors that cause the two curves to shift, p* and q*, the way mkt equilibrium changes when the supply/demand curve shift

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5
Q

demand schedule

A

how much people would want to buy at dif prices

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6
Q

law of demand

A

higher price –> less demand

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7
Q

changes in demand caused by:

A

changes in # of consumers, preferences of buyers, price of related g/s (substitute or compliment), in income

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8
Q

substitutes

A

a pair of goods where an increase in the price of one causes consumers to by another (coffee+tea)

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9
Q

complements

A

pair of goods where rise in price of one causes less demand for other (phones+apps)

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10
Q

normal good

A

demand increases when income rises

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11
Q

inferior good

A

demand decreases when income rises

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12
Q

input

A

a g/s used to produce another g/s

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13
Q

surplus

A

excess supply of a g/s

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14
Q

shortage

A

excess demand for g/s

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15
Q

Change in supply caused by:

A

change in input prices, expectations, technology, # of producers, related g/s

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16
Q

Price elasticity of demand equation. What’s its sign?

A

(q2-q1/q2+q1)/(p2-p1/p2+p1). Always negative but written as positive

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17
Q

Calculate PED: p1=3,p2=4,q1=60,000,q2=5700

A

0.18

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18
Q

(in relation to PED) Unit Elastic, Relatively Inelastic, Relatively Elastic, Perfectly Inelastic, Perfectly Elastic

A

PED=1, <1, >1, 0, infinite

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19
Q

quantity effect

A

revenue lost from reduction in sales by increasing price

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20
Q

price effect

A

revenue gained from increased price

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21
Q

(In relation to qty/price effect) Relatively elastic/inelastic

A

qty effect > price effect, qty effect < price effect

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22
Q

factors affecting PED

A

Short term vs. long term, luxury or necessity, budget share (higher percent = lower elasticity), close substitute (more options = higher elasticity)

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23
Q

Income Elasticity of Demand (and what this number indicates)

A

change in quantity demanded / change in income. (negative = inferior good, positive = normal good, 0-1=necessity and income inelastic, >1=luxury and income elastic)

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24
Q

Cross price elasticity of demand (and what this number indicates)

A

change in quantity demanded of product a / change in price of product b (>0 = substitute, < 0 = compliment)

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25
Q

Price elasticity of supply (and what this number indicates)

A

Change in quantity supplied / change in price (1=unit elastic, > 1 = relatively more elastic, < 1 relatively inelastic)

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26
Q

What effects price elasticity of supply?

A

timeframe (short term vs long term), future expectations

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27
Q

Willingness to pay

A

the maximum amount that a consumer is wtp for a g/s

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28
Q

Consumer Surplus

A

WTP - Px paid

29
Q

Seller’s Cost (WTS)

A

the lowest amount that the producer is willing to sell the g/s at

30
Q

Producer surplus

A

Px received - WTS

31
Q

Total Social Welfare (no externalities)

A

CS + PS

32
Q

Efficient

A

Maximized social welfare (there is not trade that can make someone better off without making someone else worse off)

33
Q

Price Ceilings

A

Maximum amount that can be charged for a g/s (rent control, steel, medical sector)

34
Q

Dead Weight Loss

A

loss in tsw relative to efficient eqm

35
Q

Price floor

A

Minimum price in the market (minimum wage, butter/essentials, agricultural commodities)

36
Q

tax equity

A

tax incidence (who bares burden of tax)

37
Q

tax efficiency

A

size of DWL due to tax

38
Q

Excise Taxes

A

Per unit tax on g/s

39
Q

Consumption side tax (and TSW formula)

A

tax on consumer (TSW = CS + PS + govt. revenue)

40
Q

Draw a graph for a consumption side tax

A

check notes (lecture 7)

41
Q

draw a graph of relatively elastic vs inelastic supply/demand

A

check notes (lecture 3)

42
Q

draw a graph and label CS and PS

A

check notes (lecture 5)

43
Q

graph a price ceiling, producer surplus, consumer surplus, dead weight loss, etc.

A

check notes (lecture 6)

44
Q

graph a price floor, producer surplus, consumer surplus, dead weight loss, etc.

A

check notes (lecture 6)

45
Q

Tax incidence

A

amt. of welfare (surplus) lost by producers/consumers

46
Q

relation of elasticity to tax burden

A

more elastic demand = producers bare greater tax burden, more elastic supply = consumers bare greater tax burden

47
Q

Graph a production side tax

A

check notes (lecture 7)

48
Q

Types of taxes

A

income tax, property tax, estate tax/inheritance tax, sales tax, wealth tax, corporate taxes, capital gains

49
Q

tax base

A

the value/measure we are taxing (property value, income)

50
Q

tax structure

A

defines how the tax base is taxed

51
Q

proportional tax, regressive tax, progressive tax

A

everyone pays the same percent regardless of income. As income increases, tax rate decreases. As. income increases, tax rate increases

52
Q

Marginal Social Benefit and Marginal Private Benefit

A

Society’s WTP and individual’s WTP (demand curve)

53
Q

Equation for MSB

A

MPB + external benefits to others from consumption - external costs to others from consumption

54
Q

Marginal Private Cost and Marginal Social Cost

A

Society’s and individual’s WTS (supply curve)

55
Q

Equation for MSC

A

MSC + external costs to society from production - external benefits to society from production

56
Q

Consumption Externalities (proportions)

A

positive = MSB > MPB, negative = MSB < MPB

57
Q

Production Externalities (proportions)

A

Positive = MSC < MPC, Negative = MSC > MPC

58
Q

Graph a Positive Consumption externality, calculate CS, PS, Ext benefit, TSW, DWL

A

check lecture 8

59
Q

Pigouvian Subsidy

A

equal to ext benefit

60
Q

Graph a Negative Consumption externality, calculate CS, PS, Ext benefit, TSW, DWL

A

check lecture 8

61
Q

Graph a Positive Production externality, calculate CS, PS, Ext benefit, TSW, DWL

A

check lecture 8

62
Q

Graph a Negative Production externality, calculate CS, PS, Ext benefit, TSW, DWL

A

check lecture 8

63
Q

Public soutions to Externalities

A

taxes for negative, subsidies for positive, mandate for positive, ban for negative

64
Q

Coase Theorem

A

we can solve the externality using markets so long as the transaction costs are low and the number of people impacted is small (a few people in an apartment could decide not to play loud music, but a lot of people would have a harder time coordinating this)

65
Q

Tradeable Permits

A

decide how much pollution we find acceptable, divide this amount into permits, have firms bid on these permits

66
Q

Excludable g/s

A

firm/supplier can exclude those who are not paying from consuming the good/service

67
Q

Rival in consumption

A

only one person can consume g/s

68
Q

Combinations of rival, non-rival, excludable, non-excludable

A

r+e=private good, nr+e=artificially scarce good, ne+r=common resource, ne+nr=public good

69
Q

free rider problem (and graph it)

A

people contribute less than their true value of the g/s because they want to free-ride on others contribution to the g/s. Leads to underproduction of the g/s in the free market. (check lecture 9 for graph)

Microeconomics (1 decks)

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