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econ 111 > midterm 2 > Flashcards

midterm 2 Flashcards

1
Q

Demand

A

the amount of some good or service consumers are willing and able to purchase at each price

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2
Q

Price

A

what a buy pays for a unit of the specific good or service

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3
Q

Quantity demanded

A

the total number of units of a good or service consumers are willing to purchase given a price

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4
Q

Law of demand

A

keeping all variables that affect demand constant

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5
Q

Demand schedule

A

a table that shows a range of prices for a certain good or service and the quantity demanded at each

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6
Q

Demand curve

A

a graphic representation of the relationship between price and quantity demanded of a certain good or service, with quantity on the horizontal axis and the price on the vertical axis

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7
Q

Supply

A

the amount of some good or service a producer is willing to supply at each price

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8
Q

Quantity supplied

A

the total number of units of a good or service producers are willing to sell at a given price

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9
Q

Law of supply

A

assuming all other variables that affect supply are held constant

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10
Q

Supply schedule

A

a table that shows the quantity supplied at a range of different prices

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11
Q

Supply curve

A

a graphic illustration of the relationship between price, shown on the vertical axis, and quantity, shown on the horizontal axis.

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12
Q

Equilibrium

A

the combination of price and quantity where there is no economic pressure from surpluses or shortages that would cause price or quantity to change

quantity demanded = quantity supplied

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13
Q

Equilibrium price

A

the price where quantity demanded is equal to quantity supplied

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14
Q

Equilibrium quantity

A

the quantity at which quantity demanded and quantity supplied are equal for a certain price level.

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15
Q

Surplus or excess supply

A

at the existing price, quantity supplied exceeds the quantity demanded.

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16
Q

Shortage or excess demand

A

at the existing price, the quantity demanded exceeds the quantity supplied.

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17
Q

Ceteris paribus

A

Latin phrase meaning “other things being equal
-Any given demand or supply curve is based on the ceteris paribus assumption that all else is held equal.

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18
Q

Normal good

A

A product whose demand rises when income rises, and vice versa

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19
Q

Inferior good

A

A product whose demand falls when income rises, rises, and vice versa

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20
Q

Substitute

A

a good or service that we can use in place of another good or service.

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21
Q

Complements

A

goods or services that are often used together so that consumption of one good tends to enhance the consumption of the other

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22
Q

Shift in supply

A

when a change in some economic factor (other than price) causes a different quantity to be supplied at every price.

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23
Q

Inputs or factors of production

A

the combination of labor, materials, and machinery that is used to produce goods and services

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24
Q

Factors that affect supply:

A
  • Natural conditions
  • Input prices
  • Technology
  • Government policies
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25
Q

Price controls

A

laws that governments enact to regulate prices.

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26
Q

Price ceiling

A
  • keeps a price from rising above a certain level
  • a legal maximum price that one pays for some good or service
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27
Q

Price controls

A

laws that governments enact to regulate prices

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28
Q

Price ceiling

A
  • keeps a price from rising above a certain level
  • a legal maximum price that one pays for some good or service
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29
Q

Price floor

A
  • keeps a price from falling below a given level.
  • is the lowest price that one can legally pay for some good or service
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30
Q

Consumer surplus

A
  • the amount that individuals would have been willing to pay minus the amount that they actually paid.
  • the area above the market price and below the demand curve
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31
Q

Producer surplus

A
  • the price the producer actually received minus the price the producer would have been willing to accept.
  • the area between the market price and the segment of the supply curve below the equilibrium.
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32
Q

Social surplus/economic surplus/total surplus =

A

consumer surplus + producer surplus

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33
Q

Deadweight loss (DWL)

A

the loss in social surplus that occurs when a market produces an inefficient quantity

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34
Q

Elasticity

A

Economic concept that measures the responsiveness of one variable to changes in another variable

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35
Q

Price elasticity

A

the ratio between the percentage change in quantity demanded (Qd) or supplied (Qs) and the corresponding percent change in price

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36
Q

Price elasticity of demand

A

percentage in the quantity demanded of a good or service divided by the percentage

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37
Q

Price elasticity of supply

A

the percentage change in quantity supplied divided by the percentage change in price

38
Q

Inelastic demand or inelastic supply

A

elasticities that are less than one, indicating low responsiveness to price changes.

39
Q

Unitary elasticities

A

indicate proportional responsiveness of either demand or supply

40
Q

Unit elastic

A

occurs when the supply and demand of a product changes proportionally to change in price

41
Q

Infinite elasticity or perfect elasticity

A
  • either the quantity demanded (Qd) or supplied (Qs) changes by an infinite amount in response to any change in price at all.
  • the supply and demand curve are horizontal
  • the quantity supplied or demanded is extremely responsive to price change
42
Q

Zero elasticity or perfect inelasticity

A
  • a percentage change in price, no matter how large, results in zero change in quantity.
    -the vertical supply curve and vertical;e demand curve show that there will be zero percentage change in quantity supplied or demanded
43
Q

Ed = 0. Perfectly inelastic

A

When the elasticity is equal to zero, the demand is perfectly inelastic and is a vertical line. In the very short run, people will have no substitutes if they run out of gas and would have to buy gas even if the price is doubled or tripled. There is no close substitute to the good. Slope of a vertical demand curve is infinity.

44
Q

Ed<1. Inelastic

A

When the elasticity of demand is less than 1, the demand is inelastic and the demand curve is steep. There are very few substitutes for the goods such as necessities. Examples are food and clothing. Note that tobacco, alcohol and gambling are also inelastic. Why? Because these goods are highly addictive, a change in price will lead to a small change in quantity demanded.

45
Q

Ed = 1. Unit elastic

A

When the elasticity of demand equals 1, the demand is unit elastic. Price and quantity demanded change by the same percentage. That is a 10% increase in the price will yield a 10% decrease in quantity demanded.

46
Q

Ed>1. Elastic

A

When the elasticity of demand is greater than 1, the demand is elastic and the demand curve is flat. There are many substitutes for the goods such as luxuries. Examples are appliances, electronics and furniture.

47
Q

Ed = infinity. Perfectly elastic

A

When the elasticity is equal to infinity, the demand is perfectly elastic and is a horizontal line. In this case, we have perfect substitutes. Let’s say if domestic and foreign cars are perfect substitutes, then an increase in the price of domestic cars will lead the buyers to switch to their perfect substitutes, foreign cars. Slope of a horizontal demand curve is zero.

48
Q

If TR changes in the opposite direction from price

A

demand is elastic

49
Q

If TR changes in the same direction from price

A

demand is inelastic

50
Q

If TR does not change when price changes

A

demand is unit elastic

51
Q

Tax incidence

A

manner in which the tax burden is divided between buyers and sellers

52
Q

If demand is more inelastic than supply

A

consumers bear most of the tax burden

53
Q

If supply is more inelastic than demand

A

sellers bear most of the tax burden.

54
Q

Income elasticity of demand (Ei)

A

% change in quantity demanded/
% change in income

55
Q

Cross-price elasticity of demand (Eab

A

the percentage change in the quantity of good A that is demanded as a result of a percentage change in the price good B.

56
Q

Private benefits

A

the benefits a person who consumes a good or service receives, or a new product’s benefits or process that a company invents that the company captures.

57
Q

Social benefits

A

the value of all the positive externalities of the new idea or product (whether enjoyed by other companies or society as a whole), as well as the private benefits the firm that developed the new technology receives.

= private benefits + external benefits

58
Q

Positive externalities or benefits

A

beneficial spillovers to a third party or parties

59
Q

Private rates of return

A

the estimated rates of return go primarily to an individual.

60
Q

The social rate of return on schooling is also positive

A
  • better health outcomes for the population
  • lower levels of crime
  • a cleaner environment
  • a more stable, democratic government
61
Q

Social rate of return

A

when the estimated rates of return go primarily to society.

62
Q

The appropriate public policy response to a positive externality, like a new technology

A

is to help the party creating the positive externality receive a greater share of the social benefits

63
Q

Intellectual property rights: the body of law including patents, trademarks, copyrights, and trade secret law that protect the right of inventors to produce and sell their inventions.

A
  • Patents - give the inventor the exclusive legal right to make, use, or sell the invention for a limited time.
  • Copyright laws - give the author an exclusive legal right over works of literature, music, film/video, and pictures.
64
Q

Increase in consumer surplus

A

lower price and consume more

65
Q

Increase in producer surplus

A

higher price and produce more

66
Q

Different government policies can increase the incentives to innovate:

A
  • guaranteeing intellectual property rights
  • government assistance with the costs of research and development (R&D)
  • cooperative research ventures between universities and companies.
67
Q

Non-exludable

A

it is costly or impossible to exclude someone from using the good, and thus hard to charge for it.

67
Q

Government spending can provide direct financial support for R&D conducted at:

A
  • colleges and universities
  • nonprofit research entities
  • sometimes by private firms
  • government-run laboratories
68
Q

Public good

A

good that is nonexcludable and non-rival, and is difficult for market producers to sell to individual consumers.

69
Q

Non-rival

A

even when one person uses the public good, another can also use it. Examples: fire and police service and national defense

70
Q

Quasi- public good

A

good that have characteristics of both private and public goods including partial excludability and partial rivalry. For example, football game on TSN is a quasi-public good but a game on CBC is a public good

71
Q

Free rider

A

-those who want others to pay for the public good and then plan to use the good themselves.
-If many people act as free riders, the public good may never be provided.

72
Q

Social pressures and personal appeals

A

can also reduce the number of free riders and to collect resources for the public good

73
Q

Negative externality

A

a situation where a third party, outside the transaction, suffers from a market transaction by others

74
Q

Positive externality

A

a situation where a third party, outside the transaction, benefits from a market transaction by others.

75
Q

Additional external costs

A

additional costs incurred by third parties outside the production process when a unit of output is produced

76
Q

social costs

A

costs that include both the private costs incurred by firms and also additional costs incurred by third parties outside the production process

77
Q

Pollution

A

is a negative externality

78
Q

Market failure

A

when the market, on its own, does not allocate resources efficiently in a way that balances social costs and benefits; externalities are one example of a market failure

79
Q

Command-and-control regulation

A
  • laws that specify allowable quantities of pollution and that also may detail which pollution-control technologies one must use.
    -Requires that firms increase their costs by installing anti-pollution equipment.
80
Q

Pollution charge

A
  • tax imposed on the quantity of pollution that a firm emits.
  • Gives a profit-maximizing firm an incentive to determine the least expensive technologies for reducing pollution.
  • Firms that can reduce pollution cheaply and easily will do so to minimize their pollution taxes.
81
Q

Marketable permit program (e.g., cap-and-trade)

A

-A permit that allows a firm to emit a certain amount of pollution.
-Firms with more permits than pollution can sell the remaining permits to other firms

82
Q

Property rights

A

the legal rights of ownership on which others are not allowed to infringe without paying compensation.

83
Q

Benefits of a cleaner environment:

A

(1) people may stay healthier and live longer;
(2) certain industries that rely on clean air and water, such as farming, fishing, and tourism, may benefit;
(3) property values may be higher;
(4) people may simply enjoy a cleaner environment in a way that does not need to involve a market transaction.

84
Q

The Coase Theorem

A

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

85
Q

Reducing pollution

A

-Is costly resources must be sacrificed

-The marginal costs of reducing pollution are generally increasing,

-The marginal benefits of reducing pollution are generally declining,

86
Q

Game theory

A

a branch of mathematics that analyzes situations in which players must make decisions and then receive payoffs based on what other players decide to do

87
Q

Prisoner’s dilemma

A

a scenario in which the gains from cooperation are larger than the rewards from pursuing self-interest

88
Q

Dominant strategy

A

a strategy that is best for a player in a game regardless of the strategies chosen by the other players.

89
Q

Biodiversity

A

the full spectrum of animal and plant genetic material

90
Q

International externalities

A

externalities that cross national borders and that a single nation acting alone cannot resolve

econ 111 (2 decks)

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