Midterm 2

Question 1

Equation for Elasticities

Answer 1

= %change in quantity/ %change in price

Question 2

3 types of Elasticities

Answer 2

1. Own-Price
2. Cross-Price
3. Income

Question 3

Types of Cross-Price

Answer 3

Positive=> goods are substitues

Negative=> goods are complements

Question 4

Types of Income

Answer 4

Positive=> Normal Goods

Negative=> Inferior Goods

Question 5

Tax Goods To:

Answer 5

1. Raise Revenue-effective if supply and demand is inelastic

2. Discourage Use-effective if supply and demand is elastic

Question 6

Equation for DWL

Answer 6

DWL=.5bh

Question 7

Equation for Tax Revenue

Answer 7

TR=TaxQuantity or TR=PQ

Question 8

When elastic supply or demand is?

Answer 8

Horizontal

Question 9

When inelastic supply or demand is?

Answer 9

Vertical

Question 10

When considering tax burden, which ever carries the majority of the burden between consumer and producer is considered?

Answer 10

More inelastic

Question 11

Equation for Tax Burden

Answer 11

Consumer Tax Burden=(P+t)-t

Producer Tax Burden=Price before tax-Cost to Produce

Question 12

Consumer bears entire tax burden when:

Answer 12

supply is perfectly elastic

Question 13

Consumer bears entire tax burden when:

Answer 13

demand is perfectly inelastic

Question 14

Producer bears entire tax burden when:

Answer 14

supply is perfectly inelastic

Question 15

Producer bears entire tax burden when:

Answer 15

demand is perfectly elastic

Question 16

With “negative” externalities the doer:

Answer 16

does not face full cost=over provision

Question 17

With “positive” externalities the doer:

Answer 17

does not face full benefit=under provision

Question 18

Solutions to externalities

Answer 18

1. tax negative externalities

2. subsidize positive externalities

Question 19

Fixed Cost

Answer 19

does not vary with production

Question 20

Variable Cost

Answer 20

does not vary with production

Question 21

Short run in perfect competition

Answer 21

1. fixed factors of production

2. firms cant enter or exit market

Question 22

Long run in perfect competition

Answer 22

1. nothing is fixed

2. firms can enter and exit at will

Question 23

Fixed Cost are:

Answer 23

cost that are similar to sunk cost

example: purchasing equipment

Question 24

Variable Cost are:

Answer 24

that vary with production, the more you produce the more you spend on supply

Question 25

Equation for Total Cost

Answer 25

TC=variable cost+fixed cost

Question 26

Equation for Marginal Cost

Answer 26

=change in total cost

Question 27

Equation for Marginal Revenue

Answer 27

=price

Question 28

Equation for Average Fixed Cost (AFC)

Answer 28

AFC=fixed cost/ quantity

Question 29

Equation for Average Variable Cost (AVC)

Answer 29

AVC=variable cost/ quantity

Question 30

Equation for Average Total Cost (ATC)

Answer 30

ATC=total cost/ quantity

Question 31

Equation for Average Variable Cost (AVC)

Answer 31

AVC=total variable cost/ quantity

Question 32

Equation for Total Variable Cost (TVC)

Answer 32

TVC=total cost-total fixed cost or total variable cost

Question 33

Break even point is

Answer 33

when ATC=MC profit is 0