Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

ECON > Test #2 (chapters 5-8) > Flashcards

Test #2 (chapters 5-8) Flashcards

1
Q

If raising the price of donuts 12% leads to a rise in quantity supplied by 16%, what is the PES

A

12 / 16 = 1.33

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What makes supply elastic?

A

When the percentage change in quantity supplied is larger than the percentage change in price –> greater than 1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the determinants of the price elasticity of supply?

A
  1. Inventories make supply more elastic
  2. Easily available variable inputs (ex. unskilled labour = more elastic)
  3. Extra capacity makes supply elastic (ex. restaurant capacity)
  4. Easy entry and exit make supply more elastic
  5. Over time, supply becomes more elastic
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the difference between a tax on buyers and a tax on sellers?

A

On buyers : the sticker price does not include the tax - you pay at checkout

On sellers : the sticker price includes the tax but the seller doesn’t keep that full amount

** as buyers and sellers you’re still paying and keeping the same amount either way

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is the statutory burden?

A

The burden of being assigned by the government to send a tax payment. Pretty much irrelevant - just says whether the tax is put on the buyer or seller (tax shown in sticker price or not shown in sticker price)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the economic burden and the tax incidence?

A

Economic burden = the burden created by the change in the after-tax prices faced by buyers and sellers

Tax incidence = the division of the economic burden of a tax between buyers and sellers

  • these depend on the elasticity - if the buyers are very inelastic, the sellers may push more of the tax burden onto the consumers
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

The tax incidence does not depend on the ________, it depends on the __________

A

Statutory burden

Elasticity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

The ________ inelastic your curve, the more of the tax burden you will bear

A

more

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is a subsidy?

A

A payment made by the government to those who make a specific choice

It acts just like a tax, but it is the opposite

Increases quantities demanded and supplied rather than decrease
They also lower the price to buyers and increase the price sellers receive

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

With a subsidy, the more _________ party captures more of the benefits

A

inelastic

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is a price ceiling? What makes it binding?

A

A maximum price that sellers can charge that is set by the government

It is binding if it is below the equilibrium price - makes it impossible to reach the market equilibrium price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is a price floor? What makes it binding?

A

A minimum price that sellers can charge that is set by the government

It is binding if the floor is set above the equilibrium price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are two reasons the government may want to set a binding price floor?

A
  1. They want to help sellers (minimum wage)
  2. The want to reduce the quantity sold in the market (ex. alcohol)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is a mandate? What makes it binding and what is an example?

A

A requirement to buy or sell a minimum amount of a good

Binding when the required quantity is greater than the equilibrium quantity

ex. a health insurance mandate requires consumers to purchase health insurance
ex. a housing mandate requires developers to build a certain amount of low-income housing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is a quota? What makes it binding and what is an example?

A

A limit on the maximum quantity of a good that can be bought or sold

Binding when the quantity is less than the equilibrium quantity

ex. limit the amount of marijuana you can buy
ex. taxi quota

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the difference between positive and normative analysis?

A

Positive = describes what is happening, explaining why, or predicting what will happen
“what will happen if we adopt this policy?

Normative analysis = Determines what SHOULD happen, which involves opinion and value judgements
“what policy should the government adopt?”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What determines economic efficiency?

A

The more economic surplus if yields, the more economically efficient it is

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is economic surplus? (equation)

A

The total benefits minus total costs flowing from a decision - how much the decision improved your well-being

It is the sum of the consumer surplus plus the producer surplus
(marginal benefit - marginal cost)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is consumer surplus?

A

The marginal benefit - the price
(marginal benefit = the willingness to pay for that item)

The gain from buying something at a price below the highest price you were willing to pay

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

You are willing to pay $5 for a cup of coffee and it is $3. What is your consumer surplus?

A

$2!

21
Q

Where is the consumer surplus situated on the graph?

A

It is the area below the demand curve but above the price

22
Q

What is producer surplus?

A

Price - Marginal Cost
(marginal cost = the extra cost from one extra unit)

The gain from selling something at a price above the marginal cost you incur from producing that good or service

23
Q

Where is producer surplus situated on the graph?

A

It is above the supply curve but below that price

24
Q

_______ based economics yield more efficient outcomes than _________ planned economies

A

Market

Centrally

25
Q

What is efficient production?

A

Producing each unit at the lowest marginal cost

26
Q

What is efficient allocation?

A

Allocating goods to create the largest economic surplus

Each good has to go to the person who will get the highest marginal benefit from it

27
Q

What is efficient quantity and the rational rule for markets?

A

Efficient quantity = the quantity that produces the largest possible economic surplus

RR for markets = produce more of a good if its marginal benefit is greater than (or equal to) the marginal cost

28
Q

Define market failure

A

When market forces of supply and demand lead to an inefficient outcome

29
Q

What are the five main sources of market failure?

A
  1. Market power
  2. Externalities
  3. Information problems
  4. Irrationality
  5. Government regulations
30
Q

What is market power as a market failure?

A

If a market doesn’t have lots of sellers selling the same product then sellers can exploit the limited competition and charge higher prices. This means consumers will buy less and less than the efficient quantity is produced

31
Q

Describe an externality

A

When the choices buyers and sellers make have side effects on others

ex. someone smoking a cigarette near you means you have the side effect of second-hand smoke
when this isn’t taken into consideration, more than the efficient quantity ends up getting bought and sold

32
Q

Describe information problems as a market failure

A

Deals with private information - information that one party has but the other doesn’t

ex. selling a used car - you might wonder what they know that you don’t and that might make you not buy the car even though you should

33
Q

What is irrationality as a market failure?

A

When buyers or sellers do not follow their rational rules - decisions not driven by their marginal benefits and costs

34
Q

Describe government regulations as a market failure

A

When governments impede market forces
ex. taxes can lead to lower quantities being bought and sold

*sometimes these can correct a market failure and sometimes they can create one

35
Q

What is deadweight loss? (equation)

A

How far economic surplus falls below the efficient outcome

Economic surplus at efficient outcome - actual economic surplus

36
Q

What are government failures

A

When the government policies lead to worse outcomes and less economic efficiency

37
Q

What is the role of distributional consequences?

A

Not just about picking the largest economic pie but also about how the pie is sliced

Determining who gets what and assessing whether the outcome seems fair or equitable

38
Q

What are the five ways that price ceilings can cause inefficiency?

A
  1. Inefficiently low quantity
  2. Inefficient allocation to customers
  3. Wasted resources
  4. Inefficiently low quality
  5. Black markets
39
Q

What are the 4 ways that a price floor can cause inefficiency?

A
  1. Deadweight loss from inefficiently low quantity
  2. encourage waste
  3. inefficient allocation of sales among sellers
  4. Inefficiently high quality
40
Q

What are the inefficiencies that can come from a minimum wage?

A
  1. Deadweight loss from inefficiently low quantity
  2. Inefficient allocation of employees
  3. Inefficiently high quality
  4. Temptation to break the law by selling at lower price
41
Q

What is the difference between absolute and comparative advantage?

A

Absolute = the ability to do a task using fewer inputs (who is best at the task)

Comparative = the ability to do a task at a lower opportunity cost - they will give up less to do this task than the other person (who should do the task)

42
Q

When comparing the comparative advantage of two people’s tasks, what should you convert the units to?

A

Make tables of how many of that task the person could do within a specific amount of time

43
Q

What is specialization?

A

Focusing on the task in which you have a comparative advantage - ensures each task is done at the lowest opportunity cost

44
Q

How does comparative advantage drive international trade?

A

One country will produce what they’re good at producing and they will buy everything else from others

45
Q

How can price be described as a signal

A

Signal to potential suppliers about how much buyers value a good - revealing their marginal benefit

Signal to potential buyers about how expensive it is for sellers to produce more of a product, revealing the seller’s marginal cost

46
Q

Describe price as an incentive

A

High price is an incentive for sellers go produce more and buyers to buy less (consider switching to alternative)

47
Q

What are prediction markets?

A

Markets whose payoffs are linked to whether an uncertain event occurs

48
Q

Are north and south Korea centrally planned or market economies?

A

North = centrally planned (average income is much less)

South = market economy (average income is much more)

ECON (4 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions