Unit Two Review Flashcards
A price control is ________.
A legal restriction on how high or low a price in a market may go
A tax on the sellers of a good will ____________.
raise the price buyers pay and lower the effective price sellers receive
An excise tax imposed on sellers in a market will result in which of the following?
An upward shift (to the left) of the supply curve: Because of increase cost of production for the sellers, the supply curve shifts upward and to the left by the amount of tax reflecting the higher prices that sellers are now required to cover.
How does deadweight loss occur?
Deadweight loss occurs when the quantity traded in the market is less than the quantity that would be exchanged in the absence of the tax.
How do you calculate total revenue?
TR (Total Revenue) = Quantity (Q) x Price (P)
Deadweight loss refers to ___________.
the loss of consumer and producer surplus from a tax
Excess supply occurs when _________.
the price is above the equilibrium price
Generally, each successive unit of a good consumed will cause marginal utility to __________.
decrease
What does PED stand for?
Price Elasticity of Demand
If a 2% change in the price of a good leads to a 10% change in the quantity demanded of a good, what is the value of price elasticity of demand?
- To find PED, you have to put the % change in quantity demanded over the % change in price. Then you just divide and have your answer.
If a coconut is a normal good and the price of coconuts increases, then the movement that would take place in the model could be _________.
a movement along the demand curve, not a full on shift.
What is the midpoint method?
% Change in quantity or Price
___________________________________ x100
Average of initial and final value
How do you calculate percent change in quantity and price?
%ΔQ= Q2-Q1
_______ x 100
Q1+Q2
_________
2
This formula is the same for price too (NO NEGATIVES)
If a tax is imposed on a market with elastic demand and inelastic supply, __________.
sellers will bear most of the burden
If a tax is imposed on a market with inelastic demand and elastic supply, then ___________.
buyers will bear most of the burden of the tax
If suppliers expect prices to rise next year for their product, then one would expect ________.
a shift in the supply curve for the product to the left this year
If the cross-price elasticity of two goods is positive, then those two goods are _________.
substitutes
If the market for corn is in equilibrium ____________.
the price is at a level where the quantity of corn produced is equal to the quantity of corn consumed
If there is an expectation on the part of coconut suppliers that the price of coconuts will be significantly higher in the very near future, then the movement in the model to reflect today’s market behavior would be ________.
there would be a decrease in supply due to the fact that producers chose to supply more of their goods (in this case coconuts) when they are worth more.
If a coconut is a normal good and the price of coconuts increases, then the movement that would take place in the model could be _________.
a decrease in quantity demand.
What is a surplus?
A surplus occurs when the quantity of a good or service supplied exceeds the quantity demanded, leading to an excess supply in the market.
What does PES stand for?
price elasticity of supply
A downward sloping demand curve can be explained by __________.
Diminishing Marginal Utility, The Substitution Effect, The Income Effect
Which of the following is an outcome of a binding price floor?
A surplus in the market, wasted resources
