Units 6 for economic test Flashcards
when is a market in equilibrium
when total demanded by consumers equals quantity supplied by suppliers
when demand at price’ is less than supply at price’ . is there an excess of supply or demand ?
excess of demand
when demand at price’ is greater than supply at price’ . is there an excess of supply or demand
excess of supply
what is a quantity tax
it is a tax that is a fixed amount for each unit of a good or service sold
define an excise tax
define a sales tax
a tax that is levied on sellers
a tax that is levied on buyers
what is the effect of a quantity tax on the market equilibrium
The effect of the tax on the supply-demand equilibrium is to shift the quantity toward a point where the before-tax demand minus the before-tax supply is the amount of the tax. A tax increases the price a buyer pays by less than the tax. Similarly, the price the seller obtains falls, but by less than the tax.
a tax rate of t makes the price paid by buyers Pb, higher by t from the price received by the sellers.
how can this be represented as an equation
Pb -Ps = t
or
Pb = Ps + t
true or false?
deadweight loss due to a quantity tax rises as either market demand or market supply becomes more own price elastic
if either elastic demand = 0 or elasticity of supply = 0, the deadweight loss is zero
true
true
what is technology
Technology is a process by which inputs are converted into outputs for example, a lecture requires a computer, internet connection, electricity etc. to be produced
what does xi and y represent in a production function
xi - denotes the amount of input
y - output levels
what is a production plan
when is a production plan feasible
a production plan is an output level and an input bundle (x1,,, xn) y
when the output level is greater or equal to the production plan
what is a technology set
the collection of all feasible production plans
on a technology set, anythingg under the curve is feasible but not maximum efficient
.
to find maximal optimal output level from an input bundle in a technology set e.g. (1,8). you put it through the function normally and multiply to provide a number
different types of production functions:
what is the form of a fixed proportions production function?
what is the form of a perfect substitute production function?
y= min(a1x1,a2x2)
for example, y = min ( x1, 2x2)
y = a1x1 + a2x2
for example y = x1 + 3x2
different types of production functions:
what is the form of a fixed proportions production function?
what is the form of a perfect substitute production function?
y= min(a1x1,a2x2)
for example, y = min ( x1, 2x2)
y = a1x1 + a2x2
for example y = x1 + 3x2
what is the marginal product of i
the marginal product of I is the rate of change of output level as the level of input I changes, holding all other input levels fixed.
Mpi = derivative of y with respect to xi
basically your probably going to differentiate if asked for marginal product
the marginal product of input I is diminishing if it becomes smaller as the level of input I increases
fact
the perfect substitutes function exhibits constant returns to scale
fact
there’s practice questions, but the returns to scale are:
constant if a + b = 1
increasing if a + b > 1
decreasing if a + b < 1
how do you calculate technical rate of substitution
derive to find dx1 then to find dx2 then - over each other to find and simplify
what is an isoquant slope
what is an isocost slope
an isoquant slope:
shape: curved
it is the rate at which you can substitute one input, such as labor, for another input, such as capital, without changing the resulting output level.
An isocost line is a curve which shows various combinations of inputs that cost the same total amount . For the two production inputs labour and capital, with fixed unit costs of the inputs, the isocost curve is a straight line
what shape is a Leontief curve
what two features does a well behaved curve have (monotonic)
perfect compliments
- well behaved technologies are both:
monotonic and convex
monotonicity means more of any input generates more output
examples of restrictions that place a firm into a short run:
- temporarily being unable to install or remove machinery
- being required by law to meet affirmative action quotas
- having to meet domestic content regulations
identify what each of the follow symbols represent in profit maximisation -
p1
y1
w1
x1
product prices (p1)
output levels (y1)
input prices (w1)
input levels (x1)
the economic profit generated by a production plan can be represented as profit = p1y1 + …..pnyn - w1x1 - …….. wmxm
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look at how we value a firm with present value equation
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look at profit maximisation equations and practice writing them out no excuse do now, and read profit maximisation notes as tricky
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Law of diminishing marginal returns requires to show a double derivative < 0
.
I know it aint this unit, but draw every fixed, marginal, variable cost curve etc rn
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maximal output from an input bundle, sub numbers into the normal equation
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how do you find marginal product
derive with respect to mp1 then mp2
𝑓 𝑘𝑥!,𝑘𝑥”,…,𝑘𝑥# < 𝑘𝑓(𝑥!,𝑥”,…,𝑥#) then the technology exhibits diminishing returns to scale. For example, k=2 coupling all input levels less than doubles the output level
memorise this from notes
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If it’s greater than, then output will more than double meaning increasing returns to scale
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Solving an equation of an is-profit line gives w/p1 for the slope and other part gives intercept of the is-profit line
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Marginal revenue product of input 1 is equal to the slope on an is-profit line 2
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what do isoquants show
level of output
what is an isoquant
Isoquant is a curve that goes through the points with a fixed level of output (f) but different combinations of inputs
Short run resort to price equals to mc is a rule
