1Econ 101 M. SalemiEcon 101 M. SalemiEconomic ProfitEconomic ProfitIs the UNC Ticket Distribution System Is the UNC Ticket Distribution System Efficient? Fair? Educationally Appropriate?Efficient? Fair? Educationally Appropriate?Who Bears the Burden of an Excise Tax?Who Bears the Burden of an Excise Tax?The Economic Definition of Profit Is The Economic Definition of Profit Is Different from the Accounting Definition.Different from the Accounting Definition.Profit is the Motivator; competition, is the Profit is the Motivator; competition, is the regulator.regulator.Economic Rent Is Different from Economic Economic Rent Is Different from Economic Profit.Profit.UNC Ticket DistributionUNC Ticket DistributionStudents enter a lottery.Students enter a lottery.Winners receive two general admission tickets Winners receive two general admission tickets marked with a time of entry.marked with a time of entry.Students may enter the Dean Dome at any time Students may enter the Dean Dome at any time after their time of entry.after their time of entry.Admission to the risers also requires a bracelet Admission to the risers also requires a bracelet handed out to first 400 students who request one.handed out to first 400 students who request one.Lottery registration begins on 22Lottery registration begins on 22ndndof the month of the month before the month of the games for which tickets before the month of the games for which tickets are being allocated (e.g. Oct 22 for Nov games).are being allocated (e.g. Oct 22 for Nov games).Econ 101 M. SalemiEcon 101 M. SalemiEcon 101 M. SalemiEcon 101 M. SalemiUse Your Clickers To Answer Use Your Clickers To Answer The Following QuestionsThe Following QuestionsSend A for TrueSend A for TrueSend B for FalseSend B for FalseEcon 101 M. SalemiEcon 101 M. SalemiWhat is your view?What is your view?The UNC sports ticket distribution The UNC sports ticket distribution system efficient is efficient. system efficient is efficient. That is, it would not be possible to That is, it would not be possible to make one student better off without make one student better off without making another student worse off.making another student worse off.2Econ 101 M. SalemiEcon 101 M. SalemiWhat is your view?What is your view?The UNC sports ticket distribution The UNC sports ticket distribution system is fair. system is fair. That is, it provides all students with That is, it provides all students with equal opportunities.equal opportunities.Econ 101 M. SalemiEcon 101 M. SalemiWhat is your view?What is your view?The UNC sports ticket distribution The UNC sports ticket distribution system creates incentives that are system creates incentives that are compatible with compatible with UNCUNC’’sseducational educational mission. mission. What incentives does the ticket What incentives does the ticket distribution create?distribution create?Econ 101 M. SalemiEcon 101 M. SalemiWho bears the burden of a tax Who bears the burden of a tax levied on a good or service?levied on a good or service?Taxing a good will generally change the Taxing a good will generally change the market price of the good.market price of the good.Who bears the burden depends on how Who bears the burden depends on how large the price change.large the price change.The fact that the tax is collected from The fact that the tax is collected from suppliers does not mean that suppliers suppliers does not mean that suppliers bear the burden of the tax.bear the burden of the tax.The size of the price change The size of the price change depends on the elasticity of depends on the elasticity of demand and supply.demand and supply.When demand is less elastic buyers tend to When demand is less elastic buyers tend to bear a larger burden from the tax.bear a larger burden from the tax.When supply is less elastic, suppliers tend to When supply is less elastic, suppliers tend to bear a larger burden from the tax.bear a larger burden from the tax.3Econ 101 M. SalemiEcon 101 M. SalemiUse Your Clickers To Answer Use Your Clickers To Answer The Following The Following Graded Question.Graded Question.The proponents of a tax on sugary beverages must believe that the young-person demand for sugary beverages is price _____ because then the tax will ______ of sugary beverages by a large amount.A. Elastic, raise the priceB. Elastic, lower the quantityC. Inelastic, raise the priceD. Inelastic, lower the quantityWill A Tax on Sugary BeveragesHave the Intended Effect?The Intended Effect is a Large Decrease in Consumption of Sugary Beverages by the Young.The Size of the Quantity Response to a Tax Depends on the Elasticity of Demand.Proponents of the Tax Must Believe that the Demand Schedule of the Young for Sugary Beverages is Highly Elastic.Supply before TaxSupply after TaxInelastic DemandElastic Demand Old QuantityPotential New QuantitiesPriceWill a Tax Substantially Lower Consumption of Sugary Beverages?4Econ 101 M. SalemiEcon 101 M. SalemiEconomist Use a Different Definition Economist Use a Different Definition of Profit Than Accountantsof Profit Than AccountantsAccounting ProfitAccounting Profit= = Total Revenue Total Revenue ––Total Explicit CostsTotal Explicit CostsEconomic ProfitEconomic Profit= = Total Revenue Total Revenue ––Total Explicit Costs Total Explicit Costs ––Normal ProfitNormal ProfitEcon 101 M. SalemiEcon 101 M. SalemiWhat is Normal Profit?What is Normal Profit?Normal Profit is the opportunity cost of Normal Profit is the opportunity cost of resources supplied by the owners of the resources supplied by the owners of the firm including the opportunity cost of their firm including the opportunity cost of their time.time.Normal Profit is the level of profit just Normal Profit is the level of profit just sufficient to keep the owners operating sufficient to keep the owners operating the business in question.the business in question.Econ 101 M. SalemiEcon 101 M. SalemiExample: John Jones owns and manages a Example: John Jones owns and manages a cafcafééin Chapel Hill. His weekly costs and in Chapel Hill. His weekly costs and revenues are given in the table.revenues are given in the table.How much is JohnHow much is John’’s s accounting profit?accounting profit?$ 50.$ 50.Interest on Interest on Equipment LoanEquipment Loan$ 500.$ 500.RentRent$ 150.$ 150.Vehicle LeaseVehicle Lease$ 100.$ 100.ElectricityElectricity$1,500.$1,500.Food and DrinkFood and