Econ 1101 1st Edition Exam 1 Study Guide Lectures 1 13 Lecture 1 January 21 What is economics Economics is the study of choice List some solutions to textbooks being a durable good only needed for a short time and can be used over and over New editions different pages renumber practice problems bundle content mutilate books etc Lecture 2 January 23 Distinguish between single sided and double sided auctions Double sided auctions have both buyers and sellers bidding Sellers lower their price in order to get buyers to buy and buyers raise their bids in order to buy the good Single sided auctions have only the buyer or seller bidding in the auction Only one side can raise or lower the price With a low or high bid would you have a better chance of selling your good in a single sided auction A low bid would ensure sales although a high bid would guarantee profit How are prices affected in a competitive market In a competitive market the prices are driven down because of the mere fact competition works Where there is the best price is where you will find buyers What happens in a uniform price auction In a uniform price auction everyone gets paid the amount of the highest bid that clears the auction It is safer to bid close to cost just to assure you are in the auction If there is someone with a higher bid than you that makes the auction then you will receive the bid he submitted as will every other seller Lecture 3 January 26 Why bid at cost Your choice of bid determines whether you re in or out of the market If you bid more than your cost and the system price is higher than the cost then you are out If you bid less than your cost you risk the sale price being above your bid but less than cost therefore you will lose money What is equilibrium When supply meets demand and the market is stable The price and quantity must be such that the price is stable Lecture 4 January 28 What causes shifting in the demand curve Preference of buyers prices of good income of consumers number of buyers and smaller things like weather and season advertisement and competitor change Distinguish the difference between a normal and inferior good A normal good is a good that when your income goes up you buy more and in reverse if your income goes down you buy less It is proportional An inferior good is a good such that when the income goes up the demand goes down Lecture 5 January 30 What are some causes of supply shifts Price of input for example labor or material used Number of sellers for example wheat farmers switching to corn Technology for example new seeds or fertilizer Lecture 6 February 2 What would we call the responsiveness of supply and demand to changes Elasticity We know a curve changes but we want to know by how much so we use elasticity Lecture 7 February 4 Inelastic and Elastic are opposites What are the differences between them In a perfectly inelastic demand or supply the demand or supply does not change when the price changes In a perfectly elastic demand or supply the demand or supply changes as the price changes Why can t elasticity be calculated over the long run Over a long period of time different factors effecting the number of consumers consumer preference and change of laws stops us from being able to calculate elasticity accurately Lecture 8 February 6 What makes a demand more elastic The more specific you get the more elastic a good will be For example food is less elastic than meat which is less elastic from steaks What is marginal cost The price of the next one in Think of the additional cost to sellers as a group due to the next unit Lecture 9 February 9 How do we measure how happy consumers are Consumer surplus Consumer surplus is the reservation price minus the price paid Name the Three General Principles of Efficiency 1 Efficient Allocation of Consumption consumers with the highest willingness to pay go first 2 Efficient Allocation of Production producers with the lowest cost to sell sell first 3 Efficient Quanity quantity is the most amount of consumers that are willing to buy and be indifferent buy Lecture 10 February 11 What is the difference between Pareto Efficient First Welfare Theorem and the Adam Smith Theorem First Welfare Theorem is when an unregulated market laissez faire allocation is Pareto Efficient Pareto Efficiency is an allocation that is feasible and there is no better way to make someone better off without making someone worse off The Adam Smith Theorem is the concept of the Invisible Hand No matter what the market creates the biggest surplus possible Basically Pareto Efficiency A tax on a good does what to the market It makes the market inefficient A tax on a market also establishes a deadweight loss which hurts the overall market and disallows it from being Pareto efficient Lecture 11 February 13 What is welfare analysis Welfare analysis is how consumer surplus producer surplus and total surplus changes with tax Who gets the tax burden when the demand is inelastic Suppliers possess the tax burden when the demand is more elastic Explain a Subsidy A subsidy is the opposite of a tax The government gives consumers money to buy the good to stimulate purchase of a product Lecture 12 February 16 Why are subsidies useful You get the amount of buyers you want to buy in the market It encourages consumption of the product An example would be the government subsidizing hybrid vehicles to encourage a greener world Is Government efficient Between tax and subsidies government is NOT efficient With tax there is deadweight loss and the market is not efficient With subsidy there is also deadweight loss and the market is again inefficient Lecture 13 February 18 If the price ceiling is above the equilibrium price is it binding or non binding The price ceiling would be non binding because the cost would remain around the equilibrium price and not reach the price ceiling therefore the price ceiling isn t a binding factor in the market What does quota determine Quota determines the quantity sold in a market Instead of fixing the price the government fixes the quantity allowed to be sold and produce This creates a quota exchange An example of this would be the milk market in Canada