ECO2023 Exam Study Guide Material from 1st Exam If price rises what happens to the demand for a product It does not change Which of the following events would increase producer surplus Sellers costs stay the same and the price of the good increases A decrease in demand will cause A decrease in quantity supplied 35 Suppose Katie Kendra and Kristen each purchase a particular type of cell phone at a price of 80 Katie s willingness to pay was 100 Kendra s willingness to pay was 95 and Kristen s willingness to pay was 80 What is the combined consumer surplus for the three girls Suppose an economy produces only two goods computers and TVs If the economy operates at a point on its production possibilities curve it can produce more computers only if Resource owners will conserve vital resources for the future particularly if they expect the resource to increase in value Which of the following about economic thinking is true Changes in personal costs and benefits will exert a predictable influence on the choices of people Economists use the term ceteris paribus to indicate which of the following Other things are assumed to be constant Harry a wheat farmer is deciding whether or not to add fertilizer to his crops If he adds 1 pound of fertilizer per acre the value of the resulting crops rises from 80 to 100 per acre According to marginal analysis Harry should add fertilizer if it costs less than how much 20 per pound A local restaurant offers an all you can eat Sunday brunch for 12 Susan eats four servings but leaves half of a fifth helping uneaten Why Her marginal value of food has fallen to zero Because information is costly to acquire how does the cost change decision making People will rationally choose not to become fully informed when making decisions There is no such thing as a free lunch This statement best reflects which of the following statements An opportunity cost is always present when scarce resources are used to produce a good Economics is primarily the study of The allocation of scarce resources in an effort to satisfy wants that are virtually unlimited What do individuals have a strong incentive to do when price is the rationing criterion Provide services to others in exchange for income Criteria for rationing goods and resources must be established due to which of the following Scarcity imposed by nature The fallacy of composition is the fallacious view that What is true for the individual will also be true for the group What is meant by scientific method The dispassionate development and testing of theories about how the world works Material From Exam 2 The Labor Market Chapter 4 Note that is works just like the market for goods just with a different name for price wage Wage Price for employment Employment Quantity of labor and quantity employment Supply goes up employment goes up and wage goes down Demand goes up employment goes up and wage goes up Labor demand curve is downward sloping because as wage decrease firms will want to Labor Demand Firms demand labor employ more people Labor Supply Workers supply labor Labor supply curve is upward sloping because as wage increase people want to work more Changes in Labor Demand An increase in labor demand labor demand curve shift right A decrease in labor demand labor demand curve shifts left Changes in Labor Supply Increase in labor supply labor supply curve shifts right Decrease in labor supply labor supply curve shifts left There is a close relationship between the demand for the products and demand for the resources used to make those products Linking the Markets Price Floor A price floor is a legally established minimum buyers must pay for a good or resource A price floor above price equilibrium does creates a surplus A price floor below price equilibrium does nothing We were not going to have the price that low anyways so it doesn t effect anything When it is below or on the floor it is ok Example Minimum Wage Minimum wage is an example of a price floor Raising the minimum wage increase excess labor supply unemployment Price Ceiling A price ceiling is a legally established maximum price sellers can charge for a good or resource Price ceiling below price equilibrium creates a shortage Price ceiling above price equilibrium does nothing When price ceiling is above it is ok Example Rent Control Rent controls lead to shortages as well enforcement 1 Black Markets paying above the legal price and not having the ability to go police 2 Decline in the supply of future rental housing you dont have as much incentive to make a new rental complex at 400 then you would at 600 3 Decline in the quality rental housing when you get charged a lot for your apartment you have an incentive to keep it nice but when its cheap you don t 4 Shortage of non price methods of rationing you have an incentive to rent the apartment to whoever will pay the most you can be more selective not with rent control 5 Inefficient housing match ups a new family needs to expand in living space but cannot because there isa shortage of bigger ones Impact of a Tax A tax on a product will cause the supply curve to shift left by the amount of the tax Raises the price that buyers must pay Reduces the quantity sold Creates government revenue Reduces the mount sellers receive Creates deadweight loss Deadweight Loss tax was imposed The loss to society that results from the loss of gains to trades that did not occur because a Void that used to have something but now doesn t have anything Tax Incidence Tax Burden The Tax Incidence is the way the burden of a tax is distributed among economic units It DOES NOT depend on whom the tax is imposed Doesn t matter if the buyer or seller has to pay the tax It DOES depend on society The burden of the tax will fall on those who are relatively inelastic Sellers can raise the price a whole lot knowing they will still sell If it is elastic the sellers will raise the price but nobody would buy Deadweight loss will lower if taxes are placed on goods that are inelastic It is good because trade are still happening with value being made The Tax System Average Tax Rate ATR is the percentage of income paid in taxes ATR is equal to tax liability divided by taxable income Make 100 Taxed 5 ATR 5 Make 200 Taxed 20 ATR 5 Make 200 Taxed 20 ATR 10 Make 200 Taxed 5 ATR 25 There are 3 possibilities in the Tax System Progressive Tax Average Tax Rate rises with income The more you make the higher your ATR Regressive Tax Rate Average Tax Rate falls with
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