64 Cards in this Set
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5 foundations of Economics
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1. incentives
2. Opportunity Cost
3. Marginal Thinking
4. Trade-off
5. Trade Creates Value
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Consumer Surplus is the difference between:
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the willingness to pay for a good and the amount that is paid to get it
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Holding all else constant, when the price of a good increases
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consumer surplus decreases
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Producer surplus is define as:
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the difference between the price the seller receives and the willingness to sell it
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All else held constant, a decrease in the price of a good would necessarily
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decrease producer surplus
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when the price of a good increases and all else is held constant
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producer surplus increases and consumer surplus decreases
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when looking at a supply and demand graph, you would find producer surplus
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below market price and above supply curve
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a market has reached an efficient outcome when
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total surplus is maximized
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a tax on apples would cause apple growers to suffer because
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revenues and profits from growing apples would decrease
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in most cases, taxes reduce economic efficiency because
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they reduce total surplus
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it is said that taxes drive a wedge between prices. this statement is true because taxes cause
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the consumer price to increase and producer price to decrease
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a tax on apples would cause the price paid by the consumer to ____ and the price received by producers to _______
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increase, decrease
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a tax on producers would cause the _____ curve to shift to the ______
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supply, left
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gas and ethanol are substitute fuels. If the government increases taxes on gas, this will cause an
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increase in dead weight loss in the market for gas and an increase in the price of ethanol
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the elasticities of supply and demand are important in determining the distribution of tax burden because they
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measure how responsive producers and consumers are to a change in price
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all taxes create some dead weight loss, unless
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either supply or demand is perfectly inelastic
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what is a black market
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it is an illegal market that emerges when only binding price ceilings and binding price floors are in place
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why are binding price ceiling laws passed
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they make the good less expensive for those customers who are able to purchase the good in the legal market
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mortimer loves sushi. he loves sushi so much that he asks his congressional rep. to work for passage of a binding price ceiling law. who would be affected by this law
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some customers would benefit from such a law because prices for sushi would be lowered for those able to buy i in the legal market
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Demand: 2,600 - 5P
Supply: -1,000 + 10P
what would be the quantity demanded if a price ceiling is set at $150?
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1. set supply and demand equal to eachother
2. if the EQ price is higher than $150, just use demand and plug in P
3. if the EQ is less than $150, use the EQ price (the one found in #2)
1,850
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Demand: 154,000 -86P
Supply: -100 - 14P
what would be the quantity demanded if a price ceiling is set at $1,000
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1. follow steps above
68,000
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shortage
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quantity demanded is higher than quantity supplied
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surplus
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quantity demanded is less than quantity supplied
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suppose you live in a community with no price controls. what would you expect will happen if your town borders a community with nonbinding price ceilings?
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the price and quantity sold in the community without a nonbinding price ceiling would be the same as the price and quantity in the community with the nonbinding price ceiling
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what would you expect that consequences to size and quality would be for a product sold under a binding price ceiling
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both the quality and size of the product will decrease
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let's say that you have a friend who was caught illegally buying a good on the black market. when the judge asks you to describe your friend's motivation as a buyer, what do you say
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my friend bought the good on the black market because a binding price floor made the good too expensive to purchase legally
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min. wage is an example of
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price floor
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Do all sellers benefit from a binding price floor?
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no. a binding price floor benefits only some sellers because not all are able to sell as much as they would like in the legal market
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If a price floor is imposed at $15 per unit when the equilibrium market price is $12, there will be:
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surplus
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What will happen in a market where a nonbinding price floor is removed
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The price or quantity of the product sold on the legal market will not change.
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surplus (math)
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quantity supplied - demanded
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how would economists explain a teen's continued unemployment where there exists a min. wage
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the min wage law made it such that the quantity of labor willing to work that wage was greater than the quantity of labor demanded at that wage
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why is raising min. wage ineffective
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The minimum wage is usually set below the prevailing equilibrium wage and is frequently nonbinding.
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Price elasticity of demand measures the change in
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quantity demanded due to the change in price.
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If your friend says, "I am never going to buy another Avicii remix again!" his price elasticity of demand for Avicii remixes is:
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perfectly inelastic.
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From the accompanying table, we would expect that, for recreational skaters, the price elasticity of demand for ice skates between $10 and $20 to be ________ than that of hockey players because ________.
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From the accompanying table, we would expect that, for recreational skaters, the price elasticity of demand for ice skates between $10 and $20 to be ________ than that of hockey players because ________.
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Assume that a family spends 35% of its income on housing, 20% on travel-related expenses, 10% on utilities, 25% on health care, and 5% on miscellaneous items. Demand for which category will be most responsive to a change in price?
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housing (biggest expense)
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When the price of scooters drops by 5%, the quantity demanded changes by 20%. You know that the price elasticity of demand for scooters is:
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elastic
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A producer knows that the price elasticity for his product is -0.5. He wants to increase quantity demanded by 30%. By what percentage does he need to change the price?
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-60%
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if the price elasticity of demand for Good A is -0.2 and the price increases from $2.25 to $2.75, the percentage change in the quantity demanded of Good A is:
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-4.0%
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If a business finds that demand for its good is very price elastic, it knows that:
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price is very important
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Assume that the market for pencils is in equilibrium and that demand is very price elastic. The popularity of digital tablets and electronic pens increases and demand for pencils declines. The equilibrium change in quantity demanded is:
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relatively large
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the owners raised the price because they believed that the demand for ice cream sandwhiches
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is ineastic
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the NHL team decides to lower its ticket prices in order to attract more fans. They are hoping that the:
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quantity increase matters more than the price decrease to total revenue
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Income elasticity of demand for professional haircuts is found to be 1.7. This service is a:
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normal good and a luxury good
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If the income elasticity of demand is 0.5, the good will be a(n):
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necessity good.
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If the percentage change in the quantity consumed of pizza is 8% and the percentage change in income is 2%, what is the income elasticity of demand for pizza?
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4
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If the cross-price elasticity of demand between Good A and Good B is 2 and the percentage change in price of Good A is 5%, what is the percentage change in quantity demanded of Good B?
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10%
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The price elasticity supply of doctors could be considered ________ because it takes a minimum of four to six years of training to be able to work as a physician.
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relatively inelastic
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When the price of an hour of tutoring increases,
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increases as the consumer's income increases.
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increases as the consumer's income increases.
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If the price of a good increases, holding all else constant,
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If the price of a good increases, holding all else constant,
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the demand for all of that good's substitutes will increase
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Pepsi and Coke are considered substitute goods. Because of this, one would predict that, holding all else constant, if the price of Pepsi increases, we would see:
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the demand curve for Coke shifts to the right
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which of the following will cause the demand curve for burgers to shift to the right
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good news about burgers and health
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decreased # of buyers
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decrease in demand
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which of the following will cause movement along a supply curve
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the price of the good increases
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inputs are
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resources that firms use in the production of final goods/services
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Which following change in the coffee market would shift the supply curve to the right?
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The wage for employees in the coffee business decreases
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Which of the following could cause the supply curve for the market for oranges to shift to the left?
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a severe hurricane in Florida
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When the demand curve shifts to the right and the supply curve is held constant,
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the equilibrium price and quantity increase.
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The difference between a tax and a subsidy is that when the government places a tax on a good, it _________ the equilibrium price and _________ the equilibrium quantity, whereas when the government places a subsidy on a good, it _________ the equilibrium price and _________ the equilibriu…
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increases; decreases; decreases; increases
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Spam is considered an inferior good. What would happen to the equilibrium price and quantity of Spam if income decreased and more firms started producing Spam?
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quilibrium price will be indeterminate and equilibrium quantity will go up.
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According to a supply and demand model for apples, if the average household income decreases at the same time ten apple orchards go out of business, one would expect the:
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equilibrium quantity of apples in the market to decrease and the equilibrium price of apples to be indeterminate.
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What happens to the equilibrium price and equilibrium quantity of a good if both the producers and the consumers of that good expect its price to be higher in the future?
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the EQ price will go up and EQ quantity will be indeterminate
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ARE 201: EXAM 3