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84 Cards in this Set
- Front
- Back
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Who actually sends the tax $ to the government |
statutory incidence |
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who bears the burden of the tax |
economic incidence |
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tax borne by consumers (words) |
how much consumers pay more _________________________________ tax |
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tax borne by consumers (equation) |
Pat - Pbt tc = ---------------- T |
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tax borne by producers (words) |
how much producers get less _______________________________ tax |
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tax borne by producers (equation) |
Pbt - Pat tp = -------------- T |
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Under what circumstances to consumers bear the entire burden of the Tax? Give example |
No Substitutes; Insulin |
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Under what circumstances do producers bear the entire burden of the tax? Give example |
Perfect Substitutes; coke and pepsi |
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Why can't producers place the entire burden on consumers? |
By charging Pbt + T, there is more supplied than demanded at that price creating surplus |
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Elasticity = |
l%dQ l l dQ P l l-------- l = l------ -- l lo%dP l l dP Q l |
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When E > 1 |
demand is elastic |
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When E = 1 |
demand is unit eastic |
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when E < 1 |
demand is inelastic |
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Elasticity is |
responsiveness of Qd to price |
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When E > 1, P and TE |
move inversely |
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when E = 1, P and TE |
TE does not change when P changes |
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When E < 1, P and TE |
move together |
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Prove how P and TE relate to show Elasticity |
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Income Elasticity = |
l%dQ l l dQ I l l-------- l = l------ -- l l %dI l l dI Q l
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When E > 0 I |
good is normal |
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When E < 0 I |
good is inferior |
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Cross-Price Elasticity = |
l%dQi l l dQi Pj l l-------- l = l-----------l l%dPj l l dPj Qi l
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When E > 0 QiPj |
goods are substitutes |
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When E < 0 QiPj |
goods are compliments |
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Intercepts of the budget line are |
I I _ and _ Px Py |
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if I increases, then the budget line |
shifts out proportionally |
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If Px decreases, then the budget line |
Swings out |
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Preferences are assumed to obey: |
completeness transitivity nonsatiation |
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completeness |
consumer can tell which bundle he or she prefers |
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nonsatiation |
more is better |
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transitivity |
A pref B, and B pref C, then A pref C |
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Why does the indifference curve have a negative slope? |
nonsatiation, A and C on indiference curve, B in between then explain |
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Slope of IC |
MRS |
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MRS = |
MUx ------- MUy |
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Why can't Indifference Curves Cross? |
trransitivity |
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Why are most indifference curves convex? |
a diminishing MRS |
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Under what circumstances would a straight indifference curve appear |
perfect substitutes |
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under what circumstance would the IC be concave |
extreme bundles preferred to averages |
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where is the optimal bundle on an IC? |
Where MUx Px -------- = ------ MUy Py |
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What happens if the slope of the IC > slope of BL? (MRS > Px/ PY ) |
no point of tangency, go to cornerand consume all X and no Y |
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Monotonic Transformation and prove algebraically |
U(X.Y) ; w=v[ U(X,Y) ] |
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Is Utility ordinal or cardinal |
ordinal |
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Draw the Food Stamp Diagram and explain |
increases purchasing power but cash preferred |
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Explain and draw ICC |
All Optimal Bundles on all levels of income |
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What is the Engel Curve and how do you get it? Draw |
Plot Income against Quantity, get info from ICC |
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What is the PCC? and Draw |
Optimal bundles along all budget lines when Income and Py fixed, but Px changes |
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How do you derive a demand curve? and Draw |
From PCC, plot Px against X |
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What is the market demand curve? |
The horizontal summation of individual demand curves |
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Total benefit |
max amount consumer willing to pay for a given amount of a good rather than do without |
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Explain Income Sub Effects and Draw |
1) from Price Decrease, BL1 shifts out to BL2 2) Final effect is X2 - X1 3) BLs ll to BL2, tan to U1 4) sub effect = Xs - X1 5) income effect = X2 - Xs |
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Gas Tax Rebate uggghhhhhhhhh |
1) B1 shifts in to Bnr because of tax 2) We want the Br to be where the ICC curve crosses B1, making the Rebate = Tax, optimal bundle Er 3) ICC must cross B1 to the left of E because the ICC is now steeper sue to the tax 4) Es would be the income sub-effect, if the price increased but you were not made worse off (where ICC crosses U1) 5) Even if rebate increases past tax to Es, still decreased consumption |
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Charitable Giving |
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Price of Schooling |
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Isoquant |
shows all combinations of inputs that will produce a given level of output |
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Show how Short Run PDN ---> TPL |
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MPL |
change in output from a one unit change in Labor, dQ / dL |
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What is the Slope of the TPL |
MPL |
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APL |
the amount produced on average per worker |
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slope of ray from origin to (L1, Q1,) |
APL |
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the APL increases until what point |
the point where the ray from the origin tan to TPL |
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MPL > APL, MPL < APL, (prove) |
average is rising average is falling |
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Law of Diminishing Returns and Story |
when successive equal increases of a variable factor of PDN are added to constant amounts of other factors, MPL eventually declines specialization in factory increases MPL until space runs out, then decreases |
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MRTS = |
amount by which K can be reduced without changing output when L is increased by one unit |
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MRTS = (equation) |
MPL ------- MPK |
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improvement of technology would do what to the isoquant? |
shift it in toward the origin |
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IRTS |
output increases more proportionally than inputs, economies of scale, LRAC decreasing |
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CRTS |
when inputs are increased proportionally, output increases by same proportion |
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DRTS |
when inputs increased proportionally, output increase by less, diseconomies of scale, LRAC increasing |
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TC = |
TVC + TFC |
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TVC = |
W*L |
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show TPL --> TVC |
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MC is |
the increase in TC associated with PDN of an additional unit of output |
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AVC = |
W --- APL |
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MC = |
W ---- MPL |
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Why are AVC and MC U-shaped |
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What are the intercepts of an isocost line? |
C1 C1 ____ and _____ r w |
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What does the Expansion Path Show? |
It shows the least costly combo of inputs for each output level (like ICC for each income level) |
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How do you find the Expansion Path? |
All tangencies between isoquants and isocosts |
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How do you get the LRTC |
from theEP |
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when demand curve is vertical, price elasticity = |
0 |
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If the price Increase of X decreases D for Y, |
goods are complements |
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In PDN function, if asked for SR demand for L |
plug in K and solve for L |
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in PDN function, if asked for LR demand for L |
set MPL MPK ------- and ------- and w r solve for K, then plug it into the Q=F(K,L) and solve for L |
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In PDN function, if asked for LRTC |
solve for K and L, plug into Q=F(K,L) and get K* and L*, then plug into LRTC = wL* + rK* |
