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70 Cards in this Set
- Front
- Back
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A price ceiling is BINDING when it is set at what position to the Equilibrium Point?
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Below the Equilibrium Point
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A price ceiling is UNBINDING when it is set at what position to the Equilibrium Point?
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Above the Equilibrium Point
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A price floor is BINDING when it is set at what position to the Equilibrium Point?
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Above the Equilibrium Point
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A price floor is UNBINDING when it is set at what position to the Equilibrium Point?
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Below the Equilibrium Point
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Self-interested sellers must offer buyers what when looking to sell to potential customers?
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Terms of sale that benefit the buyers.
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Self-interested buyers must offer sellers what when looking to buy from potential distributors?
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Terms of sale that benefit the seller.
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When wondering about what to produce, self-interested people only care about what?
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Self-interested sellers only care about THEIR opportunity costs and the price of the good that they are thinking about producing.
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When wondering about whether to buy a good, self-interested buyers only care about what?
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Self-interested buyers only care about THEIR willingness to pay and the price of the good that they are thinking about buying.
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When in a competitive market, self-interested buyers will ten to pursue activities that also promote the general welfare of society. What is this called?
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“The invisible hand principle”
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In the absence of price ceilings, what could occur in a given situation?
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1. The price of the goods that are in high demand will rise.
2.There will be an increase in the quantity of goods supplied. 3. Resources will be allocated to higher-valued users. 4. Shortages would be eliminated. 5. Long lines for customers would be reduced. |
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Free resources (aka First Come First Serve) mean what for consumers?
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It means that the quantity demanded of the good is at the highest point possible on a graph and the quantity supplied is at the lowest point on the graph and is where the supply and demand line first meet.
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Free resources (aka First Come First Serve) mean that which type of person determines who gets the good?
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Who receives the good is based on people's willingness to pay for that good (waking up early, spending money, eating dirt, etc.).
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Free market distribution resources go to ______ and are at a price of _____ ?
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Higher-Valued Users and at the price where the smallest amount of quantity demanded intersects with the demand line.
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There is no free market, but a price ceiling is administered. The new price is x. What is the real cost of the good x?
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The real price of the good x, is the price x, and the time spent getting the good in the first place (waking up early, performing some type of unpleasant task, etc.).
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IF the supply of a good permanently decreases and other things stay the same what happens?
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The equilibrium price rises, the equilibrium quantity decreases, and the burden of the adjustment falls more heavily on the PRICE in the short run.
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If the demand for a good permanently increases, what happens to everything else?
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Both the equilibrium price and the equilibrium quantity increase and the adjustment falls more heavily on the PRICE in the short run.
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According to the Laffer Curve, what happens to the tax rates and revenue.
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According to the Laffer Curve, when tax rates are high, a reduction in tax rates may increase tax revenue.
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If the Elasticity of Demand is <1, then it is labeled as what?
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Inelastic
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If the Elasticity of Demand is >1, then it is labeled as what?
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Elastic
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A brand name, as opposed to an item class (Ex. Sugar, salt, cookie, etc.) has a larger price elasticity due to what reason?
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There are more substitutes for the brand name and not as many for the item class itself.
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When imposing a flat tax (Ex. $5 toll), what affect would that have on the person being taxed in the long and the short run?
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The number of people using the product (tollway) will decrease in the short run, but will decrease by a larger amount in the long run.
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A tax with legal incidence on the buyers means what for the buyers?
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The demand curve for a product would go down, which decreases the price received by the sellers of a product and causes the market for the product to shrink.
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A tax with legal incidence on the sellers means what for the sellers?
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The supply curve shifts upward by the amount of the tax (Remember: Upward shift in supply= decrease of supply).
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Rent Control (aka Price Ceilings) create a shortage in the market which can lead to what?
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Discrimination by landlords, and lost incentive to fix buildings (they can find someone else who wants to live in a crappy house because of the shortage).
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A tax has dead-weight loss for what reason?
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It induces buyers to consume less and sellers to produce less.
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Speculators who act on a belief that a shortage of any good will occur next year will do what?
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. Cause others and himself to consume less goods because he will save some of the goods now and sell them to people at a higher price during the famine.
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Speculators who correctly anticipate the future do what in terms of loss and gain?
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They reap personal benefits by receiving money for selling during the time of a famine and they give benefits to others by providing them with food.
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Decisions to purchase or sell goods take account wants of people in the future only if what occurs?
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This occurs only if people can predict future prices and goods are privately owned.
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When determining surplus or shortages with price floors or price ceilings, you only need to know the price change of a certain good. True or False?
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False, in order to determine a surplus or a shortage, you have to know the quantity supplied and the quantity demanded.
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A BINDING price ceiling (rent etc.) can cause what three things?
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Shortages, Black Markets, and Discrimination
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Even though decisions in a market economy are guided by an individual, there is still a possibility of what occurring?
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There is still an ability to achieve economic well-being for society as a whole.
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If TR/TE (Total Revenue/ Total Expendatures) increases and Price decreases, then what happens in terms of elasticity?
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The good is elastic.
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The supply of a good will be more elastic when what occurs in regards to time?
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The supply of a good will be more elastic (meaning there are more substitutes for it) when a longer time period has elapsed.
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IF demand is elastic what do prices and expendatures do in relationship to that?
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They move in opposite directions.
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The Welfare of Nations and “The Invisible Hand” concept was devised by whom?
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Adam Smith
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The thought that production should be for people and not for profit is a false statement why?
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It is false because it fails to realize that if any activity is profitable it has generated more value for people than the alternative uses of those resources.
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The Tax Revenue Formula is what?
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Quantity Sold after the tax * The Tax Rate
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Ad Valorem Taxes are what?
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They are taxes in which the size of the tax is the function of what the product costs.
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In ad valorem taxes, what happens in regards to the tax and the price?
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. If the Price goes up then the Taxes go up & If the Price goes down then the Taxes go down.
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Import taxes are also known as what?
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Tariffs
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Economic Incidence is determined by what?
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Supply and Demand Elasticity
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Change in Quantity * The Tax Rate * ½ is known as what formula?
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The Deadweight Loss formula
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In a social security tax, legal incidence is irrelevant. True or False?
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True, both the employer and the employee are forced to pay money to the government and therefore it does not affect one group more than the other.
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Price Elasticity of Supply's Formula is known as what?
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. (The % Change of Quantity Supplied) / (The % Change of Price)
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When Elasticity of Supply or Demand = 1, then the Elasticity of Demand or Supply is said to be what?
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Unitary
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“Price Takers” have no influence over the price in the market. True or False.
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True
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Elasticity of Supply for a horizontal supply line= ?
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Infinity
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Elasticity of Supply for a vertical supply line= ?
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Zero
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When Price Decreases (ELASTIC) what happens?
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Quantity Demanded Increases and Total Revenue/Total Expendatures Increases
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When Price Increases (ELASTIC) what happens?
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Quantity Demanded Decreases and Total Revenue/ Total Expendatures Decreases
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When Price Decreases (INELASTIC) what happens?
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. Quantity Demanded Increases and Total Revenue/ Total Expendatures Increases
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When Price Increases (INELASTIC) what happens?
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Quantity Demanded Decreases, and Total Revenue/ Total Expendatures Decreases
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Total Revenue/ Total Expendatures = ?
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The Decrease in Price * The Increase in Quantity) or ( The Increase in Price * The Decrease in Quantity)
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Consumer Surplus matters more than Total Expendatures. True or False?
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True
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An open economy _______ the economic pie.
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Increases
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A tariff and a quota are what?
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Ways to restrict people from entering a market.
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Interest Rates allow us to do what?
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Compare prices over time.
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Present Value Analysis tells us what?
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How much an investment will grow over a certain amount of time and at various interest rates.
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The formula for Compound Interest is what?
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P (1 + i)^n (to the nth power).
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The “P” in the Compound Interest Formula stands for what?
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The amount of money originally deposited by the person.
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Individual Sellers have a _______ percentage of product output where the product has homogeneity.
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Small
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Homogeneity in products means what?
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Products of one seller are indistinguishable from those of another.
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Price takers have no option in regards to the prices of their items because they must always sell where?
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At the market price
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Price Searchers must have a large percentage of industry output or _______.
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non-homogeneity
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Fixed costs never _______.
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Change
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Voidable Costs are not _______ costs.
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Sunk Costs
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The additional cost that will be expected to occur if an action is undertaken is called what?
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Marginal Cost
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Ed Sikes wanted to sell his product at a price where _________.
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Marginal Revenue is greater than or equal to Marginal Costs.
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The additional expected revenue that will be created by selling more output is known as what?
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Marginal Revenue
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Total Revenue =
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The Price * The Quantity Demanded
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