Micro Economics (Chapters 3,6,8,9)

Front 1

Price Ceiling

Back 1

A legal maximum on the price at which a good can be sold

Binding ceilings are below the Qe, Pe and create a shortage.

Front 2

Price Floor

Back 2

A legal minimum on the price at which a good can be sold

Binding floors are above the Qe, Pe and create a surplus (unemployment).

Front 3

Tax Incidence

Back 3

The manner in which the burden of a tax is shared among participants in a market.

Front 4

Payroll Tax

Back 4

tax on the wages that firms pay for their workers

Front 5

Earned income tax credit

Back 5

a government program that supplements the incomes of low-wage workers

Front 6

Tax wedge

Back 6

A tax on a good places a wedge between the price that buyers pay and the price that sellers receive. Quantity of the good sold falls (with tax) and price buyers buy and price sellers receive falls.

Front 7

Tax Revenue

Back 7

Government collects T * Q
(tax * quantity sold with tax). Uses this to provide services, such as roads, police, and public education, etc.

Front 8

Deadweight Loss

Back 8

The fall in total surplus that results from a market distortion, such as a tax. This is because the potential gains from trade among buyers and sellers are not realized (lost gains from trade).

Greater the elasticity, greater the DWL.

Front 9

Marginal Tax Rate on labor income

Back 9

the tax on the last dollar of earnings

Front 10

Underground economy

Back 10

working at jobs that pay "under the table" and do not have taxes (caddying)

Front 11

Laffer Curve

Back 11

Tax revenue increases and then decreases as tax size increases. Turns into the parabolic Laffer Curve that states a medium tax is better for government and the economy than a small or large tax.

Front 12

Supply-side economics

Back 12

Laffer and Reagan's views were known as this. Because the cut in tax rates was intended to encourage people to increase the quantity of labor they supplied.

Front 13

Resource Misallocation

Back 13

The decline from Qe1 to Qe2 with tax. The lost quantity when a tax is put on a good. Price not accounted for in this calculation. Q1-Q2.

Front 14

PPF (Production Possibilities Frontier)

Back 14

a graph that shows the possiblities of production and consumption for a firm comparing two goods (meat and potatoes). There are usually multiple variables like minutes needed to make 1 ounce, or how many workers involved.

Front 15

Specialization

Back 15

When a firm decides to devote all of their time on one good they have a comparative advantage in.

Front 16

Trade

Back 16

When two firms specialize in the good they have a comparative advantage in and then trade so each is better off (outside their PPF curve).

Front 17

Absolute Advantage

Back 17

the ability to produce a good using fewer inputs than another producer

Front 18

Opportunity Cost

Back 18

Whatever must be given up to obtain some item

Front 19

Comparative Advantage

Back 19

the ability to produce a good at a lower opportunity cost than another producer. France can produce 1 orange for 3 apples, but Germany can produce 1 orange for 1 apple, so Germany has the C.A. in oranges.

Front 20

International trade can make some individuals worse off, even as it makes the country as a whole better off. True or False.

Back 20

True bitch.

Front 21

World Price

Back 21

The price of a good that prevails in the world market for that good

World price > domestic price = export
World price < domestic price = import

Front 22

Tariff

Back 22

a tax on imported goods. The tariff reduces the quantity of imports and moves the domestic market closer to its equilibrium without trade.

Tariff raises domestic price. Sellers better off, buyers worse off.

Front 23

Benefits of international trade

Back 23

1. Increased variety of goods
2. Lower costs through economies of scale (large quantities = lower costs)- Raman
3. Increased competition (no market power)
4. Enhanced flow of ideas (tech. advances)

Front 24

Jobs Argument

Back 24

trade destroys jobs in industries that compete with imports (P.S. falls)

Economists say: rising imports does not equal rising unemployment because job losses are offset by job gains in export industries (although they are high wage manufacturing jobs lost to low wage service jobs)

Front 25

National Security Argument

Back 25

should be protected from foreign competition, to prevent dependence on imports that could be disrupted during wartime

Front 26

Infant-Industry Argument

Back 26

New industries need temporary protection until they are mature and can compete with foreign industries.

Economists say: It is too difficult for the government to determine which firms will succeed. If they will be successful, they should be able to stand temporary losses.

Front 27

Unfair Competition Argument

Back 27

Producers argue that competitors in another company have unfair advantage due to government subsidies

Economists say: This is good because we can import cheap products!

Front 28

The Protection As A Bargaining Chip Argument

Back 28

Claim: threat of a trade restriction can help remove a trade restriction already imposed by a foreign government.

Economists say: This could backfire because the threat may not work because carrying out the threat would reduce its own economic welfare and not carrying out the threat would reduce its prestige in international affairs.

Front 29

Unilateral

Back 29

In order to achieve free trade: could remove its trade restrictions on its own.

Front 30

Multilateral

Back 30

In order to achieve free trade: could reduce its trade restrictions while other countries do the same. It can bargain with its trading partners in an attempt to reduce trade restrictions around the world.