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11 Cards in this Set
- Front
- Back
Inflation
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Demand-pull inflation
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Inflation
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Cost-push inflation
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Investment
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Marginal Efficient Investment (MEI) curve
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Polic(ies)
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Contractionary Monetary/fiscal Policy
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Explain
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Explain.
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If the market fails to include these external costs, then the private equilibrium output will be Q1 and the price P1 where private marginal cost = private marginal benefit.
From a social welfare viewpoint, we want less output from activities that create an “economic-bad” such as pollution. A socially-efficient output would be Q2 with a higher price P2. At this price level, the external costs have been taken into account. We have not eliminated the pollution – but at least the market has recognised them and priced them into the price of the product. |
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The private optimum occurs where the private marginal benefit (the benefit to the individual of consuming the last unit) equals private marginal cost, giving an output of Qp. At this level of output, the distance ab represents the size of the external benefit. For society as a whole though the social optimum is where social marginal benefit (SMB) = social marginal cost at output Qs.
In terms of social efficiency education is under-consumed. The socially optimal level of output is where SMB=SMC. If we sum up the excess of SMB over PMB between Qs and Qp we arrive at a figure that indicates the deadweight welfare loss to society. This is the triangle abc. Society as a whole could be made better off by increasing the current level of output from Qp to Qs. |
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Specific tax is also?
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Indirect tax.
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What kind of tax? Explain.
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Ad Valorem Tax -size of tax increase with price.
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What market is this?
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A perfectly competitive market in equilibrium.
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