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Econ2030-Test2

QuestionAnswer
What is the Elasticity Rule for tax incidence? The less elastic side of the market bears more of the tax burden.
If demand is inelastic, who pays more of the tax? Consumers
What is the formula for Consumer Surplus? Willingness to Pay - Price
What is the formula for Government Revenue? Tax x Quantity
What is Deadweight Loss? Loss trades due to a tax.
What's the difference between Accounting and Economic Profit? Accounting profit only subtracts explicit costs; Economic profit subtracts both explicit and implicit (opportunity) costs.
What is an Explicit Cost? direct payments
What are Implicit Costs? opportunity costs of using resources
What is the Golden Rule for profit maximization? Produce where MR = MC
What happens to Average Total Cost (ATC) when MC > ATC? ATC is rising
Define Fixed Cost (FC). A cost that does not change with the level of output
In Perfect Competition, why are firms called "price takers"? Because there are many buyers/sellers and goods are homogeneous; therefore, P = MR.
What is the Shutdown Rule in the short run? Shut down if P < AVC.
List three Barriers to Entry for a Monopoly. Legal/Patents, resource control, economies of scale, or network effects.
True or False: Monopolies are efficient. False. They are inefficient because P > MC and output is lower than in competition.
What is a Negative Externality? A harm (like pollution) imposed on others; it means MSC > MPC.
Define a Public Good. A good that is both non-rivalrous and non-excludable.
What is the Free Rider Problem? When people benefit from a good without paying for it, leading to underproduction.
How do you calculate the percentage of tax borne by buyers? % = (Es/Ed+Es) x 100
How do you calculate the percentage of tax borne by sellers? % = (Ed/Ed+Es) x 100
Created by: user-2032712
 

 



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