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Microeconomics Final
| Question | Answer |
|---|---|
| surplus | created by a price floor |
| shortage | created by a price ceiling |
| deadweight loss | 1) loss to society from transactions that don't happen (ch. 4) 2) is lower if a tax is placed on goods that are inelastic |
| tax incidence | the way burden of tax is distributed -- depends on elasticity of good taxed |
| average tax rate (ATR) | percentage of income paid in taxes tax liability / taxable income = ATR |
| marginal tax rate (MTR) | additional tax liability people face with additional income change in tax liability / change in taxable income = MTR |
| tax incidence falls on sellers | when demand is elastic (horizontal) and supply is inelastic (steep) |
| tax incidence falls on those | who are inelastic |
| aspects of economic efficiency | 1. all actions where benefits > cost 2. no actions where cost > benefit |
| role of the the gov't in economic efficiency | 1. protect individuals and their property 2. prevent market failure |
| types of market failure | 1. lack of competition 2. externalities 3. public good failures 4. lack of information |
| price elasticity of demand formula | | change in percentage of Q(D) / change in percentage P | = Price elasticity of demand ALSO | [(Q0-Q1)/(Q0+Q1)]/[(P0-P1)/(P0+P1)]| = P.E.D. |
| how to use price elasticity of demand calculation to determine elasticity of good | less than < 1 = inelastic 1 = unitary elastic greater than > 1 = elastic |
| how to increase total revenue according to elasticity of good | inelastic good = increase price (price effect) unitary elastic good = doesn't matter elastic good = increase quantity (quantity effect) |
| income elasticity of demand formula | change in % of Q(D) / change in % of INCOME = income elasticity of demand |
| how to use income elasticity of demand to determine type of good | less than < 0 = inferior good 0 - 1 = necessity greater than > 1 = luxury |
| price elasticity of supply formula | % change in Q(D) / % change in S = price elasticity of supply |
| cost curve shifters | 1. price of resources 2. taxes 3. regulations 4. technology |
| diseconomies of scale | when per-unit costs increase as output increases (AKA - the upward part of the ATC parabola) |
| economies of scale | when per-unit costs decrease with increased output (ALA - the downward part of the ATC parabola) |
| explicit costs | costs a firm incurs to purchase productive resources |
| implicit costs | the opportunity costs associated with the firm's use of the resources it already owns |
| price takers | sellers who must take the market price for their products |
| price searchers | sellers who choose the price of their product but the quantity they can sell is related to the price |
| profit maxmizing rule | marginal revenue = marginal cost |
| natural monopoly | industry where the fixed cost of the capital goods is so high that it is not profitable for a second firm to enter |
| rent-seeking | an attempt to obtain economic rent by manipulating the social or political environment in which economic activities occur |
| collusion | an agreement by oligopolists to avoid competitive practices amongst themselves (success: monopoly practices, failure: competitive prices) |
Created by:
carolch81
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