Chapters 5-6

Question 1

if the tax is on the producers what shift will that cause?

Answer 1

supply will shift left

Question 2

is the consumers price the higher or lower on the graph

Answer 2

the higher

Question 3

what is the tax on the graph

Answer 3

the difference between the consumer and the producer

Question 4

Theory of consumer behaviour

Answer 4

-Theory behind the market demand curve

-Time/Location characteristics matter regarding goods

Question 5

3 Assumptions on Preferences

Answer 5

1. Completness
2. Transivity
3. Nonconformity

Question 6

Completeness

Answer 6

if you have two bundles, you can either prefer bundle A over B, B over A, or A = B

Question 7

Transivity

Answer 7

If you prefer Y over X, and Z over Y, that means you prefer Z over X

Question 8

Nonconformity

Answer 8

more of a commodity is preferred then less of it.

Question 9

Utility

Answer 9

Satisfaction, happiness or fulfillment consumers get from using something

Question 10

Marginal utility

Answer 10

The change in utility from one or more consumption of a good/service

Question 11

Law of Diminishing marginal utility

Answer 11

greater amount consumed, smaller marginal utility

Question 12

Consumers Objective

Answer 12

maximize utility given level of income

Question 13

When a consumer has ratified their consumer objective they have reached their _________

Answer 13

Consumer Optimum

Question 14

Income constraint equation???

Answer 14

Income = P1Q1 + P2Q2

Question 15

Consumer Equilibrium

Answer 15

level of quantities such that the consumers utility is maximized (subject to income). A consumer equilibrium is achieved when the consumer has no incentive to reallocate his budget or to buy a different bundle of goods.

Question 16

Two Conditions Consumer Equilibrium must satisfy:

Answer 16

1. Consumer Must spend all of his income
2. Equimarginal consumption. extra satisfaction front an additional dollar spend on good 1 is equal to extra satisfaction from additional 2 dollar spent.

Question 17

Preferences aren’t transitive, they are _____

Answer 17

Cyclical

Question 18

Market Demand

Answer 18

sum of each price of quantities demanded at the price

Question 19

Exclusive, and rival

Answer 19

private good

-health-care/education are publicly provided private goods

Question 20

exclusive and no rival

Answer 20

impure public good (club good), (swimming pool)

Question 21

not exclusive, and rival

Answer 21

impure public

ex. fishing

Question 22

not exclusive, no rival

Answer 22

pure public good (open public goods)

ex. clean air

Question 23

Marginal Utility Equation

Answer 23

change in utility / change in total units consumed

Question 24

Gorrson’s Second Law

Answer 24

you will buy whatever will give you the higher marginal utility

Question 25

What type of good are healthcare and education

Answer 25

they are a publicly provided private good, meaning they are a private good

Question 26

Consumer Surplus

Answer 26

How much the consumer is willing to pay minus the amount the consumer has to pay

Question 27

Can consumer surplus be negative?

Answer 27

No

Question 28

The paradox of value

Answer 28

-economists struggled on why someone who provides less to society gets paid more

-differentiate between total and marginal value

-value to society is the area underneath the curve

Question 29

sunk cost fallacy

Answer 29

letting a past cost decision to influence your current behaviour and influence your future behaviour. The cost exists whether you choose option A or B

Question 30

Overconfidence

Answer 30

leads to bad decisions

Question 31

Over Emphasizing Present

Answer 31

too much emphasis on current consumption

Question 32

Framing Bias

Answer 32

consumers may react to differences in price that are very little

Question 33

Warm Glow Bias

Answer 33

consumers make decisions because they are trying to influence peoples perception of them

Question 34

The legal organization of firms

Answer 34

1. Sole Proprietorship
2. Partnerships
3. Corporations

Question 35

Sole Proprietorship

Answer 35

business is owned by a single person

Question 36

Sole Proprietorship Advantages

Answer 36

-easy to form and develop

-the sole owner has all the decision power

-only taxed once, as profits are part of the individuals net income

Question 37

Sole Proprietorship Disadvantages

Answer 37

Unlimited liability for the debts of the firm. Owners Personal assets can be seized by the firms creditors.

Question 38

Partnerships

Answer 38

business is owned by two or more persons

Question 39

Partnerships Advantages

Answer 39

-east to form/dissolve

-permits specialization

-spreads risks

Question 40

Partnerships Disadvantages

Answer 40

-joint unlimited liability (each partner has unlimited liability)

-decision making becomes more costly

Question 41

Corporations

Answer 41

a legal entity that may conduct business in its own name just as an individual does eg: Hudson Bay Company

• viewed as of an individuals

-owners are called shareholders

Question 42

Corporations Advantage

Answer 42

-corporations are well positioned to raise large sums of money (not very true for sole corporations)

-shareholders enjoy limited liability