Econ Exam

Question 1

Symptoms of market disequilibrium

Answer 1

Queuing, Bundling, Secondary Market

Question 2

Price elasticity of demand

Answer 2

%ΔQd/%ΔP

Question 3

Percent change

Answer 3

Q2-Q1/(Q1+Q2/2) x 100

Question 4

Cross-price elasticity

Answer 4

%ΔQx/ΔPy. Negative = complements. Positive = substitutes

Question 5

Income elasticity

Answer 5

%ΔQx/%ΔIncome. Positive = normal good. Negative = inferior good

Question 6

Statutory burden and Economic burden

Answer 6

Statutory burden: Who pays the tax to the government.
Economic burden (incidence): Who actually bears the cost.

Question 7

Elasticity and Elasticity & Tax Burden

Answer 7

Elasticity & Tax Burden
If demand is elastic, buyers escape tax → sellers bear more.
If supply is elastic, sellers escape tax → buyers bear more.

Question 8

Elasticity & Subsidy Distribution

Answer 8

Whoever has higher elasticity gets less of the subsidy.
If demand more elastic, sellers benefit more.
If supply more elastic, buyers benefit more.

Question 9

Price elasticity demand (calculus)

Answer 9

P/Qd * dQd/dP. Supply is same but replace Qd with Qs.

Question 10

Market Efficiency

Answer 10

Market Efficiency
Who makes what: Producers with lowest cost (efficient sellers).
Who gets what: Buyers with highest willingness to pay (marginal benefit)
How much traded: Up to where MB = MC (equilibrium quantity).

Question 11

Market Failures

Answer 11

Market Power – monopolies distort prices/quantities.
Externalities – costs/benefits spill to others.
Information Problems – buyers/sellers lack key info.
Irrational Behavior – poor or biased decisions.
Government Failures – bad policies worsen outcomes.