M2 - Definitions

Question 1

Surplus

Answer 1

Difference between money received and opp cost of selling that good

Question 2

Producer surplus

Answer 2

Benefits sellers receive from being able to sell a good

Question 3

Consumer surplus

Answer 3

The net benefit obtained by a consumer when they pay less than what they would’ve been willing to pay

Question 4

Total consumer surplus

Answer 4

Sum of individual consumer surpluses
(Same for producer)

Question 5

Sellers cost

Answer 5

The lowest price at which a potential seller is willing to sell
(incl. monetary and opp cost)

Question 6

Total Surplus in a market

Answer 6

Sum of consumer and producer surplus

Question 7

Equity vs Efficiency

Answer 7

Efficiency = HOW to achieve goals
Equity = Goals to increase fairness

Question 8

Property rights

Answer 8

A system in which valuable items in the economy have specific owners who can dispose of them as they choose

Question 9

Economic signals

Answer 9

Any piece of information that helps people and buisnesses make better economic decisions

Question 10

Market for lemons

Answer 10

Market in which prices don’t work as economic signals

Question 11

Market power

Answer 11

When a single firm has the ability to rise market price ie holds great power over the market

Question 12

Market intervention

Answer 12

Policy imposed by the government to prevail over the market forces of supply and demand

Question 13

Price Controls
Price ceiling
Price floor

Answer 13

Government interventions to regulate prices
upper limit
lower limit

Question 14

Dead weight loss

Answer 14

The lost surplus associated with the transactions that no longer occur due to market intervention

Question 15

Misallocation of goods

Answer 15

Giving goods to those who aren’t necessarily desperate for them

Question 16

Elasticity

Answer 16

The responsiveness of one economic variable to changes in another variable

Question 17

Price elasticity for demand

Answer 17

Ratio of the percent change in quantity demanded to the percentage change in price as we move along the demand curve

Question 18

Elastic

Answer 18

Responsive to change in one variable

Question 19

Inelastic

Answer 19

Non-responsive or unproportional response

Question 20

Total Revenue

Answer 20

Price x Quantity sold

Question 21

Price Effect

Answer 21

More revenue raised since selling price is higher

Question 22

Quantity effect

Answer 22

Fewer units sold bc of a higher price which leads to a lower revenue

Question 23

Cross-price elasticity of demand

Answer 23

How much demand for a good is affected by the price of other goods

Question 24

Income elasticity of demand

Answer 24

How demand is affected by changes in income

Question 25

Income-elastic normal good

Answer 25

When income rises, demand for this good rises FASTER than income ie, luxury items

Question 26

Income-inelastic normal good

Answer 26

When income rises the demand rises slower than the income ie, food and clothing

Question 27

Price elasticity of supply

Answer 27

Responsiveness in the quantity of output supplied for a higher price

Question 28

Excise tax

Answer 28

Tax charged on each unit of a good or service that is sold. Implemented on producers but affects consumers as well

Question 29

Net price of tax

Answer 29

Pp = Pc - T

Question 30

Tax rates

Answer 30

The amount of tax levied per unit of the taxed item (can be defined as $ or %)

Question 31

Administrative costs of the tax

Answer 31

The resources used for its collection, for the method of payment and for punishment of any attempts to evade the law

Question 32

Benefits principle

Answer 32

Those who benefit from public spending should bear the burden of the tax that pays for that spending

Question 33

Ability to pay principle

Answer 33

Those with greater ability to pay taxes should pay more

Question 34

Lump-sum tax

Answer 34

Tax that is the same regardless of any actions people take

Question 35

Base of a tax

Answer 35

Measure or value determining how much the individual pays (Usually $)

Question 36

Structure of a tax

Answer 36

How the tax depends on the tax base. Usually %

Question 37

Income Tax

Answer 37

Dependent on income of an individual or family from wages/invests

Question 38

Payroll Tax

Answer 38

Tax depends on the earnings an employer pays to employee

Question 39

Sales tax

Answer 39

Depends on the value of goods sold (excise tax)

Question 40

Profits Tax

Answer 40

Tax that depends on a firm’s profits (corporate income tax)

Question 41

Property Tax

Answer 41

Tax that depends on the value of property

Question 42

Wealth Tax

Answer 42

Tax that depends on an individual’s wealth

Question 43

Proportional tax

Answer 43

Same percentage of the base regardless of taxpayer's income, wealth or assets

Question 44

Progressive tax

Answer 44

Rises more than in proportion to income (More % more tax)

Question 45

Regressive Tax

Answer 45

Rises less than in proportion to income (More $ less tax)

Question 46

Marginal tax rate

Answer 46

% of an increase in income that is taxed away