Microeconomics

Question 1

What is the symbol of willingness to as?

Answer 1

WTP

Question 2

What should wtp be denoted by?

Answer 2

V

Question 3

What should price be denoted as?

Answer 3

P

Question 4

What determines wtp?

Answer 4

Preferences - likes and dislikes
Income - ability to pay

Question 5

What are two uses of wtp?

Answer 5

To determine buyers behaviour
To assess the value of a good to a buyer

Question 6

How can you measure the Gain of trade?

Answer 6

v-p also known as consumer surplus

Question 7

What is a sellers willingness to sell denoted as?

Answer 7

Seller WTP is also known as the sellers reservation price and in letter form this is C

Question 8

What is the buyers benefit from trade known as?

Answer 8

V-P also known as consumer surplus

Question 9

What is the equation of the total benefit of trade?

Answer 9

(V-P)+(P+C) = V-C

Question 10

What is known as an optimal purchase ?

Answer 10

Optimal purchase is where a consumer continues purchasing one more unit as long as marginal WTP > price

Question 11

Quantity demanded

Answer 11

The amount of a good that buyers are willing and able to purchase

Question 12

What determines a competitive market?

Answer 12

A market where both sellers an buyers are price takers.

Question 13

What is a supply schedule

Answer 13

A table that shows the relationship between the price of the good and the supplied quantity

Question 14

Comparative stats

Answer 14

The law of supply and demand is useful in seeing how the market responds to a change in underlying conditions.

Question 15

Demand changes

Answer 15

Either shifts left or right
Left is s decrease
right is sn increase

Question 16

What causes a shift in demand curve?

Answer 16

Consumer income
Price of related goods (substitutes and complements)

Question 17

What causes shifts in the supply curve?

Answer 17

Input prices
Tech
Expectations
Number of sellers

Question 18

Supply changes

Answer 18

Left - decrease in supply
Right - increase in supply

Question 19

What are two ways the gov can control prices

Answer 19

Price Ceiling - A legal max on the price at which a good can be sold
Price Floor- A legal minimum on the river at which a good can be sold.

Question 20

Why does a binding price ceiling create shortages

Answer 20

Qd > Qs

Question 21

Explain what is meant by the minimum wage?

Answer 21

Minimum wages dictate the lowest price possible for then employers to pay their employees.

Question 22

What is tax incidence

Answer 22

Tax incidence is the manner in which the burden of a tax is
shared among participants in a market

Question 23

Diatinguish the differences between the different types of taxes

Answer 23

The gross price, pG, is the price paid by buyers
* The net price, pN is the price received by sellers
* With no tax, pG = pN (=p)
* With a tax t, pG = pN +t

Question 24

What Is the calculation for tax revenue

Answer 24

Tax revenue is unit tax x quantity

Question 25

What is meant by welfare economics

Answer 25

Welfare economics is the study of how the allocation of resources affects economic well-being.

Question 26

What is meant by consumer surplus

Answer 26

Consumer surplus is the buyer’s willingness to pay for a good minus the amount the buyer actually pays for it

Question 27

What is the calculation for producer surplus?

Answer 27

Amount received by sellers - cost to sellers

Question 28

What is meant by efficiency

Answer 28

Efficiency is the property of a resource allocation of maximizing the total surplus received by all members of society (i.e., the total gains from trade)

Question 29

What are examples of some inefficiencies caused by gov policy

Answer 29

Traded quantity can be less than efficient quantity for a number of reasons: * Binding price cap * Binding price floor * Tax

Question 30

What are some examples ofd sources of Market Failure

Answer 30

Externalities Public goods asymmetric info missing markets

Question 30

What is meant by an externality

Answer 30

An externality refers to the direct impact (that is, not associated with a price change) of one person’s actions on the well-being of a bystander

Question 31

What are the two types of externalitys

Answer 31

Positive and negative

Question 32

What are some examples of Negative Externalities

Answer 32

Traffic congestion * Cigarette smoking * Air pollution * Loud stereos in an apartment building

Question 33

Whats are some examples of positive externalities

Answer 33

* Immunizations * Network externalities * Basic research * Education

Question 34

What is meant by the coarse theorm

Answer 34

The Coase Theorem is a proposition that if private parties can bargain without (transactions) cost over the allocation of resources, they can solve the problem of externalities on their own.