Test 2

Question 1

Price floor

Answer 1

The legal minimum
Minimum wage

Question 2

Price ceiling

Answer 2

Legal maximum price
Rent control

Question 3

High min wage to leads to

Answer 3

Unemployment and surplus

Question 4

When there is a shortage, sellers ration, this leads to

Answer 4

Unfair and inefficient distribution

Question 5

Binding is

Answer 5

If price ceiling is less than eq’m and has shortage

If price floor is above eq’m has surplus

Question 6

Steps to determine effects of any event:

Answer 6

(1) decide if its supply or demand curve
(2) decide which direction curve shifts
(3) use supply demand diagrams to see how the shift changes eq’m and quantity and price

Question 7

Tax always shifts curve

Answer 7

curve to the left

Question 8

Equation for per unit tax

Answer 8

Price customers pay - price producers receive

Question 9

Welfare economics

Answer 9

Study of how the allocation of resources effects economic well-being

Question 10

The demand curve derives from

Answer 10

The willingness to pay or the possible buyers

Question 11

A lower price raises

Answer 11

consumer surplus

Question 12

Consumer surplus equation =

Answer 12

Willingness to pay - price paid

This measures benefit to buyers

Question 13

Willingness to pay affects the

Answer 13

Demand curve

Question 14

The first person to leave in a market is called

Answer 14

The marginal buyer

Question 15

Producer surplus =

Answer 15

Price received - willingness to sell

Question 16

Total surplus = ✌️

Answer 16

Consumer surplus + producer surplus +tax(if provided)

Question 17

Negative externality:

Answer 17

“Internalize the externality “ by taxing goods
Market quantity larger than socially desirable

Air pollution

Question 18

Positive externality:

Answer 18

“Internalize the externality” by subsidizing goods
Market quantity smaller than socially desirable

When production of something benefits third parties, a farmer and a bee keeper, the bee keeper is pollinating the farmers crops without his meaning to

Question 19

Social value=

Answer 19

Private value+ external benefit

Question 20

Command-and-control policies (70s - early 90s)

Answer 20

Regulate behavior directly, limit pollution, require businesses to have reduce emissions technology

Ms girl uses 10 gal of gas and mr poop uses 20, the government requires 3% change

Isn’t equal

Question 21

Market-based policies (mid 90s - now)

Answer 21

Incentives allow private decision making
- corrective taxes and subsidies (price mechanism)
- tradable pollution permits (quantity mechanism)

Question 22

Corrective tax

Answer 22

Tax designed to induce private decision making to account for social costs that arise from a negative externality
-Better for environment
- reduce pollution themselves w/o taxes

Question 23

Tradable pollution permits

Answer 23

System reduces pollution at lower cost then regulation

Question 24

Transactional costs

Answer 24

Costs companies must make, communication, legally binding agreements

Question 25

Excludability

Answer 25

A good is excludable if a person can be prevented from using it Fish from a private pond vs fish in the ocean

Question 26

Rivalry

Answer 26

Consumption of a good is rival in consumption to someone else Congested roads

Question 27

Private goods

Answer 27

Rival, excludable Bathroom fixtures in your house, wheat

Question 28

Club goods

Answer 28

nonrival, excludable Wifi, computer software Minecraft

Question 29

Common resource

Answer 29

Rival, non-excludable Biodiversity, water

Question 30

Public goods

Answer 30

Non-excludable, nonrival Public sanitation, national defense

Question 31

Public goods and common resources

Answer 31

Externalities arise because of something of value has no price attached Big stink of 1858

Question 32

Free rider

Answer 32

Person receives benefit of a good but avoids paying it People have incentives to be free riders

Question 33

Cost of provision

Answer 33

Govt should provide it (provision) and pay with tax on people who benefit - hard to measure benefit

Question 34

Common resources and the "tragedy of the commons"

Answer 34

Can't prevent free-rider, little incentive to provide Each persons use of a good reduces others ability to use

Question 35

Average tax rate =

Answer 35

Tax liability / income

Question 36

Deadweight loss define

Answer 36

The fall in taxpayers well being exceeds the revenue the government collects

Question 37

Area of rectangle

Answer 37

L x W Tax revenue

Question 38

Area of a triangle

Answer 38

1/2 b x h Consumer surplus, producer surplus, deadweight loss

Question 39

Average tax rate:

Answer 39

Total taxes paid/ total income

Question 40

Lump- sum tax

Answer 40

Same for everyone, regardless of income Most efficient, doesn't distort incentives, no DWL but not equitable

Question 41

Benefit principle

Answer 41

Pay taxes on benefits received from government services, more you use move you pay

Question 42

Ability to pay principle

Answer 42

Taxes levied on person according to how well they can handle the burden

Question 43

Vertical equity:

Answer 43

tax payers with a greater ability to pay taxes should pay larger $

Question 44

Proportional tax

Answer 44

Taxpayers pay the same regardless of income

Question 45

Regressive tax

Answer 45

High-income tax payers pay a smaller fraction of their income than low-income tax payers

Question 46

Progressive tax

Answer 46

High-income taxpayers pay a larger fraction of their income than low-income taxpayers

Question 47

Horizontal equity

Answer 47

Taxpayers with similar abilities to pay taxes should pay the same amount

Question 48

Corporate tax

Answer 48

The corporate burden lands on the people

Question 49

The efficiency of a tax system refers to

Answer 49

The cost it imposes on taxpayers