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Flashcards in Test 2 Deck (67):
1

Price Ceiling

a legal maximum on the price at which a good can be sold, like rent conttrol

2

price floor

a legal miinimum on th eprice at which a good can be sold

3

tax incidence

Manner in which the burden of a tax is shared among participants in a market

4

welfare economics

the study of how the allocation of resources affects the economic well-being

5

willingness to pay

maximum amount that a buyer will pay for a good; how much the buyer values the good

6

consumer surplus

willingness to pay-price paid measure of benefit from market participation
Steps down to the right, area between price and willing

7

producer surplus

amount seller paid minus cost to provide
steps up to the left: area between amount paid and curve

8

efficiency

property of a resource allocation - maximizing total surplus received by all members of society

9

equity

property of distributing economic prosperity uniformly among the members of society

10

total revenue

TR=P*Q
amount received for sale, price times quantity

11

profit

Total revenue minus total cost

12

total cost

market value of the inputs a firm uses in production
explicit +implicit costs

13

explicit costs

input costs that require and outlay of money by the firm

14

implicit costs

input costs that do not require an outlay of money by the firm like opportunity cost
ignored by accountants

15

economic profit

total revenue minus total costs; explicit and implicit

16

accounting profit

total revenue minus explicit cost
usually larger than economic profit (cuz less cost)

17

production function

relationship between Q of inputs and outputs
gets flatter as production rises
increases at a decreasing rate

18

marginal product

increase in output that arises from an additional unit of input
the slope of the production function

19

diminishing marginal product

law of diminishing returns
every new input increases output less than last input

20

total cost curve

relationship btwn q and tc
increases at an increasing rate
making more costs more and more

21

fixed costs

do not vary with quatnity of output

22

variable costs

do vary with q of output

23

total costs

FC + VC

24

average fixed costs

FC/Q

25

average variable costs

VC/Q

26

average total costs

TC/Q or AVC+AVF

27

marginal cost

dTC/dQ
increase in total cost arising from an extra unit of product
slope

28

efficient scale

quanity of output that minimized ATC

29

economies of scale

long run average total costs falls as teh quantity of outupt increases
increasing specializaitno among workers

30

constant returns to scale

long-run average total cost stays the same as the quantity of output changes

31

diseconomies of scale

long-run averagtotal cost rises as the q output increases
increasing coordination problem

32

cost

value of everything a seller must give up to produce a good; measure of willingness to sell

33

when are price ceilings binding

when set below the equilibrium price

34

what is the impact of a price ceiling

causes a shortage

35

what rationing mechanisms can be used or occur under a binding price celiing

long lines and discrimination according to sellers bias

36

opec example

opec raised price by making gas shortage
US regulates with price ceiling cause shortage and long lines

37

why use rent control

to make affordable for poor
inneficient

38

short vs long run rent control

short: small shortage, reduced rent
long: large shortage, cuz no new ones and increased demand

39

adverse impacts of rent control

long waiting lists
preference to tenants w/out children
racism
bribes
quality decline

40

when are price floors binding

set above the equilibrium price causes surplus

41

what impact does a price floor have on a market

surplus

42

impacts of minimum wage

if above equilibrium causes unemployment
not binding and no effect on skilled workers

43

do economists support or oppose price control

oppose

44

alternatives to price control

rent and wage subsidies like an earned income tax credit

45

tax incidence curves importanance and buyer v seller

on sellers: supply curve left so both bear burden, increased price for buyers
on buyers: demand curve left so smaller market, hurts seller more
both cases bad for everyone

46

as price declines what happens to consumer surplus

CS= WtP-P
as price lowers CS raises

47

what is the gain to existing and new customers and total gain when price lowers

existing: already buying, now pay less
new ones enter
total gain is new plus initial

48

price rises impact on producer surplus?

higher price raises producer surplus

49

gain to initial producers, new and total gain?

initial - get more money for what already making
new - more people enter market
total is new plus initial

50

why are free markets best?

concepts of consumer and producer surplus work together to guide through self interest to most efficient

51

what is the goal of a firm

to maximize profit

52

how do you calculate profit

Profit, pi = TR- TC

53

difference between explicit and implicit costs

explicit is actual input costs
implicit is is like opportunity cost

54

why explicit and implict means economic vs accounting profit

economic has both
accountatns jsut loook at explicit

55

Understand AFC AVC ATC MC

Average fixed cost - FC/Q U
average variable cost - VC/Q UP
Average total costs - TC/Q or AFC+AVC DOWN
Marginal costs dTC/dQ UP

56

fixed vs variable costs

fixed is the same in short run and variable is always changing

57

relationship of MC and ATC

MC crosses ATC at minimum

58

cost differences in short and long run

long run curves are flatter
short is on or above

59

Jan 2018 nonfarm payroll increase

200k, 250 is optimal

60

jan 2018 unemployment rate

stil 4.1%

61

jan 2018 labor force participation

62.7 but 65 is nicer

62

Wage growth?

2.9% which is good

63

how much fed spending increased?

265 billion

64

overall price rise

2.1%

65

US existing home sales down

3.2%

66

median sales price up

by 5.8%

67

new home sales down

7.8%