Supply and Demand
Welfare Analysis
Firm Decision Making
Thinking On The Margin
Misc.
100
This phenomenon dictates what happens from a consumer perspective in response to market changes.
What is the Law of Demand?
100
What are two assumptions needed for perfectly competitive markets?
What are buyers and sellers have perfect information, markets are perfectly competitive, there are no externalities (demand curve considers all benefits and supply curve considers all costs.
100
What is the short run shut down condition?
What is P < AVC?
100
What makes something marginal?
What is the next/final action or decision?
100
Suppose that Eleanor loves beef and hates seafood. In addition, suppose that the marginal utility of beef is decreasing and that the marginal disutility of seafood is increasing. Sketch a few of Eleanor’s indifference curves.
200
T/F: In a perfectly competitive market, if a storm takes out the population of dairy producing cows, demand for milk will increase.
What is false? Quantity demanded will increase.
200
In a perfectly competitive market, producing at this point maximizes social surplus for any one country.
What is the equilibrium point?
200
If firms are joining a market, this condition must be true.
What are positive profits?
200
When will a firm or a market reach equilibrium?
What is when MB = MC?
200
A fifteen percent increase in the price of econ tutors leads to a five percent decrease in the quantity demanded. The price elasticity of demand for econ tutors is _____.
What is ⅓?
300
The cross price elasticity of demand for pokemon cards and walking shoes is positive. This indicates that these goods have this type of relationship.
What is a substitution relationship?
300
Assume that the world trade price is higher than the equilibrium price in a country. If the country is open, total surplus will ______ even though ______ surplus will ______.
What is increase, consumer surplus, decrease?
300
T/F: Positive accounting profits encourage firms to join the market.
What is false? Positive economic profits encourage firms to join a market.
300
Surplus for a trade at this quantity is negative.
What is any quantity beyond the equilibrium quantity?
300
Your marginal utility for a coffee from MOMs is 12 and the price is $5, and your marginal utility for a coffee from Art of Espresso is 15 and the price is $6. Should you reallocate your spending? How?
What is yes, reallocate your spending? MU/P => 12/5 = 2.4 and 15/4 = 3.75, so you should spend less on MOMs and more on AoE.
400
What are the formulas for two different elasticities?
What is: Ed = % change in Q / % change in P, Id = % change in Q / % change in I, CPd = % change in Q1 / % change in P2
400
Assume that the world trade price is $4. Calculate the change in total surplus if the country whose PPC is given becomes open.
What is $8?
400
Assume that all firms in this market have identical cost curves and that the market is perfectly competitive. Explain which curve S represents the equilibrium curve and why.
What is S2 represents the equilibrium curve because either firms will enter the market to increase supply (S1) and drive down price or firms will exit the market to decrease supply (S3) until MC = ATC = P.
400
Suppose the market for Minecraft redstone tutorials is almost at equilibrium. For some reason, one less video gets made than a perfectly competitive market would predict. As a result, surplus at this quantity is (greater than/less than/equal to) total surplus at equilibrium because marginal ______ is (greater than/less than/equal to) marginal ______.
What is surplus is less than, marginal benefit is greater than marginal cost?
400
Suppose the following curve shows the annual PPC for a small country that is open to trade. The world price of cashews is $15/lb and the world price of mangos is $3/lb. If the country only wanted to consume cashews, what quantity would it import?
What is 4,200lbs?
500
The government is thinking about taxing the following markets. Suppose it wants to maximize its potential revenue and assume a similar quantity is traded of each good. If it chose to tax only one market, which market should it choose? Additionally, which group would bear more of the burden of the tax? Markets: cheese, gasoline, christmas trees, bike frames
Of the goods given, gasoline is likely to have the least elastic curve – demand, suggesting the burden would fall mostly on consumers (answers vary)
500
Assume the given market is for pink ponies and the world trade price is $2. If the country is open and the government imposes a $2 tariff per pony, what is the value of the deadweight loss?
What is $4?
500
If a firm decides to increase output from six to seven units, total cost will change by this much.
What is $119.78?
500
Explain why government intervention in perfectly competitive markets causes inefficiencies (assume no externalities) using the marginal principle.
What is any government intervention in perfectly competitive markets prevents socially beneficial trades where MB > MC?
500
In the following table, a firm’s economic profit at an output of 15 units is zero and its implicit costs are $6. Calculate the accounting profit.
What is $6? EP = TR - EC - IC = 0, IC = 6 => EC = $69. AP = TR - EC = 75 - 69 = $6.