Cost/ Benefit Analysis
In economics, we use this word to indicate the next one, or additional, or incremental
What is "marginal"
The government gets most of its revenue from this type of tax
Income tax
Above the supply curve and below the P*
What is Producer Surplus
If a business can sell 20,000 units of a product at $2 per-unit and 10,000 units at $4 per unit, the product demand is considered
Unit- elastic
When you are consuming a good and the marginal benefit exceeds the marginal cost.. you should do what?
Continue consuming the good
The demand for such products as salt, milk, and electricity tends to be
What is Inelastic
A tax that rises less than in proportion to income, so that high-income taxpayers pay a smaller percentage of their income than low-income taxpayers, is a _____________________. Give an example
Regressive Tax. Sales tax in theory.
Both decrease (shift the supply curve left)
If disposable incomes rise by 5% and the income elasticity of demand is known to be 0.5, what % change in demand would we expect to see?
2.5%
This is when you should stop consuming a good
When the Marginal Benefit= the Marginal Cost
MB= MC
A perfectly elastic demand curve has an elasticity coefficient of
Infinity
Give an example of "Vertical Equity" in taxation that the US government uses
Progressive income tax
A rise in the price of butter from $3 to $5 per kilogram causes the quantity demanded of margarine to increase from 100 000 to 200 000 kilograms. The numerical value of the cross-price elasticity between these two goods is therefore:
What is 1.33
This is the formula for the utility maximizing rule for two different goods and two different prices
MuX/ Px = MuY/ Py
What is the equation used to find the cross price elasticity of two products? What does this tell you?
% change Qx / % change Py
Bonus Daily Double- this was a graph that shows that there is a maximum tax rate to maximize tax revenue. Famously drawn by Arthur Laffer on a napkin during dinner with Republican leaders in the 1970's.
The Laffer Curve
This is created whenever the government puts an excise tax on something
"Deadweight Loss" in total surplus
Suppose a firm sells 70 units when the price is $6, but sells 80 units when the price falls to $4. Is the demand curve for the product, elastic, inelastic, or unit elastic, and how do you know?
Inelastic. You decreased the price and saw Q go up, but total revenue went down (from 420-320).
Daily Double! This is the father of marginal analysis, also known for turning himself into an "auto-icon" for the ages.
Jeremy Bentham
Perfectly inelastic goods have an elasticity of demand coefficient of _____
0
The tax incidence (who pays the tax) depends on the ______________ of the good that it is placed on.
Elasticity
A binding price floor benefits this individual's surplus
What is Producer Surplus
If Neil's elasticity of demand for hot dogs is constantly 0.9, and he buys 4 hot dogs when the price is $1.50 per hot dog, how many will he buy when the price is lowered to $1.00 per hot dog?
Round to the nearest dog
5.2 or 5 dogs