"The Upside Down"
A minimum price on a good set by government is referred to as a price ___________.
Floor
What is the law of supply? Explain using Price and Quantity.
As the price of a good rises, the quantity supplied of a good rises (or as the price of a good falls, the quantity supplied falls)
It cost's Jan $2.50 to produce a pepperoni pizza and she sells them at $9.75. What is her producer surplus?
$7.25
What unit do economists measure "satisfaction" in?
Utils
Good A and B have a cross price elasticity of -.5 because they are _____________.
Complements
In a market where the equilibrium price is $5, the government sets a price ceiling of $7, what is the impact?
There is no impact, it is a non-binding ceiling.
What is likely to happen to the price and quantity in the market for Coors Beer if Budweiser Beer increases its prices.
Coors beer will experience an increase in demand, thereby resulting in an increase in price and quantity of Coors Beer
What is the economic term for how the burden of a tax is divided between buyers and sellers?
Tax Incidence.
If the price of a product falls, that product becomes cheaper and people will want to purchase more of it in place of other goods. Economists refer to this impact as the ___________ _____________
Substitution Effect
Maggie's Income Elasticity for Doodads is 1.3. When she gets a 5% raise, what happens to her purchases of Doodads? (Give a percentage and direction of change)
6.5% increase
A product has elastic demand. If the firm's goal is to increase its revenues, what should it do to the price of the product?
Lower Price
What impact will a decrease in the price of irrigation equipment have on the equilibrium price and quantity in the market for corn?
Price will decrease and quantity will increase.
The loss of total surplus that results from a tax is referred to as:
Deadweight Loss
Sherry is buying zots and dots. The MU or the last zot she bought (ha) was 16 utils. The MU of the last dot she bought (ha) was 15 utils. The price of zots is $2 and the price of dots is $3. What should she do regarding her purchases?
Increase purchases of zots because they are giving her 8 utils per dollar, which is better than 5 utils per dollar.
Match the elasticity of demand to the timeframe for tomatoes: 1.9 and .4
1 week and 10 weeks
.4 goes with 1 week and 1.9 goes with 10 weeks; elasticity increases over time
In a given market supply is very inelastic and demand is relatively elastic. The government decides to implement a $10 excise tax. Will the tax incidence to sellers be MORE or LESS than $5? Explain.
MORE than $5. More of the tax burden will be borne by sellers, so more than half will be absorbed by sellers.
There is an Acrostic Mnemonic device for supply and demand shifters. Name EACH word in the ACROSTIC for both supply and demand.
TRIBE = Tastes, Related Goods, Income, # Buyers, Expectations of Price and ROTTEN = Resource Costs, Opportunity Costs, Tax/Subsidy/Reg, Technology, Expectations of Price, Number of Sellers
If government wishes to create the LEAST amount of DWL with a tax, which kind of market should they tax (in terms of market elasticity)?
Explain the two effects that impact how utility is maximized.
Income and Substitution Effect.
At a price of $16 4000 units are demanded. While at a price of $20 2000 units are demanded. Use midpoint to calculate the elasticity of demand. What does the value mean?
3.0 ELASTIC
2000/3000 // 4/18
Describe at last 5 impacts that a tax in a market has. (Assume neither side is perfectly inelastic or perfectly elastic)
Reduces market quantity
Increases price to buyer
Lowers Price to seller
Reduces Consumer Surplus
Reduces Producer Surplus
Raises Revenue for Government
Creates Deadweight Loss
Explain what will happen to equilibrium price and quantity if there is a supply decrease and a demand increase.
Price will increase and quantity will be ambiguous.
At what price and quantity is allocative efficiency maximized? (Assume no externalities)
At the market equilibrium price and quantity.
The MUa is: 1 unit = 16, 2 units = 14, 3 units = 12 The MUb = 1 unit = 12 utils, 2 units = 10 utils, 3 units = 8 utils. A's price is $4 and b's price is $2. What is the utility maximizing combination with a $10 budget?
1 unit of A and 3 units of B
S.P.L.A.T. is an acrostic mnemonic device for naming the determinants of elasticity. Name them.
Substitutes, Portion of Income, Luxury or Necessity, Addictiveness, Time