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Microeconomics

ECON 2113 Exam 2

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Microeconomics

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64 Terms

1
The buyers' willingness to pay can be represented through...
The demand curve
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2
The sellers' costs of producing a good can be represented through..
The supply curve
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3
The consumer surplus benefits the...
Buyer
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4
The producer surplus benefits the...
Seller
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5
What is the total surplus?
The sum of consumer and producer surplus, the total benefit in society/economy
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6
What is welfare economics?
The study of how the allocation of resources affects economic well-being
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7
What is willingness to pay?
Maximum amount that a buyer will pay for a good
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8
How is consumer surplus calculated?
A buyer's willingness to pay minus the price the buyer actually pays
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9
The price on the demand curve represents...
The willingness to pay of the marginal buyer
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10
On the demand curve, the consumer surplus is...
The area below the demand curve and above the price
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11
When the price falls, the consumer surplus...
Increases
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12
What is cost?
The value of everything a seller must give up to produce a good
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13
How is producer surplus calculated?
The amount a seller is paid for a good minus the seller's cost
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14
The price on the supply curve represents...
The willingness to supply by the marginal seller
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15
How is producer surplus represented on the supply curve?
The area above the supply curve and below the price
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16
When price rises, the producer surplus...
Increases
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17
Total surplus is...
The value to buyers + cost to sellers
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18
What is efficiency?
Allocation that maximizes total surplus
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19
What is equity?
Fair distribution of well-being in society
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20
At the market equilibrium price, buyers...
Who value the product more purchase it
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21
A free market allocates goods to buyers with...
The highest willingness to pay
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22
At the market equilibrium price, sellers...
With the lowest costs produce the product
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23
How does a free market affect sellers?
Makes the most efficient sellers to produce
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24
T/F: Total surplus is minimized at the market equilibrium
False. It is maximized at the market equilibrium
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25

If the amount produced is smaller than the equilibrium quantity...

  1. The value of the product to buyers is __________ than the cost to sellers

  2. Total surplus would rise if output ____________

  1. The value of the product to buyers is greater than the cost to sellers

  2. Total surplus would rise if output increases

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26

If the amount produced is larger than the equilibrium quantity...

  1. The value of the product to buyers is __________ than the cost to sellers

  2. Total surplus would rise if output __________

  1. The value of the product to buyers is less than the cost to sellers

  2. Total surplus would rise if output decreases

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27
Markets are efficient when
There are perfectly competitive markets and no externalities
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28
T/F Market equilibrium may not be efficient if perfectly competitive markets and no externalities exist
True
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29
T/F: If there is market failure public policy will not remedy it
False, it can potentially remedy it
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30
Inefficiency means...
Market outcome with less than maximum total surplus, leads to deadweight loss
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31
Examples of public policy are...
Taxes, subsidies, quotas, price ceilings, price floor
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32
What are some effects of market failure?
Underproduction and overproduction
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33
What is underproduction?
Less is traded than determined by the market equilibrium
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34
What is overproduction?
More is traded than determined by the market equilibrium
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35
When the quantity traded is different from the efficient levels, there is...
Deadweight loss
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36
What is deadweight loss?
A decrease in both consumer surplus and producer surplus due to inefficient level of production
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37
If a buyer has to pay a certain dollar for each unit of a good purchased...
It causes a decrease in demand
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38
T/F: The demand curve shifts down by the amount of the tax levied
True
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39
T/F: Taxes encourage market activity
False, they discourage it
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40
T/F: Both buyers and sellers share the burden of taxes
True
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41
What is tax incidence?
How the burden of a tax is shared
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42
How do higher prices due to taxes affect the consumer surplus?
The consumer surplus must go down
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43
How do sellers experiencing lower prices affect the producer surplus?
The producer surplus must go down
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44
T/F: Since buyers send taxes to the government, only the buyer pays for the tax
False, BOTH buyers and sellers pay for tax
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45
T/F: Due to taxes, the buyer has to pay more, and the seller receives less
True
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46
If taxes are added to the supplier, the supply shifts \____________ by \____________
The supply shifts up by the amount of the tax
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47
T/F: Regardless of who pays the tax to the government, the burden to buyers and sellers is the same
True
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48
T/F: The burden of tax is always shared equally, even in inelastic/elastic markets
False, it can depend if the supply is elastic and the demand inelastic, or vice versa
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49
Elastic supply/demand is represented by... (flat/steep curve)
Flat curve
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50
Inelastic supply/demand is represented by... (flat/steep curve)
Steep curve
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51
With elastic supply and inelastic demand, who pays more?
The buyers
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52
With inelastic supply and elastic demand, who pays more?
The sellers
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53
In general, the less elastic side of the market pays \___________
More
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54
How is the tax wedge calculated?
How is the tax wedge calculated?
The buyer's price minus the the seller's price
T \= Pb - Ps
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55
How is tax revenue calculated?
How is tax revenue calculated?
Tax revenue \= T * Q
T \= height of the tax wedge
Q \= quantity sold under the tax
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56
What is A and F on the graph?
What is A and F on the graph?
A \= Consumer surplus after tax
F \= Producer surplus after tax
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57
What does the area of A, B, C and D, E, F refer to?
What does the area of A, B, C and D, E, F refer to?
A, B, C \= consumer surplus before tax
D, E, F \= producer surplus before tax
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58
Total surplus (on the welfare analysis graph) is equal to
Total surplus (on the welfare analysis graph) is equal to
(A + B + C) + (D + E + F)
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59
Consumer surplus (on the welfare analysis graph) changes by \____________ after tax
Consumer surplus (on the welfare analysis graph) changes by \____________ after tax
\- B - C
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60
Producer surplus (on the welfare analysis graph) changes by \_____________ after tax
Producer surplus (on the welfare analysis graph) changes by \_____________ after tax
\- D - E
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61
Tax revenue (on the welfare analysis graph) changes by \____________ after tax
Tax revenue (on the welfare analysis graph) changes by \____________ after tax
\+ B + D
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62
Total surplus changes by \_____________ after tax
Total surplus changes by \_____________ after tax
\- C - E
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63
C + E represents....
C + E represents....
Deadweight loss
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64
Deadweight loss (in relation to taxes) refers to...
The fall in total surplus that results from a market distortion, such as a tax
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