economics 6,7,8,10

Price ceilings create_if they are set_the equilibrium price

Shortages, below

Examples of price ceilings

Rent control, price controls on prescription drugs

Price floors create_if they are set_the equilibrium price

Surpluses, above

Price floor examples

A minimum unit price on alcohol, an agricultural price support

A binding price floor leads to a…

Surplus

A binding price floor is

Always above the equilibrium price

Comparative advantage

The ability to produce a good or service at a lower opportunity cost than another

Comparative advantage example

When trading with more developed countries: less developed countries have a comparative advantage in the production of some goods or services

Knowledge problem

Manage scheduled 6 LPNs but only 3 are needed

Internal market

Nurse example: allows other departments to bid on additional workers as needed throughout work day

Price share is 0.30 the employees collectively believe there is a _%chance of releasing the game on time

30%

Opportunity cost

U could write an essay (15 minutes) but it costs you ½ of a graphing question. Opportunity cost would be .5 of the graphing question

A person has a comparative advantage if they:

Have the lowest opportunity cost of producing a particular good compared with another person.

Benefits of a company using internal markets

Better allocation of its resources and more accurate predictions

Why would a company set up internal markets

Solve a knowledge problem

Internal markets are

Markets managers set up within they organizations are: set up to allocate resources of a company more efficiently not often using real money

A prediction market is where

Payoffs are linked to whether an uncertain event occurs

When resources are organized according to the principle of comparative advantage, producers become:

More specialized so they can trade and end up with more of everything

Comparative advantage advice

Focus on what u are relatively good at doing even if u arent the best at it

Positive externality is an activity

Whose side effects benefit bystanders

Negative externalities example

The risk to nonsmokers of second hand smoke

A market with negative externalities will tend to _ compared to a market producing socially optimal output

Overproduce and sell at a lower price

Marginal external costs of pollution are:

Additional negative effects imposed on others due to one more unit pollution

Corrective tax

Bare minimum

Example: social norms

Bare minimum is picking up after dog and throwing away trash

Corrective subsidy

Above and beyond

Example: social norms

Holding doors open and donating blood

The coase theorem

Parties in a dispute negotiate to reach an efficient outcome

Example paying off neighbors because your Christmas light show causes them to listen to noise and deal with heavy traffic

With a negative externality there is . In order to reduce quantity a _can be used

Overproduction, tax

With a positive externality there is in order to increase quantity a_ can be used

Underproduction, subsidy

Positive economics

Describing what is happening or predicting what will happen

Positive economics example

Sales tax on cigarettes reduces the amount of cigarettes sold in a year

Tariffs on imports increase the prices cabadians pay for foreign made goods

Normative economics

What SHOULD occur and involves value judgments

Normative economics examples

Medicine is a necessary expense, and therefore should be provided for by the government

Sales tax should be higher on restaurant meals than on groceries because eating out is a luxury

Economic surplus is maximized

When the forces of supply and demand lead to an inefficient outcome

Efficient

A market in which economic surplus is maximized

Inefficient

A market dominated by a few powerful businesses

A market transaction in which one party has information not available to the other party

A market transaction in which buyers or sellers behave irrationally

A market in which government regulation creates distortions

Producer surplus

The difference between the market price and the minimum price a seller is willing to accept

Producer surplus is show graphically as

The area above the supply curve and below the market price

Consumer surplus is equal to the difference between

The maximum price a buyer is willing to pay and the market price

Consumer surplus is shown graphically as the

Under the demand and above the market price

Markets achieve an efficient allocation of resources when:

The quantity demanded equals the quantity supplied

If a resources are allocated efficiently

Consumer and producer surplus are maximized