Microeconomics test two

Product market

where final goods and services are offered to consumers.

resource market

where services of the factors of production are offered.

diagram for product and resource markets

black market

an illegal trading market where goods and services are exchanged without government regulations or oversight.

tax rates

the percentage at which an individual or corporation is taxed based on their income or profits.

different types of tax rates

regressive, flat, progressive

regressive tax rates

income increases as tax rate decreases

flat tax rate

same rate paid

progressive tax rate

income increases as tax rate increases

laffer curve

illustrates the relationship between tax rates and tax revenues.

lower tax rates = more revenue

subsidies

government tries to help consumers buy stuff to lower price of good.

ex. give 4k to students for college to lower cost of tuition.

economic efficiency

benefits are greater than cost

role of government

-protect private property

-provide goods and services

what did the Sherman Anti-Trust act do?

eliminated competition, restrain trade illegal

ex. live nation

what did clayton act do?

tripled strength of Sherman act

externalities

exist when market fails to register fully costs and benefits.

external costs (negative)

present when the actions of individuals, group, or firms harm the property of others without their consent.

ex. negative pollution

external benefits (positive)

people get benefits they didn’t pay for.

ex. disneyland vs. disney world

size of government

increased over years

medicare- government spends most on

transfer payment

income from one person to another

ex. soc security - large transfer

paying for retirement for old people through taxes

user fee

direct charge imposed by government on individuals who use a specific public service or facility.

if you use it, you pay for it

ex.toll road, national park entrance, country club

rational ignorance effect

recognizing their vote is unlikely to be decisive. People don’t spend enough time looking up candidates when voting.

special interests

want everyone to pay for something that not everyone uses

ex. pork barrel

crony capitalism

where the allocate of resources is determined by political favors rather than through the market profit and system.

form of rent seeking

pork barrel

putting unrelated items into one bill so it will be passed.

log rolling

trade votes to get stuff passed

shortsightedness effect

get benefits now, push payments off till later

ex. college loans

rent seeking

act of gaining wealth by manipulating social or political environments rather than by creating new wealth through production or innovation.

utlility

happiness

marginal utility

extra satisfaction or happiness you get from consuming one more unity of a good or service.

(triangle) total utility / (triangle) quantity

diminishing marginal utility

first good but next not as good

ex. strawberries. first bite best, others following not as good.

consumer equilibrium

happiness we get from price

elasticity

responsiveness of consumers to a change in price

inelastic

E < 1

not responsive

elastic

E > 1

unit elastic

E = 1

total revenue

TR = P x Q

price sold times quantity sold

what is the goal of pricing decisions

increase TR (total revenue)

if E< 1 then P increase

if E> 1 then P decrease

things that effect elasticity

1) number of substitutes

more sub = more elastic

2) % of budget

higher price = more elastic

3) time

more time = more elastic

normal good (+)

price (Y) increases then demand (D) increase

inferior good (-)

price (Y) increases then demand (D) decreases

income eleasticity

Responsiveness of consumers to a change in income