Econ 101 Exam 2 Study Guide by Bender

The presents of this indicates the economy is not operating efficiently.

deadweight loss

Name 4 factors that could cause a market to fail

externalities, taxes, binding price ceilings/floors, public goods, or common pool resources

Producer surplus is the difference between these two things.

market price and marginal cost (or supply)

If a tax is enacted on a market, the government revenue will be composed on surplus that originally belonged to this group.

both consumers and producers?

Cutting a tax has this effect on the price for consumers and producers.

a decrease for consumers and increase for producers

Suppose UD hopes to raise more revenue by increasing student housing fees. This will only occur if this is the relationship between the percent change in price and quantity demanded

the percent change in price is larger in magnitude than the percent decline in quantity demanded

You manage a convenience store. The income elasticity of demand for M&Ms is -0.5. Some companies in your area close so you expect local incomes to decrease by 10% on average. As a result, this is how you should adjust your stock of M&Ms

increase 5%

The price of eggs rises from $3.00 to $4.70, and in response, quantity supplied increases from 100,000 to 127,000. This is the price elasticity of supply

0.48

: If consumers bear the greater burden from a tax, then the demand curve must be more _______ than the supply curve.

inelastic

You produce laminate flooring. If the price of vinyl plank flooring decreases by 20%, people buy 36% less laminate plank flooring. The cross-price elasticity is ____ and the two goods are ________.

1.8 and substitutes

This type of system employs saleable licenses that permit bearers to emit limited quantity of pollutants.

cap and trade system

A nonbinding price ceiling will lead to this effect on the market price.

no effect

A binding price ceiling will cause this to exist in the market.

shortage

Placing a tax on consumers is more detrimental to consumer surplus than if the tax were placed on producers. (true/false/depends)

false

This type of tax is associated with zero deadweight loss.

corrective tax

The market fails when these costs (or benefits) do not equal each other

private and social.

A free market with a positive externality will (over/under)produce the good.

underproduce

These two requirement must hold in order for Coasian bargaining to work, resulting in a solution to the externality problem.

low bargaining costs and assigned property rights

Common pool resources suffer from the _________ problem while public goods suffer from _________ the problem

tragedy of the commons and free rider

Name 4 solutions for correcting markets with externalities

private bargaining, corrective taxes/subsidies, cap and trade, laws/rules/regulations, assign property rights, and community management

If one person's consumption of a good affects another person's consumption of the good, the good is this.

rival

: A private good has these two characteristics

rival and excludable

This person studied community-based solutions to common pool resource management (and was the first woman to win the Nobel Prize in Economics).

Elinor Ostrom

Tragedy of the commons results from this difference in costs and benefits

private benefits but shared costs

This characteristic of goods causes the free-rider problem and tragedy of the commons

excludability

This is who supplies labor in the labor market.

households

Better management increases worker productivity in the labor market for factory production line managers. This will be the effect on equilibirum wage and hours of employment.

an increase in wage and an increase in hours of employment

Your landscaping company uses labor and shovels. If the price of shovels falls, your demand for labor will do this.

increase

A downward sloping individual labor supply curve indicates the domination of this effect.

income effect

You own a tutoring company. The town you live in suddenly enacts a law that requires all tutors to get certified through an expensive program. This will be the effect on the marginal revenue product of each tutor you demand in the market for tutors.

increase the MRP