Economics Quiz #2

And dont F*ck it up!

What are Labor Markets?

Job seekers are the suppliers of labor

firms are the demanders of labor

What are wages and salaries?

money paid for work or a service

What is the Law of Supply in the Labor Market for Workers?

high price for labor = a high quantity of labor

low price for labor = a low quantity of labor

Example: Exploratory pays poorly, not many people work there

What is the Law of Demand in the Labor Market for Business?

Higher salary in the labor market decreases the quantity of labor demanded by employers.

A lower salary or wage increase in the quantity of labor demanded

(Employers want to pay workers less)

What are PRICE FLOORS in the Labor Market give example

A price floor makes it illegal for an employer to pay employees less than a certain hourly rate.

Example: Paying minimum wage

What is the Difference between a Minimum Wage and Living wage?

Minimum wage is legally mandated but often insufficient to meet basic living costs, while a living wage is a voluntary, higher standard used in policy discussions to reflect the income needed for a decent quality of life

List 4 factors that  cause a shift in Labor DEMAND

• The demand for chefs is dependent on the demand for restaurant meals.

• The demand for pharmacists is dependent on the demand for prescription drugs.

• The demand for attorneys is dependent on the demand for legal services.

•  Auto production demand increase so you need more auto workers.

list 2 factors that can cause shifts  in Labor SUPPLY

1. Population Changes (Working age population increasing or decreasing)

2. changes in preferences/values (People wanting to work more or less)

Briefly explain what imposing a Minimum Wage or increasing the Minimum  wage do to the Equilibrium point on a Labor Demand and Supply Chart.  Basically, how would business reaact?

It will create a new point where the wage is higher.

the quantity of labor demanded is lower than the quantity of labor supplied

What are usury laws?

laws that impose an upper limit on the interest rate that lenders can charge

What are interest rates?

Interest rates are the "price" of borrowing in the financial market; a rate of return on an investment.

(Example: Student Loans)

How do economists define equilibrium in financial markets? Give a brief explanation of how or why interest affects demand and supply of Financial Capital?

Equilibrium is the point where the quantity of financial capital supplied = the quantity demanded.

the interest rate is the "price" at which this balance occurs.

a higher interest rate decreases the demand and supply of financial capital

Are households demanders or suppliers in the Financial Markets Why ?

Both. They are suppliers when they invest and demanders when they borrow money for things like education.

Example: When they invest in stocks they are supplies

When they take out student loans they are demanders

What is intertemporal decision making? Give simple example

decisions made for the future.

Example: Retirement

What is Financial Capital and give examples?

Economic resources measured in terms of money.

Example: loans and bonds.

What is Price Elasticity of Demand mean and give example

Price elasticity of demand measures how much quantity demanded responds to a change in price.

Example: switching to a different brand of coffee if one brand becomes too expensive

What is The Total Revenue Test Approach to Price Elasticity about?

Calculating price elasticity of demand.

Define Elastic Demand, Unitary and INelastic Demand

Elastic demand means a price decrease will cause total revenue to rise

Inelastic means a price decrease will cause total revenue to fall.

Unitary means there is no change.

What does this symbol mean?       

The symbol represents a change in a variable

Total Revenue Approach to Calculating Elasticity, Unitary and INelasticity

Please determine if each change discussed below is an example of Elasticity, Unitary or INe;asticity of demand.  PLEASE show all work and calculations and is the change  Elasticity, Unitary or INelasticity and WHY?

CURRENTLY  Harbor Sweets   sells 100  boxes of Taffy per  week for $12 each.

Change #1

Harbor Sweets  decides to lower the price of their  Taffy  to $10 per box. Harbor sells 30  MORE boxes per week. 

 

Change #2

Harbor Sweets decided to lower the price of their chocolate boxes  to $10 per box Harbor Sweets  sells 20 MORE chocolate boxes per week. 

Change # 3  

Harbor Sweets decided to lower the price of their chocolate boxes to $10. Harbor Sweets sells 10 MORE boxes a week. 

12 x 100 = 1200 (Total revenue)

Change #1: 10 x 130 = 1300. Total revenue is elastic.

Change #2: 10 x 120 = 1200. Total revenue is unitary.

Change #3: 10 x 110 = 1100. Total revenue is inelastic.

What does Tax Incidence mean to us?

a tax burden is divided between buyers and sellers

What are Sin Taxes and how do they affect consumer purchases or demand?

Sin tax is a tax on items considered harmful or undesirable. This affects consumers because these taxes are often high and can be as high as 30-40%.

What are some  the the basic determinants  on whether basic tax increases or product cost increase can be passed onto the consumer without affecting demand?

It depends on the price elasticity of demand and whether it is elastic or inelastic.

What would happen to quantity demand if the Government passed a large tax on Cigarettes or vapes? Please explain.

A large tax on cigarettes or vapes would cause the quantity demand to decrease greatly. This is because the price of these products would increase

What does Perfectly INelastic mean?  Give Example

The quantity demanded or supplied remains unchanged regardless of a price change.

Example: Insulin

What does Price x Quantity sold give us?

total revenue

Are Luxury Items Elastic or Inelastic and Why?

Luxury items have elastic demand because they are non-essential, and a change in price leads to a significant change in the quantity demanded. If the price increases, consumers can easily delay the purchase, switch to cheaper alternatives, or forgo the item altogether.

Are Necessities items Elastic or Inelastic and Why?

Necessities are considered inelastic because their demand changes very little in response to price changes. This is because they are essential for survival and daily living, meaning consumers have few substitutes and will continue to purchase them even if the price goes up.

If you owned   the Mcdonalds  in Salem and the City of Salem just imposed a 30% tax on Fast Food Restaurants .  The surrounding cities and towns do not have a similar tax.  What would you  do in regard to product pricing and why.? Discussion

You would likely increase prices to absorb the 30% tax, but you would need to do it strategically due to the lack of tax in neighboring towns.

What is Utility and Total Utility

Utility is the total satisfaction or benefit a consumer gets from a good or service.

Total utility is the complete satisfaction derived from consuming a good or service.

What is Marginal Utility

The additional utility provided by one additional unit of consumption

What is Diminishing Marginal Utility

Diminishing marginal utility is when each additional unit of a good consumed provides less of an addition to utility than the previous unit

(Think of brownies example)

What is Consumer Equilibrium

The total utility for each item

What does "Bigger Bang for the Buck " mean to you?

Total Utility at Consumer Equilibrium

What is Behavioral Economics

Behavioral economics takes into account people's state of mind

What is the Concept of Loss Aversion all about and give a brief example

Loss Aversion is when people feel the pain of a loss more than the satisfaction of an equivalent gain. An example of this is working 5 hours and earning $100 in tips but then losing that $100 on the way home. Even if you were to earn that $100 back or find $100 on the side of the road it won't remove the psychological pain of losing that original $100.

What does Fungible mean and give a brief example

Fungible is units of a good that are capable of mutual substitution with each other and carry equal value to the individual. An example of this is exchanging one gallon of gas for another from a different gas pump.

What is  “Fear of Missing out” FOMO and give a brief example

FOMO is the anxiety that others are having rewarding experiences that you are not part of. An example of FOMO is seeing instagram photos of your friends at a concert you could not attend. (Lana Concerts)

What is Mental Accounting and give a brief example

Mental accounting is the human tendency to categorize money into different mental "accounts" based on factors like its source or intended use, even though money is fungible. An example of this is using a tax refund to go on vacation.

What is the “The Sunk Cost Fallacy “ about and give a brief example

The sunk cost fallacy is the tendency to continue a behavior or endeavor as a result of previously invested resources (time, money, or effort), even if it no longer makes sense. An example of this is finishing a terrible movie you already spent money on.

How would casinos use “Loss Aversion” to their advantage?

Casinos use loss aversion to their advantage because the environment encourages consumers to keep spending at the casino for the chance to make up the money they lost. If consumers made up the money they lost by playing more games at the casino it would remove the pain of losing the money in the first place.

Who is Richard Thaler and what is he well known for?

Won Nobel Prize in Economic Sciences in 2017

best known for his work in behavioral economics