Micro Chp. 4-5

What is an excise subsidy?

Government lowers per-unit price of a good.

Why is cash better than subsidies?

Gives consumers freedom → higher utility.

When can subsidies hurt?

When they are mandatory or distort incentives.

What is deadweight loss?

Loss of efficiency from market distortion.

What is a normal good?

Demand increases when income increases.

What is an inferior good?

Demand decreases when income increases.

Why does demand usually slope downward?

Substitution effect + income effect.

What is consumer surplus?

Benefit = willingness to pay − actual price.

How do you get market demand?

Add all individual demand curves.

What does saving represent?

Shifting consumption to the future.

What do indifference curves show in finance?

Tradeoff between risk and return.

What are network effects?

Demand increases as more people use a good.

Name 3 ways to estimate demand.

Experiments, surveys, econometrics.