EC211 Test 3 All Qs

Do you understand the concept of consumer surplus? Where is it found on a graph?

The value customers het from participating in a market

Consumer surplus is the area above D and above P

Do you understand the concept of producer surplus? Where is it found on a graph?

How much it costs a producer to make it compared to how much they are willing to sell

Producer surplus is below P and above S

Can you explain who benefits and who is harmed from importing, exporting and tariffs?

Imports: Domestic consumers benefit, domestic producers are harmed

Exports: Domestic producers, domestic consumers are harmed

Tariffs: Domestic government/producers, domestic consumers are harmed

Can you explain the results of tariffs?

A tax on imported goods, prices go up

Can you explain the benefits of international trade?

Increased variety of goods

Lower cost through economies of scale

Increased competition

Enhanced flow of ideas

1. Can you explain some arguments for restricting trade?

Protects local jobs

National security

Infant industry

Unfair comparison

1. Can you explain NAFTA, GATT, WTO and TPP and when each came about?

NAFTA: (North American Free Trade Agreement) Came about in the 1990s (Clinton Administration)

GATT: (General Agreement on Tariffs and Trades) Created at the end of WWII

WTO: (World Trade Organization) Oversees GATT

USMCA: Replaced NAFTA during the Trump Administration

TPP: (Trans Pacific Partnership) Created during the Obama administration

1. How would you define transaction costs?

Costs of arranging agreements between buyers and sellers

1. Do you like middlemen? Why / Why not?

Middlemen lowers our costs

1. Describe the three basic forms of business organization including advantages/disadvantages of each.

Sole Propritorship

· Advantage: Simple Disadvantage: Unlimited liability

Partnership

· Advantage: More exports, more funding Disadvantage: Unlimited liability, dealing with partners

Corporation

· Advantage: Limited liability Disadvantage: Expensive, double taxation

1. Explain the difference between primary and secondary financial markets.

Primary: Corporations issue new equity

Secondary: Person to person buying stocks

1. Describe the two financial intermediaries described in your textbook.

Banks and Mutual funds

1. Name the five financial calculator keys and explain the meaning of each and when they are used.

N = Number of periods

I = Interest rates

PV = Present Value

PMT = Payment

FV = Future value

1. Can you explain the advantages of an open economy vs. a closed economy?

Open: Trading with others

Closed: Not trading with others

1. Can you define the terms import and export?

Import is bringing in goods from another country

Exports is sending out goods to another country

1. Can you explain the terms trade surplus and trade deficit?

Trade surplus: Export more than you import

Trade deficit: Import more than you export

1. What is the current unemployment rate in the U.S.? What was this rate in 2009? In 1933?

Current: 4%

2009: 10%

1933: 25%

1. What is another term that means "net exports?"

Trade Balance

1. Is the U.S. currently a net importer or a net exporter?

The U.S. is currently a net importer

1. Can you fully explain the concept of purchasing-power parity?

An economic theory used to estimate exchange rates

1. According to the most recent CPI data, what is the current year-on-year inflation rate in the U.S.?

3.5%

1. What is the Fed's current target rate of inflation?

2.0%

1. According to our roleplay, who benefits directly from an increase in the minimum wage and who does not directly benefit?

The government and minimum wage workers if they don't get fired

1. What kind of costs always happened in the past and are always non-recoverable?

Sunk cost ( should never ever enter decision making)

· Always happened in the past

· Non-recoverable

Basics of Keynesian Economics

-Aggregate Demand

-Demand > Supply

-Government Intervention is necessary

-Prices and wages are not always flexible

Why should we aggregate demand

inadequate demand can lead to unemployment and recession