26-27 ACADECA Econ notes pages 26-40

I'll add the pages later

What does perfectly inelastic mean?

That the quantity demanded does not depend on price at all.

What does perfectly elastic mean?

That the demand curve will be completely flat. (infinite desire)

What does a perfectly inelastic graph look like?

A vertical line.

What does a perfectly elastic graph look like?

A horizontal line.

What is the difference between the price elasticity of supply versus the price elasticity of demand?

None, they are analogous.

What is not a factor of elasticity?

Input maneuvers.

What is the elasticity like when it is easy for businesses to begin supplying a product in a market?

It is more elastic.

What is the elasticity like when an input required to produce a good is scarce?

It is inelastic.

When the time horizon is longer, what is the elasticity like?

It will be greater.

When two curves pass through the same point, which is more elastic?

The flatter curve.

What is the formula for total revenue?

P x Q

If demand is elastic, what happens to the total revenue?

It will increase.

If demand is inelastic, what happens to the total revenue?

It will decrease.

Why would a business competitive market do something that would make them lose revenue?

Depending on how competitive a market is, they would have no choice but to in order to prevent going out of business.

Where do policies in markets come from?

The goals of those who designed them.

What is a price floor?

A minimum amount of money needed for something.

What is an example of a price floor?

Minimum wage.

What is a price ceiling?

A maximum amount of money for something.

What is an example of a price ceiling?

Rent regulations.

According to figure 15, what happens to businesses when a fall in price occurs in a market?

Revenue will decline.

What are landlords able to do more easily when a rent ceilings are imposed?

Discriminate and give a finders fee.

Because the supply of housing in a city and the demand of housing may be inelastic, what happens to rent controls?

They lower the price without creating large amounts of excess demand.

What happens to farms when there is a price ceiling higher than equilibrium?

Farmers have excess supply and lose revenue.

When a $0.10 tax is imposed on a $0.20 call/minute policy, what happens to the equilibrium?

The graph shifts to the left and the cost per minute decreases in the new equilibrium.

Who is affected by taxes in a market?

Both the supplier and the consumer.

How is a tax wedge found on a graph? (Figure 18)

By looking at the area between the equilibrium from before the tax and after the tax.

What is the deadweight loss of a tax?

The reduction in social welfare after a tax is imposed.

What does the distribution of the burden of a tax depend on?

The relative price elasticities of supply and demand.

“For any given supply curve, the less elastic the demand is, the ______ the share of the tax is paid by buyers.”

Greater.

“The less elastic the supply and demand curves are, the _____ the effect of the tax on the equilibrium quantity, and therefore the ______ the deadweight loss of the tax.”

Smaller, lower

How does economics make people better off through exchanges?

By encouraging specialization.

When individuals or countries specialize in the activity they do best, what happens to the overall economic pie?

It increases.

Why is our modern economy characterized by such a high degree of interdependence?

Gains from trade due to specialization.

What is a PPF?

A production possibility frontier.

What does a PPF do?

It compares the opportunity costs of completing different actions over a period of time.

On a PPF, what does a single point on the line represent?

The amount of fish and coconuts that can be caught depending on preference and time.

What does the slope of a PPF reflect (specifically in the figure.)

The opportunity cost of coconuts in terms of fish.

What does it mean that Robinson isn’t a rational consumer?

He may have a preference for fish or coconuts that changes the point on the graph he chooses.

What does it mean for someone to have an absolute advantage?

One must be able to produce more of a good than others given the same amount of resources.

In figure 20, which person has the absolute advantage?

Crusoe.

In figure 20, what is Robinson’s slope?

-3

In figure 20, what is Crusoe’s slope?

-1

What is comparative advantage?

The ability to produce a good or service at a lower opportunity cost than other producers.

Why does Robinson have the comparative advantage over coconuts?

He gives up less fish to produce them compared to Crusoe.

The more extensive the markets in which people trade, the ______ the opportunities for specializations and the ______ the gains from trade.

Greater, larger.

What happens when countries become increasingly specialized?

The costs and benefits of trades fall on different groups of people.

Why would a country become an exporter if the law prohibiting trade is removed?

Because the cost of supply is below the world price.

What ends up being exported in the situation described on free trade?

The difference between domestic consumption and the quantity supplied.

Who benefits when a country becomes an exporter?

The producers.

Social area has a net increase of what when free trade opens?

D

For a country that becomes an importer, who benefits?

Consumers.

What happens to domestic price when trade is allowed and a country becomes an importer?

It falls to the world price and quantity consumed rises. This is responded by a reduce in supply.

What declines when a country becomes an importer?

Producer surplus.