Econ 101 Midterm

Review for Dr.Staub's Econ 101 class at UNC

To unambiguously raise the equilibrium price there must be:

1. An increase in demand

2. A decrease in supply

Tax Incidence Rule

When a tax is imposed, the difference between the price consumed (P-buyer) and the price producers receive (P-seller) equals the tax amount.

Change Pbuyer - Change Pseller = Tax Increase

The side of the market that is less elastic bears more or less of the tax burden?

More.

What policy reduces supply while benefitting producers?

A price floor, reducing quantity demanded by consumers while mandating a higher price which increases the revenue for producers.

Necessarily Inefficient

If you can find an alternative that makes one metric better w/o making another worse.

Complements

Price increase = Demand curve shifts left

Price Decrease = demand curve shifts right

Substitutes

Price increase = Demand shifts right

Price decrease = Demand shifts left

Pigouvian Tax

A government fee placed on market activities that create negative side effects for third parties.

Address market failure by pushing toward socially optimal output —Tax must equal MEC