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Econ 201 Exam 2-Allison Lowe-Reed NC State
Terms in this set (63)
a legally determined minimum price that sellers may receive
a legally determined maximum price that sellers may charge
the actual division of the burden of tax
the additional benefit from consuming one more unit
why is the demand curve referred to as the marginal benefit curve?
it shows the willingness of consumers to purchase a product at different prices
the difference between the lowest price a firm would be willing to accept and the price it actually receives
t/f as the price of a good rises, producer surplus increases and as the price of a good falls producer surplus decreases
the reduction in economic surplus resulting from a market not being in competitive equilibrium
economic surplus is maximized when...
the MB of consumption is = to the MC of production
t/f economic analysis cannot provide a final answer to the question of whether the government should interfere in markets by imposing price ceilings and floors because it seeks to address positive questions such as what is
the additional cost of producing one more unit
a market outcome in which the MB to consumers of the last unit produced is equal to its marginal cost of production and is a market outcome in which the sum of consumer surplus and producer surplus is at a maximum
what is an eternality?
a benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service
the private cost of producing a good will differ from social cost....
when there is an externality such as acid rain generated by production of electricity
when will the private benefit from consuming a good differ from the social benefit?
when there is an externality such as fewer disease generated by consumption of vaccine
economic efficiency 2
where consumers surplus and producer surplus are maximized
externalities affect the economic efficiency of a market equilibrium...
by causing a difference between the private cost of production and social cost of production and the private benefit of consumption and the social benefit of production
if a negative externality in production is present in a market then...
the private cost of production will be different than the social cost of production.
Willingness to pay measures
the maximum price that a buyer is willing to pay for a good.
If, in a competitive market,
marginal benefit is greater than marginal cost
the quantity sold is less than the equilibrium quantity.
When the marginal benefit equals the marginal cost of the last unit sold in a competitive market
an economically efficient level of output is produced.
In order to be binding a price floor
must lie above the free market equilibrium price.
the difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays
on a graph it is the area under the demand curve to price indicated
the difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives.
on a graph it is the area that is above the supply curve up to the price indicated.
Consumers are willing to purchase a product up to the point where
the marginal benefit of consuming a product is equal to its price
If, in a competitive market, marginal benefit is less than marginal cost,
the quantity sold is greater than the equilibrium quantity.
perfectly inelastic supply in relation to tax burden
total burden of tax for producer
perfectly inelastic demand in relation to tax burden
total burden of tax for buyer
What is a market failure?
It refers to the inability of the market to allocate resources efficiently up to the point where
marginal social benefit equals marginal social cost.
What is a "social cost" of production?
the sum of all costs to individuals in society, regardless of whether the costs are borne by
those who produce the products or consume the product
A positive consumption externality causes
the marginal social benefit to exceed the marginal private cost of the last unit produced by the
the cost borne by the producer of a good or service
the total cost of producing a good including both the private cost and any external cost
the benefit received by the consumer of a good or service
the total benefit from consuming a good or service including both the private benefit and any external benefit
when there is a negative externality in producing a good or service....
too much of the good or service will be produced at market equilibrium
when there is a positive externality in producing a good or service...
too little of the good or service will be produced at market equilibrium
A market demand curve reflects the
private benefits of consuming a product.
diseconomies of scale
the situation in which a firms long run average cost rise as the firm increases input
economies of scale
a firms long run average costs fall as it increases the quantity of output it produces
Why do some consumers tend to favor price controls while others tend to oppose them?
Price ceilings generate shortages. Consumers who obtain the product at a lower price win, but the other consumers will lose because they would like to purchase the product but are unable to because of the shortage.
Do producers tend to favor price floors or price ceilings? Why?
price floors because, when binding, price floors increase price above the equilibrium and may increase producer surplus.
A black market is...
a market in which buying and selling occur at prices that violate government price regulations
Give an example of a black market
When a rent ceiling is placed below what a renter was currently renting at. Now he begins to slack and not do maintenance and becomes a picky landlord
black markets may arise
in reaction to binding price ceilings
How would a person currently living in an apartment be better or worse off with government imposed rent control lower than the market price?
Will be better if they keep their apartment because rent is lower due to the price ceiling
How would a person wanting to move in an apartment be better or worse off with government imposed rent control lower than the market price?
Will be better off if they are able to find an apartment to rent because rent is lower due to the price ceiling; but worse off if they cannot find an apartment to rent because of the shortage
How would a landlord to apartments be better or worse off with government imposed rent control lower than the market price?
Will be worse off because he will be receiving less rent
What if the landlord intends to ignore the law and illegally charge the highest rent possible for his apartments?
He will be better off if he does not get caught because the amount will be more than the equilibrium; but he will def be worse off if he gets caught
Do the people who are legally required to pay tax always bear the burden of the tax?
No. Whoever bears the burden of the tax is not affected by who legally is required to pay the tax to the government
Does it matter whether buyers or sellers are legally responsible for paying a tax?
No. The market price to consumers and net proceeds to sells are the same independent of who pays the tax.
% change in quantity / % change in price
The degree to which a demand or supply curve reacts to a change in price
the change in output that results from employing an added unit of labor
non-paying consumers cannot be prevented from accessing it
possible to prevent consumers who have not paid for it from having access to it
measures the inequality among values of a frequency distribution
Gini coefficient of zero expresses perfect equality, where all values are the same
non-rivalrous and non-excludable
rivalrous and excludable
when there are extremely high fixed costs of distribution, such as exist when large-scale infrastructure is required to ensure supply
type of good consisting of a natural or human-made resource system, whose size or characteristics makes it costly, but not impossible, to exclude potential beneficiaries from obtaining benefits from its use
when an individual or firm making a decision does not receive the full benefit of the decision
the cost to society is greater than the cost consumer is paying for it
here there are complete competitive markets with no transactions costs, an efficient set of inputs and outputs to and from production-optimal distribution will be selected, regardless of how property rights are divided
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