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chapter 6, 7, 10 econ
Terms in this set (63)
does not affect demand curve
supply curve shifts upward (think of it as an additional input)
How does a tax on sellers affect the supply and demand curves?
by the size of the tax
how much does the supply curve shift upwards?
price goes up., quantity goes down
what effect does it have on price and quantity?
the tax amount x Q2
formula for gov tax revenue?
Tax ___ market size
both sellers and consumers share the burden
who pays a tax on sellers?
how to figure out how much consumers are going to be off by?
formula for tax burden for consumers
how to figure out how much sellers are going to be worse off by?
formula for producer tax burden?
if sellers were able to transfer all tax burden to consumers
when would the market price be 3.50?
wedge, the size of the tax
taxes cause a __ between what buyers pay and what sellers receive which is equal to....
tax burden is the ___ no matter if it is on buyers or sellers
sellers absorb 100% of the tax burden, market size shrinks
What happens when the d curve is perfectly elastic?
consumers absorb 100% of tax burden, market size stays the same
What happens when D curve is perfectly inelastic?
market decreases, sellers have larger share of tax burden
What happens when S curve is relatively more inelastic vs d curve?
they split tax burden 50/50, market shrinks
What happens when s and d share same price elasticity?
sellers pay all of it
What happens when d curve is completely elastic and S curve is completely inelastic?
sellers pay for all of it
What happens when supply curve is completely inelastic?
consumers absorb all of tax burden because anything below P, sellers want to produce 0, market shrinks
What happens when supply curve is completely elastic and demand has some degree of elasticity?
total welfare= consumer welfare + producer welfare
How do we measure society's total welfare/well-being?
How do we measure consumer total welfare?
amount a buyer is willing to pay - the amount the buyer pays for it
willingness to pay
maximum willingness to pay for every unit of a g/s, information summarize in concept of demand curve
producer surplus-amount a seller is paid for a given amount of a g/s - the minimum he/she would have to receive to be willing to produce it
How do we measure producer welfare?
perfectly competitive market
socially efficient b/c it maximizes society's total welfare as long as there are no externalities
there will be no mutually beneficient trade left unexploited,
perfectly competitive market equilibrium outcome
is the one that maximizes total welfare/well being of society from participating in the market for a given g/s
above price, below demand curve
where does CS lie graphically?
below price, above s line
where does ps lie graphically?
)/2 (base)(height)/ 2
how to find area of triangle (cs)
markets in the presence of externalities
___ do not always maximize society's total welfare
improve market outcomes and make them socially efficient
w/ presence of externalities there is room for government to...
when a transaction between a buyer and a seller directly affects a third party, uncompensated impact of one person's actions on the well-being of a bystander
no externality is in place
supply/demand faces maximize total welfare of consumers and producers if...
private cost + external cost to bystanders
what does "s" curve take into account?
market will produce more than the social optimal, private cost> social cost
introduce taxes so shift private cost curve left to meet social costs curve and reduce the supply
what do you have to do with negative externalities?
adoption of technology to deal with admissions
How do policy makers address negative externalities?
negative externality could be internalizes by a per unit tac collected from sellers that is equal to external cost per unit
a negative externality means they are producing too...
a positive externality means they are producing too...
social value > private value
what does gov do in case of positive externality?
if private parties can margin w/out cost over the allocation of resources, they can solve the problem of externalities on their own
the demand curve reflects the ___ to consumers while the demand curve reflects the ___ to producers
a corrective tax places a ___ on the __ to pollute
buyers and sellers ___ external affects of their actions when deciding how much to demand or buy
research into new technologies
is a positive externality b/c it creates knowledge other people use, address this through patent system
a positive externality, subsidized through public schools and gov scholarships
internalizing the externality
it gives buyers and sellers in the market an incentive to take into account the external affects of their actions
where demand is inelastic, because buyers absorb all of it and the market doesn't shrink
What is the best kind of market for taxes?
What reflects economic well being?
Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfumetheysell. Further,supposethistaxcausesthepricepaidbybuyersofperfumeto rise by $0.60 per bottle. Which of the following statements is correct?
A) The effective price received by sellers is $0.40 per bottle less than it was before the tax.
B) Sixty percent of the burden of the tax falls on sellers.
C) This tax causes the demand curve for perfume to shift downward by $1.00 at each quantity of perfume.
D) All of the above are correct.
A tax on the buyers of personal computer external hard drives encourages
a. sellers to supply a smaller quantity at every price.
b. buyers to demand a smaller quantity at every price.
c. buyers to demand a larger quantity at every price.
d. Both a) and b) are correct.
The government's benefit from a tax can be measured by
a. consumer surplus.
b. producer surplus.
c. tax revenue.
d. All of the above are correct.
Deadweight loss measures the loss
a. in a market to buyers and sellers that is not offset by an increase in government revenue.
b. in revenue to the government when buyers choose to buy less of the product because of
c. of equality in a market due to government intervention.
d. of total revenue to business firms due to the price wedge caused by the tax.
multiple Q (x) tax/ 2
how do you calculate deadweight loss?
In the absence of externalities, the "invisible hand" leads a market to maximize
a. producer profit from that market.
b. total benefit to society from that market.
c. both equality and efficiency in that market.
d. output of goods or services in that market.
Private solutions may not be possible due to the costs of negotiating and enforcing these solutions.
ex. Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem
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