Econ 101 2nd Midterm - Assignment Essays

question

excise tax

answer

imposed on producers of the good, supply curve shifts to the left the amount of the excise tax

question

tax revenue government

answer

(Pe^t - Pnet) (Qe^t)

question

Tax revenue

answer

(Pe^t - Pnet) or CTI + PTI

question

Pnet

answer

the price where the new Qe from the S(tax) hits the original supply curve

question

CTI

answer

(Pe^t -Pe) (Qe^t)

question

PTI

answer

(Pe - Pnet) (Qe^t)

question

DWL

answer

1/2 (Pe^t - Pnet)(Qe - Qe^t)

question

Closed economy

answer

An economy that does not trade with other countries; an autarkic economy. Produce at market equilibrium

question

exports

answer

Qs dom - Qd Dom

question

total surplus in open economy

answer

greater than total surplus in a closed economy

question

imports

answer

Qd dom - Qs dom

question

Pworld above equilibrium

answer

exports

question

Pworld below equilibrium

answer

imports

question

Tariff

answer

-artificially raise the price
-gov. tariff revenue
-imports shortage (shrinks)
-2 areas of DWL
- CS shrinks
- PS increases
-Qd decreases
-Qs increases

question

Consumer Ranking

answer

1. Open economy
2. Open with a tariff
3. Closed

question

Producer Ranking

answer

1. Closed
2. Open Tariff
3. Open economy

question

Gov tariff Rev

answer

(Pt-Pw) (Qd dom tariff - Qs dom tariff)

question

Import quota

answer

a limit on the amount of a good that can be imported

question

Import quota equation

answer

Sdom + import quota = Qd dom

question

Elasticity

answer

a measure of the responsiveness of quantity demanded or quantity supplied to a change in price

question

inelastic demand

answer

A situation in which an increase or a decrease in price will not significantly affect demand for the product; almost a straight line; small change
percent change in quantity over percent change in price is ( <1 ); quantity demanded changes less than the price changesPo

question

elastic demand

answer

A situation in which consumer demand is sensitive to changes in price; ( >1 ); quantity demand changes more than the price change

question

unit elastic

answer

when the percentage change in price and quantity demanded are the same (=1); midpoint

question

point elasticity of demand

answer

(1/slope of demand)*(P/Q)

question

arc elasticity

answer

((Q2-Q1)/(Q2+Q1))/((P2-P1)/(P2+P1))

question

price elasticity of demand

answer

% change in quantity demanded / % change in price

question

This week your good is on sale for 10% off. How many units do you sell? Ed=2, currently selling 100 (old value)

answer

2= %change in Qd / -10%
then
[new value-old value/old value] (100%)

question

Inelastic: increase price

answer

increase total revenue

question

Elastic: decrease in price

answer

increase total revenue

question

Elastic: Increase price

answer

a decrease in total revenue

question

income elasticity of demand

answer

% change in quantity demanded / % change in income

question

normal good income elasticity

answer

positive, >0

question

inferior good income elasticity

answer

negative <0

question

cross-price elasticity of demand

answer

a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good

% change in QdX / % change in Py

question

compliments (cross price elasticity)

answer

negative <0

question

substitutes (cross price elasticity)

answer

positive >0

question

optimization rule

answer

MUa / Pa = MUb /Pb

question

Diminishing Marginal Utility

answer

Decreasing satisfaction or usefulness as additional units of a product are acquired

question

indifference curve map

answer

a collection of indifference curves in which each curve corresponds to a different total utility level

question

Indifference curve

answer

shows all combinations of goods that provide the consumer with the same satisfaction, or the same utility (the consumer finds all combinations on a curve equally preferred) tastes and preferences are CONSISTENT

question

slope of indifference curve

answer

MUx/MUy (marginal rate of substitution); modeling an individuals tastes and preferences

question

Properties of Indifference Curves

answer

1. Indifference curves never cross/intersect
2. The farther out an indifference curve lies, the higher the level of total utility it indicates
3. Indifference curves slope downward
4. There is an indifference curve through every pt: IC map

question

budget line

answer

I= PxX + PyY
I-Income
Px- $
Py- $

question

budget line x intercept

answer

I / Px

question

budget line y intercept

answer

I/Py

question

slope of budget line

answer

Px/Py

question

consumer's goal

answer

maximize utility under income and prices they face

question

Profit Equation

answer

Profit= Total Revenue - Total Cost; or
Profit= (Unit Price x Quantity Sold) - (Fixed Cost + Variable Cost)

question

Total Revenue (TR)

answer

Price x Quantity

question

total cost(TC)

answer

FC+VC

question

short run production function

answer

shows the output produced with a given amount of employment (labor L is variable) and when capital (K) is fixed

Q= 2KL

question

MPL

answer

marginal product of labor
change in Q/change in L

question

law of diminishing returns

answer

the principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline

question

change in TC is due to change in _______?

answer

VC (like labor, TC increases as we hire more labor)

question

if Q=0, then TC= ?

answer

FC (fixed cost)

question

The production function shows/uses

answer

Variable input (L), Fixed Input (K), Total Product (Q), MPL
ALL IN $/Unit

question

Variable input starts to....

answer

diminish

question

Cost Function is... includes...

answer

function relating cost of production to level of output and other variables that the firm can control
Includes: AVC, AFC, ATC, MC

question

As Q increases, AFC...

answer

decreases (SPREADING)

question

As Q increases, AVC

answer

first decreases, then increases

question

answer

PL x L

question

answer

the y intercept of a cost function, no variables on it (K * rent)

question

answer

FC+VC

question

AVC

answer

VC/Q or ATC-AFC

question

AFC

answer

ATC-AVC or FC/Q

question

ATC

answer

AFC+AVC or TC/Q

question

answer

change in TC/change in Q

question

spreading effect

answer

as output increases, fixed costs are spread over more units (AFC drops)

question

diminishing returns to labor

answer

if the amount of capital and other inputs in use is held constant, then the greater the quantity of labor already employed, the less each additional worker adds to production; ATC increases

question

L=0

answer

Q=0

question

MC is the

answer

addition to TC from producing one more unit of the good

question

goal for these equations

answer

price per unit to cost per unit

question

AVC is U shaped because

answer

diminishing returns to labor

question

If marginal cost is less than average...

answer

it pulls the average down

question

do accounting profits equal economic profits?

answer

question

economic profits

answer

total revenues minus explicit and implicit costs (costs are measures in OC)

question

In the LR

answer

AVC = ATC

question

constant returns to scale

answer

when long-run average total cost is constant as output increases (ATC stays the same as Q increases)

question

increasing returns to scale

answer

when long-run average total cost declines as output increases (ATC decreases as Q increases)

question

decreasing returns to scale

answer

when long-run average total cost increases as output increases (ATC increases as Q increases)

question

TC= 6q^2 +2q +96.... What is VC and FC? What is AVC?

answer

VC= 6q^2 +2q
FC= 96
AVC= 6q^2 +2q/q

question

min AVC

answer

shutdown price
MC=AVC

question

Normal profit, break even, equilibrium price in the long run

answer

ATC=MC

question

ATC=MC

answer

Normal profit, break even, equilibrium price in the long run

question

Perfect Competition Characteristics

answer

i. Many buyers and sellers
ii. Homogenous products
iii. No market power
iv. Price-taker
v. Free entry and exit of the Firms in the LR
(i.e. corn, wheat, fishermen, stock market)

question

in perfect competition Pe=

answer

MR (HORIZONTAL LINE)

question

Supply curve for firm is...

answer

question

Profit Maximizing Rule

answer

All firms maximize profit by producing where MR = MC

question

Finding Profits

answer

1. Find MKT Qe and Pe
2. Firm views Pe as its demand curve its MR
3. Profit Max q=qe; MR=MC
4. TR=Pe*qe
5. TC= ATC * qe
6. Profits TR-TC= $0

question

break-even point

answer

p= min ATC

question

answer

equal to Pe (horizontal line)

question

if P (MR) is above ATC

answer

you earn a profit if

question

if p (MR) is above AVC

answer

firm will produce in short run, because its covering variable costs

question

if p is less than min AVC (shut down price)

answer

firm does not produce since TR doesn't cover

question

if p (MR) is above AVC and below ATC

answer

loss; but still producing

question

to find q

answer

production function, plug in L and K

question

find min atc?

answer

TC/q = MC equation

question

to find SR q

answer

D=S (equlibriums), take Pe and set equal to MC equation

question

SR profits

answer

TR (pq) - TC function, plug in SR q

question

LR equilibrium

answer

MC = ATC, find q from ATC, to find p, plug q into MC

question

LR firm produces that q where

answer

MR=ATC

question

answer

(# of firms) (Output/firm; q)

question

SR firm will produce if

answer

TR > VC, AVC=MC

question

shutdown point

answer

MC=AVC, price is not enough to cover VC

question

Can't do anything about

answer

question

Profits > 0, In LR?

answer

Earning a greater amount than O.C, LR expect entry

question

profits < 0, In LR?

answer

Earning an amount less than O.C, LR expect Exit

question

profits = 0

answer

Earning O.C

question

In LR predictions for Entry

answer

1. S shifts to the right
2. Qmkt increases
3. Pmkt decreases
4. q in sr decreases
5. profits are 0

question

How many firms in SR?

answer

Qe/q (from MR=MC)

question

Long run, hoe many firms?

answer

1. plug q into MC equation
2. plug the P from MC to the P in the Demand equation
3. Q/q

question

In LR, a firm breaks even when

answer

MC=ATC

question

answer

min ATC= MC

question

P=MC

answer

allocative efficiency

question

P>MC

answer

Underallocation of resources

question

P<MC

answer

Overallocation of resources

1 of 116

question

excise tax

answer

imposed on producers of the good, supply curve shifts to the left the amount of the excise tax

question

tax revenue government

answer

(Pe^t - Pnet) (Qe^t)

question

Tax revenue

answer

(Pe^t - Pnet) or CTI + PTI

question

Pnet

answer

the price where the new Qe from the S(tax) hits the original supply curve

question

CTI

answer

(Pe^t -Pe) (Qe^t)

question

PTI

answer

(Pe - Pnet) (Qe^t)

question

DWL

answer

1/2 (Pe^t - Pnet)(Qe - Qe^t)

question

Closed economy

answer

An economy that does not trade with other countries; an autarkic economy. Produce at market equilibrium

question

exports

answer

Qs dom - Qd Dom

question

total surplus in open economy

answer

greater than total surplus in a closed economy

question

imports

answer

Qd dom - Qs dom

question

Pworld above equilibrium

answer

exports

question

Pworld below equilibrium

answer

imports

question

Tariff

answer

-artificially raise the price
-gov. tariff revenue
-imports shortage (shrinks)
-2 areas of DWL
- CS shrinks
- PS increases
-Qd decreases
-Qs increases

question

Consumer Ranking

answer

1. Open economy
2. Open with a tariff
3. Closed

question

Producer Ranking

answer

1. Closed
2. Open Tariff
3. Open economy

question

Gov tariff Rev

answer

(Pt-Pw) (Qd dom tariff - Qs dom tariff)

question

Import quota

answer

a limit on the amount of a good that can be imported

question

Import quota equation

answer

Sdom + import quota = Qd dom

question

Elasticity

answer

a measure of the responsiveness of quantity demanded or quantity supplied to a change in price

question

inelastic demand

answer

question

elastic demand

answer

A situation in which consumer demand is sensitive to changes in price; ( >1 ); quantity demand changes more than the price change

question

unit elastic

answer

when the percentage change in price and quantity demanded are the same (=1); midpoint

question

point elasticity of demand

answer

(1/slope of demand)*(P/Q)

question

arc elasticity

answer

((Q2-Q1)/(Q2+Q1))/((P2-P1)/(P2+P1))

question

price elasticity of demand

answer

% change in quantity demanded / % change in price

question

This week your good is on sale for 10% off. How many units do you sell? Ed=2, currently selling 100 (old value)

answer

2= %change in Qd / -10%
then
[new value-old value/old value] (100%)

question

Inelastic: increase price

answer

increase total revenue

question

Elastic: decrease in price

answer

increase total revenue

question

Elastic: Increase price

answer

a decrease in total revenue

question

income elasticity of demand

answer

% change in quantity demanded / % change in income

question

normal good income elasticity

answer

positive, >0

question

inferior good income elasticity

answer

negative <0

question

cross-price elasticity of demand

answer

question

compliments (cross price elasticity)

answer

negative <0

question

substitutes (cross price elasticity)

answer

positive >0

question

optimization rule

answer

MUa / Pa = MUb /Pb

question

Diminishing Marginal Utility

answer

Decreasing satisfaction or usefulness as additional units of a product are acquired

question

indifference curve map

answer

a collection of indifference curves in which each curve corresponds to a different total utility level

question

Indifference curve

answer

question

slope of indifference curve

answer

MUx/MUy (marginal rate of substitution); modeling an individuals tastes and preferences

question

Properties of Indifference Curves

answer

question

budget line

answer

I= PxX + PyY
I-Income
Px- $
Py- $

question

budget line x intercept

answer

I / Px

question

budget line y intercept

answer

I/Py

question

slope of budget line

answer

Px/Py

question

consumer's goal

answer

maximize utility under income and prices they face

question

Profit Equation

answer

Profit= Total Revenue - Total Cost; or
Profit= (Unit Price x Quantity Sold) - (Fixed Cost + Variable Cost)

question

Total Revenue (TR)

answer

Price x Quantity

question

total cost(TC)

answer

FC+VC

question

short run production function

answer

shows the output produced with a given amount of employment (labor L is variable) and when capital (K) is fixed

Q= 2KL

question

MPL

answer

marginal product of labor
change in Q/change in L

question

law of diminishing returns

answer

question

change in TC is due to change in _______?

answer

VC (like labor, TC increases as we hire more labor)

question

if Q=0, then TC= ?

answer

FC (fixed cost)

question

The production function shows/uses

answer

Variable input (L), Fixed Input (K), Total Product (Q), MPL
ALL IN $/Unit

question

Variable input starts to....

answer

diminish

question

Cost Function is... includes...

answer

function relating cost of production to level of output and other variables that the firm can control
Includes: AVC, AFC, ATC, MC

question

As Q increases, AFC...

answer

decreases (SPREADING)

question

As Q increases, AVC

answer

first decreases, then increases

question

answer

PL x L

question

answer

the y intercept of a cost function, no variables on it (K * rent)

question

answer

FC+VC

question

AVC

answer

VC/Q or ATC-AFC

question

AFC

answer

ATC-AVC or FC/Q

question

ATC

answer

AFC+AVC or TC/Q

question

answer

change in TC/change in Q

question

spreading effect

answer

as output increases, fixed costs are spread over more units (AFC drops)

question

diminishing returns to labor

answer

if the amount of capital and other inputs in use is held constant, then the greater the quantity of labor already employed, the less each additional worker adds to production; ATC increases

question

L=0

answer

Q=0

question

MC is the

answer

addition to TC from producing one more unit of the good

question

goal for these equations

answer

price per unit to cost per unit

question

AVC is U shaped because

answer

diminishing returns to labor

question

If marginal cost is less than average...

answer

it pulls the average down

question

do accounting profits equal economic profits?

answer

question

economic profits

answer

total revenues minus explicit and implicit costs (costs are measures in OC)

question

In the LR

answer

AVC = ATC

question

constant returns to scale

answer

when long-run average total cost is constant as output increases (ATC stays the same as Q increases)

question

increasing returns to scale

answer

when long-run average total cost declines as output increases (ATC decreases as Q increases)

question

decreasing returns to scale

answer

when long-run average total cost increases as output increases (ATC increases as Q increases)

question

TC= 6q^2 +2q +96.... What is VC and FC? What is AVC?

answer

VC= 6q^2 +2q
FC= 96
AVC= 6q^2 +2q/q

question

min AVC

answer

shutdown price
MC=AVC

question

Normal profit, break even, equilibrium price in the long run

answer

ATC=MC

question

ATC=MC

answer

Normal profit, break even, equilibrium price in the long run

question

Perfect Competition Characteristics

answer

i. Many buyers and sellers
ii. Homogenous products
iii. No market power
iv. Price-taker
v. Free entry and exit of the Firms in the LR
(i.e. corn, wheat, fishermen, stock market)

question

in perfect competition Pe=

answer

MR (HORIZONTAL LINE)

question

Supply curve for firm is...

answer

question

Profit Maximizing Rule

answer

All firms maximize profit by producing where MR = MC

question

Finding Profits

answer

1. Find MKT Qe and Pe
2. Firm views Pe as its demand curve its MR
3. Profit Max q=qe; MR=MC
4. TR=Pe*qe
5. TC= ATC * qe
6. Profits TR-TC= $0

question

break-even point

answer

p= min ATC

question

answer

equal to Pe (horizontal line)

question

if P (MR) is above ATC

answer

you earn a profit if

question

if p (MR) is above AVC

answer

firm will produce in short run, because its covering variable costs

question

if p is less than min AVC (shut down price)

answer

firm does not produce since TR doesn't cover

question

if p (MR) is above AVC and below ATC

answer

loss; but still producing

question

to find q

answer

production function, plug in L and K

question

find min atc?

answer

TC/q = MC equation

question

to find SR q

answer

D=S (equlibriums), take Pe and set equal to MC equation

question

SR profits

answer

TR (pq) - TC function, plug in SR q

question

LR equilibrium

answer

MC = ATC, find q from ATC, to find p, plug q into MC

question

LR firm produces that q where

answer

MR=ATC

question

answer

(# of firms) (Output/firm; q)

question

SR firm will produce if

answer

TR > VC, AVC=MC

question

shutdown point

answer

MC=AVC, price is not enough to cover VC

question

Can't do anything about

answer

question

Profits > 0, In LR?

answer

Earning a greater amount than O.C, LR expect entry

question

profits < 0, In LR?

answer

Earning an amount less than O.C, LR expect Exit

question

profits = 0

answer

Earning O.C

question

In LR predictions for Entry

answer

1. S shifts to the right
2. Qmkt increases
3. Pmkt decreases
4. q in sr decreases
5. profits are 0

question

How many firms in SR?

answer

Qe/q (from MR=MC)

question

Long run, hoe many firms?

answer

1. plug q into MC equation
2. plug the P from MC to the P in the Demand equation
3. Q/q

question

In LR, a firm breaks even when

answer

MC=ATC

question

answer

min ATC= MC

question

P=MC

answer

allocative efficiency

question

P>MC

answer

Underallocation of resources

question

P<MC

answer

Overallocation of resources

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