Microeconomics Government Intervention Test 2

question

Price rationing

answer

the process by which the market allocates G&S to consumers

question

price ceilings

answer

the maximum legal price that can be charged

question

price floors

answer

the minimum legal price that can be charged

question

the incidence of a tax

answer

how the burden of the tax is shared among market participants

question

Elastic supply, inelastic demand

answer

sellers do not have to pay much of the tax

question

Inelastic supply, elastic demand

answer

sellers have to pay most of the taxes or the buyers will stop buying

question

welfare economics

answer

studies how the allocation of resources effect economic well being

question

a buyer's willingness to pay

answer

the maximum amount the buyer will pay for a good

question

consumer surplus

answer

WTP-P--> the area under the demand curve but above the price.the buyer gains from participating in the market .

question

cost

answer

the value of what the seller gives up to produce the good (including opp cost)

question

producer surplus

answer

P-cost --> area above supply and under price. The seller gains from participating in the market

question

total surplus

answer

(value to buyers)-(cost to sellers) aka WTP-Cost

question

efficient allocation of resources

answer

1) goods are produced by producers with the lowest cost
2) goods are consumed by the people who value them most
3) raising or lowering Q would not increase total surplus

question

slope of the budget line

answer

marginal rate of transformation=how much y consumers must give up for one more x (the value of x in term of y)

question

utility

answer

the satisfaction or reward a product yields relative to its alternatives

question

total utility

answer

the satisfaction that comes from all units consumed

question

marginal utility

answer

the additional satisfaction gained by the consumption of 1 more unit of something

question

law of diminishing marginal utility

answer

the more of any good consumed during a given period, the less utility generated by the consumption of each additional unit

question

consumer preferences

answer

indications of how a consumer would rank any 2 bundles assuming they were available at no cost

question

a bundle

answer

a combination of G&S

question

indifference curves

answer

shows consumption bundles that give the consumer the same level of satisfaction

question

the slope of the indifference curve

answer

marginal rate of substition, the rate at which the consumer is willing to give up y to get more x, the value of x in term of y

question

income effect

answer

income increases--> demand more normal G&S

question

substitution effect

answer

An effect caused by a rise in price that induces a consumer to buy more of a relatively lower-priced good and less of a higher-priced one.

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question

Price rationing

answer

the process by which the market allocates G&S to consumers

question

price ceilings

answer

the maximum legal price that can be charged

question

price floors

answer

the minimum legal price that can be charged

question

the incidence of a tax

answer

how the burden of the tax is shared among market participants

question

Elastic supply, inelastic demand

answer

sellers do not have to pay much of the tax

question

Inelastic supply, elastic demand

answer

sellers have to pay most of the taxes or the buyers will stop buying

question

welfare economics

answer

studies how the allocation of resources effect economic well being

question

a buyer's willingness to pay

answer

the maximum amount the buyer will pay for a good

question

consumer surplus

answer

WTP-P--> the area under the demand curve but above the price.the buyer gains from participating in the market .

question

cost

answer

the value of what the seller gives up to produce the good (including opp cost)

question

producer surplus

answer

P-cost --> area above supply and under price. The seller gains from participating in the market

question

total surplus

answer

(value to buyers)-(cost to sellers) aka WTP-Cost

question

efficient allocation of resources

answer

1) goods are produced by producers with the lowest cost
2) goods are consumed by the people who value them most
3) raising or lowering Q would not increase total surplus

question

slope of the budget line

answer

marginal rate of transformation=how much y consumers must give up for one more x (the value of x in term of y)

question

utility

answer

the satisfaction or reward a product yields relative to its alternatives

question

total utility

answer

the satisfaction that comes from all units consumed

question

marginal utility

answer

the additional satisfaction gained by the consumption of 1 more unit of something

question

law of diminishing marginal utility

answer

the more of any good consumed during a given period, the less utility generated by the consumption of each additional unit

question

consumer preferences

answer

indications of how a consumer would rank any 2 bundles assuming they were available at no cost

question

a bundle

answer

a combination of G&S

question

indifference curves

answer

shows consumption bundles that give the consumer the same level of satisfaction

question

the slope of the indifference curve

answer

marginal rate of substition, the rate at which the consumer is willing to give up y to get more x, the value of x in term of y

question

income effect

answer

income increases--> demand more normal G&S

question

substitution effect

answer

An effect caused by a rise in price that induces a consumer to buy more of a relatively lower-priced good and less of a higher-priced one.

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