5906600
| Question | Answer |
| What are the factors of production | The factors of production include Land, Labor, Capital and Entrepreneurship |
| The factors market consist of what and what does the market determine for each market | It includes land labor and capital NOT ENTRE. The factor market determines the factor prices |
| How does entrepre differ from the other factors of production | Entre is not traded in factors markets like the rest of the factors of production and entrepreneurs make profit or loss based on their own decision |
| Derived Demand | Demand for capital goods arises from the demand for the goods and services that the capital good produces. This is called derived demand |
| Value of Marginal Product | The value to a firm of hiring one more unit of factor of production. It equals the price of a unit of output multiplied buy marginal product of the factor production |
| Basically Value of Marginal Product | What were looking at is how much you are going to make off the marginal product point and it decreases as your marginal product decreases |
| How does a firm decide if they want to hire an additional unit of factor of production | A firm will look at how much one unit of factor of production is producing and if they are producing less value (money) than what there receiving than they stop |
| How do you maximize the profit of hiring factors of production | Value of Marginal Product=Wage Rate (Rental Rate etc.) Basically if your hiring point is below if you add one more worker you can get more prof and if the wage rate is more than what you get back fro the unit you can make more by firing |
| How is the Value of Marginal Product calculated | Price of a unit output of good times the marginal product of the factor of prod ($Unit X MP = VMP) |
| What is the rule of Maximizing Profit | Value of Marginal Product (Demand)= Wage Rate (Rental Rate etc.) VMP is also demand because it shows how many people or factors of production your going to hire |
| How is the demand labor curve related to the VMP | Because the VMP shows us how much money you can get per unit of factor of production that's how much a firm wants to hire so that they make money and then becomes the demand for labor curve because it shows how much they want to hire at certain prices |
| How does the price of a firm's output affect the labor demand curve | A change in the price of output will either increase or decrease the demand for labor SHIFTING the curve left or right. If the price of a good increases than the VMP will increase and the line will shift right allowing to hire more people. V.V. |
| Why does the Individual Labor Supply Curve curve backward | It curves backward because the more you get paid, the more you work, but there is a point where people won't work more hours no matter what you pay them, and then the curve starts to go backward because they would rather spend more leisure time and they can afford it |
| What's the difference between the Individ Sup Curv and the Market SC | The Individual only looks at one person and curves backward the market looks at one job, and since everyone is different they are all willing to work less or longer, but it creates an upward sloping curve without a curve |
| What would cause a surplus of workers in the labor market | If the wage rate became higher than the equilibrium point where labor supply and labor demand intersect. There will be less demand for work but a higher supply because more people want to work |
| What is the maximizing profit point of VMP of capital and rental rate | To get maximizing profit you find the point where the amount of money you receive from the capital is equal to the rental rate |
| What happens to the quantity demanded of capital when the rental rate of capital changes | When the rental rate of capital changes the quantity demanded changes. When it increases many people don't want to get as much capital so the quantity demanded goes down and V.V. |
| What is so special of the Land Market Supply curve | There is only a set amount of land so the supply is perfectly inelastic. It's a vert line and when land is cheaper the quantity demanded is more and V.V. |
| Who benefits from a rent ceiling | The people who already have access to the Housing Market (apartments) They win because they won't be charged more and won't have to pay the full amount of the apartment. The owner loses the money at which the place is worth and other people can't find places because everything is filled up due to demand |
| Rent Ceiling | A regulation that makes it illegal to charge more than a specified rent for housing. It creates a shortage because people will want to rent at lower prices but owners won't want to sell at that price. |
| What is the black market and how does it affect the market for housing | The black market is an illegal market that operates alongside the governments regulated market. In order for owners to get their money's worth they look at the point where the supply is at when price ceiling is in effect and move it above to get to the demand curve and get the money they deserve |
| Why are rent ceilings so hard to abolish | The people who live in rent control apartments have the power of voting and lobby local politicians to keep the ceiling. Politicians listen because the renters have the majority and they want tog et reelected so they keep controls |
| Are rent ceilings efficient | No. Becuase there is a shortage the quantity demand is higher and quantity supply is low. There is a decrease in producer and consumer surplus so there is a gap between them where there is a loss of resources. Next to the right is deadweight loss which is the output they could have gotten to but didn't. |
| Are rent ceilings fair | It depends. When looking at fair rules it isn't because it's not letting the efficient allocation of resources. In fair result it can if the allocation method was giving to the poor but it's usually not it usually goes to the one's they have been living there for a while or established families |
| Price floor | IS a government regulation that places a lower limit on the price at which a particular group good or factor of production can be traded |
| How does a price floor affect the market equilibrium | WHen a price floor has been imposed it will lay above the EQ so it will create a surplus. More people will want to work at that price but people won't hire. Less people will be able to work than at the EQ. Less people work |
| What activities happen after a price floor is introduced | People will increase search activity because they more people want jobs and there are less so it will take more time to get a job. A black market will also pop up where people are willing to work for less and employers are willing to pay less so they can have a job and a firm has labor. This is illegal |
| Is minimum wage efficient | No. It's like the housing market with price ceilings. There is a decrease in c and p surplus a loss of resources due to search activity and black market and aDWL because the output is less than what it could be |
| Why do unions support min wage | They support it because it puts upward pressure on all wage rates. When this happens, it could boost their wages, but it also makes low-skill workers wages higher making them more expensive lowering the demand for them and because union workers are a sub good they get a bump in demand |
| Price Support | A price support is the price floor in the agricultural industry and it causes a surplus of goods. Need a closed domestic market, price floor and a subsidy |
| Why do price supports lead to inefficiency | They do because the loss of the taxpayer who is funding the subsidies created by the price supports costs more than what the farmer is benefitting |
| How is the world market affected by price supports | Farmers can't compete and won't get subsidies so poor farmers create less product and get less for it and then on top of that whatever they're making them have to take less because the surplus from developed countries undercut their prices making them poorer. |
| Tax Incidence | Is the division of the burden of a tax between the buyer and the seller |
| Basically Tax Incidence | It looks at if a buyer or seller will pay tax. Buyers look at items with tax while firms don't. People will look at product with tax and the tax incidence is the difference between what it originally cost and what they got it for(Demand Curve). For Firms its on supply c and looks at incidence from what they produced it at and then the tax they had to pay |
| How is tax incidence related to perfectly inelastic demand | Buyer pays the tax and it's efficient. This happens because demand remains the same no matter the price difference so producers just make people pay more. It's efficient because marginal costs equals marginal benefit |
| How is tax incidence related to perfectly elastic demand | Becuase the demand is pe any price change will change demand like crazy so in order to keep business up firms pay the tax to stay alive. Its inefficient because what they have to pay is DWL because they have to produce less to pay the tax |
| How is tax incidence related to perfectly inelastic SUPPLY | Seller pays tax and it's efficient. Becuase the buyer will only buy at a certain point the seller will have to sell at that point but tax will take away from their revenue. If they want to charge more the demand isn't there anymore and they can't produce more |
| How does Incidence relate to perfectly elastic SUPPLY | Taxes Buyers pay.Becuase supply is perfectly elastic producers will change prod quickly so buyers have to pay the tax so that product output remains the same and you will be able to get the product. It's inefficient because of DWL and we produce less than we can |
| Marginal Tax Rate | The percentage of an additional dollar of income that is paid in tax. So it looks at the difference you made in and the difference you are paying from before and after. Every extra dollar you earn the higher the tax rate and this looks ta the difference between each shift in dollar |
| Why is taxing land so different than taxing the other goods of production | Land is perfectly inelastic compared to the other markets |
| What happens when you tax land and what type of incidence does it show | When you tax land you have to look at model of incidence for perfectly inelastic supply. For land since there is only a set amount the person paying the tax is the seller because they want to sell the land and that the only amount available and only available at that price |
| What happens to labor with a labor income tax | Supply decreases and quantity of labor hired decreases. This happens because when you raise taxes people will be willing to work at a higher price because they want to cover the cost of tax. Employers aren't willing to pay that much so they look at new EQ and pay that much |
| Basically the effects of labor income tax on quantity of labor supplied | Workers want to get paid the amount of tax on top of the price their will to work at and that shift decreases the supply because what there are actually going to get paid is the new eq on the new curve which employs less people and get paid barely more and no many people will be willing to do that |
| Progressive Tax | It's a tax that is based on income levels and the more you earn the higher tax rate you will have (The tax who's average rate increases as income increases) |
| Regressive Tax | Regressive tax is a tax that as your income increases the less you tax rate is making you pay less. (A tax whose average rate decreases as income increases) |
| Proportional Tax | This tax is a constant rate for any income. (A tax whose average rate is constant at all income levels) |
| Where do the principle of fairness come into taxation and what are the two perspectives of fairness | -Benefit Principle -Ability to Pay Principle It comes from how much each person should be taxed and who gets the fair burden of the taxes. One side says rich should pay more because they afford it and the other says since they contribute the most they shouldn't pay as much |
| Benefits Principle | The basic proposition is that the people should pay taxes equal to the benefits they receive from public goods and services. |
| Basically Benefit Principle | The amount that a person should pay in taxes should be equal to the amount they got from public services. It could create progressive taxes and if it can't be measured objectively it still can be used by saying the person who uses it the most has the largest vested interest and create a tax for that like gas tax for highways |
| Vertical Equity | Vertical equity is a idea proposed to get a fair result in taxing people yet it is like all fair dilemmas. On group says its fair while other say no. It's basically the idea that taxpayers with a higher ability to pay should pay a greater share of taxes. (It does not mean taxing the rich more) |
| Externality | This is a cost or benefit that arises from production and that falls on someone other than the producer. Or a cost or benefit that arises from the consumption of a good and that falls on someone besides the consumer |
| Negative externality | This is when externality creates a external COST |
| Positive Externality | This is when the externality creates an external BENEFIT |
| Briefly explain a negative consumption externality and a positive consumption externality | A negative consumption externality is a external cost created by the consumption of a consumer and the cost falls on someone other than the consumer. (Smoking or noisy parties) A positive consumption externalities is the opposite others benefit from a consumers consumption. (Flu shots) |
| Briefly explain the negative and positive production extranalities | A negative pe is the cost of production that falls on someone else besides the producer. (Burning coal for elec creates pollution and hurst people and future pops.) A pos pe is the opposite and it benefits others besides producers. (Honeybees for honey but they help pollinate the area while they do that) |
| Marginal Private cost | The cost of producing an additional unit of a good or service that is borne (past participle of bear) by the producer of that good and service |
| Basically Marginal Private Cost | Producers have a cost they pay whenever they produce a good or service so the MPC looks at the cost of each additional unit of the cost of production for the producer |
| Marginal External Cost | The cost of producing another unit of good or service that falls on people other than the produer. |
| Basically Marginal External Cost | External cost is a cost that is taken on by someone other than a producer and it's usually the people who bear the cost. This is the cost of each new unit of production how much more or less ciost does each person have to take besides the producer |
| A marketable permit | It's a permit that allows for a certain amount of pollution by producer that equals the efficient amount of pollution. Becuase there is a cap and the permits total the efficient outcome the firms can create a market and a firm with a lot of pollution can buy permits but another has to lower emissions. They all have the same marginal social cost |
| Marginal External Benefit | Is the benefit from an additional unit of good or service that people other than the consumer enjoy |
| Marginal social benefit | The marginal benefit enjoyed by SOCIETY by the consumers goods and services (marginal private benefit) and by everyone else (marginal external benefit) |
| What are the external benefits of education | Better educated people are better citizens commit fewer crimes and support social activities. They communicate better and are more tolerant of others views. They also help support high-quality music theater and other organized activities |
| Voucher | is a token that the government provides to household which they can use to buy specified goods or services. They work like a token you get one from gov and then you pick a school and then you pay your tuition with your money and voucher which the school uses to charge the gov |
| Why are vouchers efficient | Becuase vouchers would help reach the marginal social benefit and be capped at that amount people would be able to go and achieve the efficient point. They would achieve this by making them equal to the marginal external benefit and then that is added to the individuals marginal pb |
| Do economist like vouchers | yes because they mix the competition of private schools but also inject public funds that help achieve an efficient output |
| What do consumers purchasing a product with an external benefit base their decisions on | They base their decisions on the marginal private benefit they receive because MPB is the benefit from an additional unit of the good or service that the consumer of that good receives. The more the MPB they more good they get so the more they want but it's a downward sloping curve because if more people have it the less exclusive it is |
| For a product with external benefits how much will be produced in a competitive unregulated market | Becuase we look at mpb only our interests matter this is also our demand and the market equilibrium will be our MPB and M cost. But we also have to look at MEB we have to add that to the EQ. This raises the point vertical and that's where our MSB is. Then we find our new efficient point which is higher up (cost more ) and output is higher. The difference between the 2 points on the demand curve show the inefficiencies and a lower output of a competitive unregulated market |
| Excludable | is a good or service that excludes certain people from it's benefits (BENEFITS) |
| Nonexcludable | is a good or service that is impossible to prevent someone from benefitting from (BENEFITS) |
| Rival | The use of a good or service that reduces the quantity for everyone else (QUANTITY) |
| Non Rival | A good or service that if its used by more than one person won't decrease the quantity for someone else (Quantity) |
| Public Good | A public good is nonrival (QR) and nonexcludable (BE) which basically means that it can be used simultaneously by everyone and no one can be excluded from its benefits. An example is a levee everyone gets the protection in floodplain which is a benefit and noone can be excluded from it |
| Common Resource | This is a resource that is Rival (QR) and Nonexcludable (BE) This is basically where a unit can only be used once but no one can be prevented from using it. AN example is fishing in open waters. A fish can only be used once but the ocean is accessible to evryone |
| Free Rider | A free rider is a person who enjoys the benefits from a good or service without paying for it. |
| Why do free riders exist | It exists because there is no incentive to pay for it because everyone consumes the same amount and no one is excluded from it. If private companies took over their would be to little production and only a few benefit so this is why the gov has to intervene |
| Why won't private firms produce the efficient amount of public goods. | Because no one has the incentive to actually pay. People will think if I pay they won't increase or decrease the amount of good so why should I pay. If they free ride they will get the same level of the good. If no one pays the firm can't get revenue and it will die and this is the free rider dilemna |
| Which is the market equilibrium and the efficient equilibrium when we look at Social Cost and Benefits vs Private costs and Benefits | When we look at the graph the efficient point is at MSB or MSC and the market equilibrium is at the regular MS or MB. (This is part of the Externalities section) |
| What determines the efficient quantity of a public good | We first have to establish that Marginal social benefit has to equal marginal social cost. If the marginal social benefit (D) is more than marginal social cost(S) than we need to increase the amount of the public good V.V |
| Tragedy of Commons | Is the overuse of a common resource. It's caused by the unsustainable use of a resource and inefficient use of a common resource |
| Basically tragedy of commons | no one has a private incentive to conserve the resource and use it at an efficient rate. |
| What do economists suggest to overcome the tragedy of the commons? | One way of overcoming the tragedy of the commons is to convert a common resource to private property. With private property rights, the owner of the resource faces the same conditions as society faces. It doesn’t matter who owns the resource. |
| What other suggestions to overcome the tragedy of the commons? | By setting quota or issuing individual transferable quotas |
Want to create your own Flashcards for free with GoConqr? Learn more.