Second Exam Study Guide
Popular in Micro Economics
Popular in Department
This 12 page Study Guide was uploaded by Mike Meng on Saturday February 28, 2015. The Study Guide belongs to ECON 142 at Kansas taught by Dr. Brian Staihr in Spring2015. Since its upload, it has received 221 views.
Reviews for Second Exam Study Guide
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 02/28/15
D Demand curve represents the value or bene ts people see in the good D Supply curve represents the cost associated with the good D E Market failure P140 D A situation where the market falls to produce the ef cientbest correct optimal level of output D It justi es the government intervention into the economy Cases of market failure Public goods P155 Public goods are 1 Nonrival consumption most goods if I consume it someone else can t consume the same good but for public good someone consumes it can t stop someone else to consume the same single one good It s non rival D 2 Nonexclusive B if you don t pay you don t get the good but for public good not paying don39t prevent you form getting it It s non exclusive D D mosquito spray example D Because of the freerider problem there would be no demand and it leads to no supply So the market will fail with the goods D D Four categories of goods P154 l Excludable Nonexcludable D D D D D D D Rival private goods common resources D Nonrival public goods national defense D B Is the internet a public good D D Externalities P138 D Externalities a cost or a bene t that cost by a transaction that aren t part of the transaction spill over effect D Coworkers getting u shots you benefit D D Cost or bene t caused by the transaction that are not part of the transaction D A bene t or a cost that affects someone who is not H D Private v external costs and bene ts D Positive v negative externalities D I The sets of costs P138 D Private cost material D External cost pollution D Social costs private costs external costs can be negative D D The demand and supply curve indicate only private bene ts and costs We are adding the external bene ts and cost by shifting the curves D When there is a extra external costs to producer we shift the supply curve up D If we incorporates external costs quantity to produce is smaller D Like tax on cigarettes to reduce the external cost D When there is a extra bene t to consumer we shift the demand curve up D If we incorporate external bene ts quantity to produce is bigger P140 D Like student loans to improve the bene t of more graduates to bene t the society And tax break Both increase positive externalities D H Price Elasticity D Law of demand B when the price changes the quantity demanded will be changed D Bread shoes D D D Elasticity Responsiveness ll D How much would the price changing affect quantity demanded D The atter the graph is the bigger elasticity gets D To measure the quantity demanded that is caused by price changing B Your demand is elastic when the quantity demanded change D The bigger change in quantity demanddemand more or demand less the bigger elasticity of demand gets the demand is more elastic D If the price changed and you buy the same amount you were going to buy anyway you didn t respond your demand is not elastic D D D Elasticity determines how much revenue you earn The law of demand when the price is set at a low price quantity demanded is high when price is high quantity demanded is low E D D D D D D D D D D D D D D D D D D c i Which option is going to make more money Total revenue quantity demanded price What make a good have a demand that is elastic or inelastic 1 number of substitutes more substitute elastic less or no substitute inelastic 2 luxury or necessity luxury is elastic necessity is inelastic 3 how broadly the market is de ned if it s de ned narrowly elastic if it s de ned broadly inelastic More requirement more speci c elastic less requirement of onsuming inelastic 4 Size of the good in the consumer s budget price relative to ncome large part of budget elastic small part of budget inelastic 5 the amount of time consumer adjust to the new price The more time consumer use to adjust to the new price the more elastic the demand gets In the short term inelastic in the long term elastic How elastic works P183 Demand is you total revenue Elastic lower price increase Elastic higher price decrease Inelastic lower price decrease Inelastic higher price increase Calculating Elasticity The original price New price Original quantity demanded New quantity demanded lllllllllllllllllllllllll Price elasticity change in quantity demanded average quantity demanded change in priceaverage price Quantity in on the too D D Elasticity is a negative number but if absolute value of price elasticity is between 0 1 the demand is inelastic D If it is greater than 1 the demand is elastic Using elasticity D D H Price elasticity change in quantity demanded average quantity demanded change in priceaverage price Quantity in on the top change in quantity demanded change in price elasticity D D D D B using this we are able to calculate the quantity demand after the change of the price and the new revenue after the price change D D The elasticity changes as you move along the demand curve if the demand curve is a straight line The top part is elastic and the lower part is inelastic D The top part is more expansive then it39s more likely to be a bigger part of people s budget so it s more elastic D B Cross price elasticity of demand P185 B When we are talking about changing price of one goods affects the substitutes the cross price elasticity is positive B When we are talking about change price of complements the cross price elasticity is negative D D Elasticity of supply P190 Elasticity of supply change in quantity supplied average quantity supplied change in priceaverage price D Quantity in on the top As more time passes the elasticity becomes more elastic lncome elasticity of demand P186 How does the quantity change when income changes D D D D D D D Combining elasticity with tax imposed on demand and supply curves D Percentage of any tax that will fall on the buyers D Elasticity of supplyelasticity of supply elasticity of demand D D D D D Percentage of any tax that will fall on the sellers Elasticity of demandelasticity of supply elasticity of demand the more elastic the supply is the more of the tax falls on the buyeh D the more elastic the demand is the more of the tax falls on the seller D The Economics of Healthcare D In the US D Most people don39t pay for healthcare but insurance and their insurance company pays for the health care D Some people get insurance through their work 64 D Some people get insurance through government 36 D Through the market 10 D Without insurance 16 D D Going without health care vs going without insurance D In the US no one goes without health care people can always go to emergency room But emergency room only treat acute cases not required to treat chronic cases and it s not free D D Single payer system insurance from the government D In Canada people don t pay premium but pay taxes to the government The hospital is paid by the government but doctors are not a government s employees People get health insurance form the government D D Socialize Medicine health care from the government D In UK people don t pay premium but pay taxes to the government The hospital is government s hospital and doctors are government s employees D D Third party payer system P215 D In the US people pay for insurance then the insurances pay for doctor s service D Party consuming the product is not the party bene ts D D The principalAgent Problem B One party is acting on behalf of another party D Example Professor acting on behalf of the school management acting on behalf of firm s shareholders One party is able to disobey what s required for them to do by heir customers Economic information P213 D t D D D Asymmetric Informationincompete information B When one party to a transaction has less information than the other party Example car dealers used cars George Akerlof Because the seller always has more information than the buyer the market can quotbreak downquot D The incomplete information causes the market for high quality used cars breaks down because the amount of money people are willing to pay for a used care is less than the market price of good used cars So every car dealers sell lemons instead D E Market function badly when information is incomplete market is more efficient when information is more complete D D Adverse Selection P213 B When a party to a transaction takes advantage of other party s lack of information D The hidden information U Bad customers or bad producers are more likely to be selected due to asymmetric information B When sellers have more information and can take advantage like taxi drivers D Hidden information for the insurance provider bad customers take advantage of the asymmetric information The insurance company don t know what bad habits their customers have Customers have bad or dangerous habits are more likely to buy insurance D D D D The market for lemonslow quality used cars P213 D D Risk Pooling P214 Way to reduce adverse selection in insurance States require driver to have insurances 2010 s healthcare reform requires all people to purchase insurance D D D D D risk pooling ensures that insured population represents the overall population Not only bad customers purchase insurance Then insurance company has overall less chance to pay for the accidence of their customers D risk pooling ensures insurance companies are able to make pro ts D D Moral Hazard P214 D Actions one party takes after entering into transaction that take advantage of other party s lack of information D Customer change their behavior after being insured Customs become more careless after being insured D People go to the doctor more often after buying health insurance D Driving more reckless after buying insurance Coinsurance Copays customers pay some and insurance pay some Deductible customers pay for the rst certain lllll P217 Many aspects of health care involves externality lf healthcare is left to the market the quantity if healthcare produced and demanded is too low Then the positive externality is too low No one will get a u shot and no others will not bene t form it D should the government be involved Yes Public goods nonrival and nonexcludable P219 A u shot lllll Rival and excludable So it doesn t qualify as a public good Healthcare is not public good But it s has some positive externality to the society So it s somewhere in between public and private goods lllllllllll 36 od people get insurance form the government 51 of the tax spend on the 36 of them When the cost of healthcare increases the tax revenue are used to cover healthcare is going up then other spending will decrease or tax will increase D D What s making the costs of healthcare rise D m paper work not malpractice insurance unnecessary tests higher cost in emergency room D They play some role but no the key drivers D Reasons D 1cost disease D low productivity in service industries cause higher costs The more people take care of the patient the lower the productivity is D 2the population is aging D health care spending on people over age 65 is 6 times greater then young people with age between 18 to 24 D 3distorted economic incentives moral hazard P223 when people are insured they tend to go to the doctor more Affordable Care Act Obama care P226229 D D D D It is not quotsocializedquot medicine It is not a singlepayer system It is a set of adjustments to our current third party payer system ACA of 2010 Individual Mandate Requires all individual to have insurance OR pay a ne The idea is risk pooling low income people will be offered tax credits to offset the cost f buying insurance they don39t have to buy insurance young people are able to stay with their parents until the age of lllllllllllllll cheap insurance until 30 Preexisting conditions stops insurance companies form denying or charging more on coverage to people because of preexisting condition D if patient start to buy insurance when they nd out they are diagnosed with some disease the amount of premium the patient pays is way less than the amount money the insurance company pays for the treatment Than the insurance companies are more likely to go out business D D Employer mandate D Require all rms have more than 200 people to offer insurance 0 employee Firms with less than 50 employees are unaffected O D 26 D D D D Create quotstate health exchangesquot idea is bring together the buyers and sellers of insurance Insurance company will compete for customers More people quali ed for Medicaid Medicaid is governmentprovided insurance for lowerincome ersons People with incomes gt 2000000 will see some tax increase lllllllllllll The idea is to have more people insured and reduce the cost of l0 D D D Lifetime maximum payout are prohibited D D healthcare
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'