Limited time offer 20% OFF StudySoup Subscription details

UGA - ECON 2106 - Microeconomics Test 2 Study Guide - Study Guide

Created by: Chapman Lindgren Elite Notetaker

> > > > UGA - ECON 2106 - Microeconomics Test 2 Study Guide - Study Guide

UGA - ECON 2106 - Microeconomics Test 2 Study Guide - Study Guide

School: University of Georgia
Department: Economics
Course: Principles of Microeconomics
Professor: Till Schreiber
Term: Fall 2016
Tags: Economics and micro
Name: Microeconomics Test 2 Study Guide
Description: This study guide covers everything that will be on the second test.
Uploaded: 10/31/2016
0 5 3 54 Reviews
This preview shows pages 1 - 7 of a 54 page document. to view the rest of the content
background image Principles of Microeconomics Test 2 Study Guide  A Housing Market with a Rent Ceiling  Price Ceiling / Price Cap: a government regulation that prohibits charging 
higher than a specified price
Rent Ceiling: a price ceiling applied to a housing market
When the rent ceiling is set above the equilibrium rent, the market 
does not change
When the rent ceiling is set above the equilibrium rent, the market is 
powerfully affected 
o 3 things occur when this happens:  housing shortage: because a rent ceiling has been  enforced, more people can afford housing and demand 
goes up. The quantity of housing demanded exceeds the 
quantity supplied.
Increased search activity: people spend more time combing
through different resources and people with whom to do 
business to find housing (newspaper, catalogs, etc.)
Black market: renters and landlord still want to make 
money, so they’ll charge rent along the rent ceiling but 
then add unnecessary charges like lock changing services 
for $500
background image Principles of Microeconomics Test 2 Study Guide  A rent ceiling decreases the quantity of housing supplied to  less than the  efficient quantity. As a result, a  deadweight loss arises, producer and  consumer surplus shrink, and there is a potential loss from increased  search activity o So, are rent ceilings fair? No.  A rent ceiling decreases the quantity of housing and the 
scare housing is allocated by:
background image Principles of Microeconomics Test 2 Study Guide  First come, first served: scarce housing is given to 
those who have the greatest foresight and get their 
names on the list first 
Lottery: people who get lucky with housing benefit  Discrimination: scarce housing is given to friends, 
family members, or those of the selected race or sex 
None of these outcomes are fair  A Labor Market with a Minimum Wage  Price floor: a government regulation that prohibits trading at a price lower 
than a specified level
Minimum wage: a price floor for wages in the labor market
If the minimum wage is set above the equilibrium wage rate, it has 
powerful effects
o The quantity of labor supplied by workers exceeds the quantity  demanded by employers o Surplus of labor  If the minimum wage is set below the equilibrium wage rate, it has no 
effect. The market continues to operate as if there were no minimum 
wage. 
Taxes Tax Incidence: the division of the burden of a tax between buyers and sellers When an item is taxed, its price might rise by the full amount of the 
tax, by a lesser amount, or not at all
Example problem: tax on cigarettes in NYC  o On July 1, 2002, New York City raised the tax on the sales of  cigarettes from almost nothing to $1.50 a pack. o What are the effects of this tax?
background image Principles of Microeconomics Test 2 Study Guide  o With no tax, the equilibrium price is $3.00 a pack
o $1.50 tax on sellers is introduced
Supply decreases and the curve  S + tax on sellers shows  the new supply curve o The market price paid by buyers rises to $4.00 a pack and the  quantity bought decreases o The price received by the seller falls to $2.50 a pack
o So with the tax of $1.50 a pack, buyers pay $1.00 more per pack 
and sellers receive 50¢ less per pack  A Tax on Buyers Again, with no tax, the equilibrium price is $3.00 per pack A tax on buyers of $1.50 a pack is introduced o Demand decreases and the curve  D – tax on buyers shows the  new demand curve 
background image Principles of Microeconomics Test 2 Study Guide  The price received by the seller falls to $2.50 a pack and the quantity 
decreases
The price paid by buyers rises to $4.00 per pack So with the tax of $1.50 a pack, buyers pay $1.00 more per pack and 
sellers receive 50¢ less per pack 
Regardless of whether you tax the buyer or the seller, you get the same result Equivalence of Tax on Buyers and Sellers  Tax incidence is the same regardless of whether the law says sellers 
pay or buyers pay
Tax Incidence and Elasticity of Demand  The division of the tax between buyers and sellers depends on the 
elasticities of supply and demand
To see how, we look at two extreme cases: o Perfectly inelastic demand: buyers pay the entire tax 
o Perfectly elastic demand: sellers pay the entire tax 
The more inelastic the demand, the larger is the buyers’ share of the 
tax 
Perfectly Inelastic Demand (with regard to taxes) Demand for this good is perfectly inelastic – the demand curve is 
vertical
background image Principles of Microeconomics Test 2 Study Guide  When a tax is imposed on this good, buyers pay the entire tax Perfectly Elastic Demand (with regard to taxes)  The demand for this good is perfectly elastic – the demand curve is 
horizontal 
When a tax is imposed on this good, sellers pay the entire tax 
background image Principles of Microeconomics Test 2 Study Guide  Tax Incidence and Elasticity of Supply  To see the effect of the elasticity of supply on the division of the tax 
payment, we again look at two extreme cases:
o Perfectly inelastic supply: sellers pay the entire tax 
o Perfectly elastic supply: buyers pay the entire tax 
The more elastic the supply, the larger is the buyers’ share of the tax  Perfectly Inelastic Supply  The supply of this good is perfectly inelastic – the supply curve is 
vertical
When a tax is imposed on this good, sellers pay the entire tax  Perfectly Elastic Supply  The supply of this good is perfectly elastic – the supply curve is 
horizontal 

This is the end of the preview. Please to view the rest of the content
Join more than 18,000+ college students at University of Georgia who use StudySoup to get ahead
54 Pages 75 Views 60 Unlocks
  • Better Grades Guarantee
  • 24/7 Homework help
  • Notes, Study Guides, Flashcards + More!
Join more than 18,000+ college students at University of Georgia who use StudySoup to get ahead
School: University of Georgia
Department: Economics
Course: Principles of Microeconomics
Professor: Till Schreiber
Term: Fall 2016
Tags: Economics and micro
Name: Microeconomics Test 2 Study Guide
Description: This study guide covers everything that will be on the second test.
Uploaded: 10/31/2016
54 Pages 75 Views 60 Unlocks
  • Better Grades Guarantee
  • 24/7 Homework help
  • Notes, Study Guides, Flashcards + More!
Join StudySoup for FREE
Get Full Access to UGA - ECON 2106 - Study Guide
Join with Email
Already have an account? Login here
×
Log in to StudySoup
Get Full Access to UGA - ECON 2106 - Study Guide

Forgot password? Reset password here

Reset your password

I don't want to reset my password

Need help? Contact support

Need an Account? Is not associated with an account
Sign up
We're here to help

Having trouble accessing your account? Let us help you, contact support at +1(510) 944-1054 or support@studysoup.com

Got it, thanks!
Password Reset Request Sent An email has been sent to the email address associated to your account. Follow the link in the email to reset your password. If you're having trouble finding our email please check your spam folder
Got it, thanks!
Already have an Account? Is already in use
Log in
Incorrect Password The password used to log in with this account is incorrect
Try Again

Forgot password? Reset it here