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UT - ECO 301 - Introduction to Economics: Mid-Term 2 Study Guide -

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UT - ECO 301 - Introduction to Economics: Mid-Term 2 Study Guide -

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background image Erick ​ ​Razo MIDTERM ​ ​2  Professor ​ ​Shamoun   Introduction ​ ​to​ ​Economics​ ​(ECO​ ​301)  Midterm ​ ​2​ ​Study​ ​Guide  Chapter ​ ​6-8,​ ​10-12  Highlight ​=​ ​Important​ ​Concept   Highlight ​=​ ​Important​ ​Term   
Chapter
 6  Supply, Demand and Government Policies  ● Product  Shrinkage  ○ “When ​ ​the​ ​Government​ ​enacts​ ​price​ ​ceiling​ ​and​ ​the​ ​seller​ ​has​ ​to​ ​decrease​ ​either​ ​the  quantity ​ ​or​ ​quality​ ​of​ ​a​ ​product.”  ○ Ex.  Decrease in the size of black pepper over time  ○ Some ​ ​companies​ ​use​ ​rhetoric​ ​to​ ​explain​ ​the​ ​decrease​ ​in​ ​quantity​ ​(it’s​ ​for​ ​you​ ​health!!)  ● Price  Ceiling   ○ “Legally ​ ​imposed​ ​​MAXIMUM​​ ​price”  ■ When ​ ​Government​ ​place​ ​a​ ​limit​ ​on​ ​how  expensive ​ ​a​ ​product​ ​or​ ​service​ ​can​ ​be  ○ Binding  vs. Non Binding  ■ Above ​ ​Equilibrium  ● Non-Binding 
● Won’t
​ ​affect​ ​outcome  ■ Below ​ ​Equilibrium​ ​(THE​ ​ONE​ ​THAT  MATTERS)  ● Binding 
● It
​ ​affects​ ​the​ ​market​ ​and​ ​product  ○ Ex.  Toilet Paper  ■ Suppose  that legislation was passed that placed a 10 cent ​​price ceiling​​ on each  roll  of toilet paper  ● We  don’t know how that would affect the market, as we don’t know the  equilibrium  price.   ■ We  are told that it falls ​​80% below equilibrium price (From .50 to .10))   
background image Erick ​ ​Razo MIDTERM ​ ​2  Professor ​ ​Shamoun   Introduction ​ ​to​ ​Economics​ ​(ECO​ ​301)    Before ​ ​Change:  ○ Q D =Q s ​ ​(Quantity​ ​B)  After ​ ​Change:  ○ Q D >Q S ​ ​(Q​ D = ​ ​C,​ ​Q​ S = ​ ​A)  Shortage  ● Price  Ceilings: ​​Rent Control  ○ When ​ ​there​ ​is​ ​a​ ​legal​ ​maximum​ ​price​ ​of​ ​rent    ● Surge  Pricing  ○ Prices ​ ​that​ ​fluctuate​ ​depending​ ​on​ ​the​ ​market   ■ Just ​ ​regular​ ​pricing​ ​(Dynamic​ ​Pricing/​ ​Flexible​ ​Pricing)  ● Price  Gouging  ○ “Strategy ​ ​in​ ​which​ ​companies​ ​take​ ​advantage​ ​of​ ​the​ ​inelasticity​ ​of​ ​their​ ​product​ ​to  increase ​ ​the​ ​price.”  ○ Ex.  Expensive prices for popcorn  ● Price  Floors  ○ “Legally ​ ​imposed​ ​​MINIMUM​​ ​price”   
background image Erick ​ ​Razo MIDTERM ​ ​2  Professor ​ ​Shamoun   Introduction ​ ​to​ ​Economics​ ​(ECO​ ​301)    Above ​ ​Equilibrium​ ​(IMPORTANT  ONE)  ○ Binding  Below ​ ​Equilibrium  ○ Non-Binding      ● Ex.  Minimum Wage    Above ​ ​Equilibrium  ○ Binding  Surplus ​ ​in​ ​Labour​ ​Market  ○ Q s >Q ○ Also ​ ​Known​ ​as​ ​Unemployment  Quantity= ​ ​Quantity​ ​of​ ​Low​ ​Skilled  labour  ● Labour ​ ​Intensive​ ​restaurants​ ​get​ ​more​ ​hurt​ ​with​ ​minimum​ ​wage  ● THINK ​ ​OF​ ​MINIMUM​ ​WAGE​ ​WHEN​ ​ASKED​ ​ABOUT​ ​PRICE​ ​FLOORS  ● The  Case of Scalpers    The ​ ​Price​ ​of​ ​the​ ​Scalpers​ ​is​ ​where  Quantity ​ ​Demanded​ ​and​ ​Quantity  Supplied ​ ​Intercept  ○ AKA ​ ​Equilibrium   The ​ ​Supply​ ​curve​ ​is​ ​vertical​ ​because  there ​ ​is​ ​a​ ​limited​ ​amount​ ​of​ ​capacity​ ​in  the ​ ​event     
background image Erick ​ ​Razo MIDTERM ​ ​2  Professor ​ ​Shamoun   Introduction ​ ​to​ ​Economics​ ​(ECO​ ​301)    ● Steps  to Analyse Taxes   1. Decide ​ ​which​ ​​ ​Curve​ ​Shifts​ ​(Supply​ ​​ ​or​ ​Demand)  2. Determine ​ ​the​ ​Direction​ ​of​ ​the​ ​shift  3. Examine ​ ​how​ ​the​ ​shift​ ​affects​ ​equilibrium​ ​price​ ​and​ ​quantity    ● Shifts  of the Curves  ○ Two ​ ​types​ ​of​ ​Shifts:  1. Rightward ​ ​Shift/​ ​Leftward​ ​Shift  ● Price ​ ​does​ ​NOT​ ​change  ● Quantity ​ ​Demanded/​ ​Quantity​ ​Supplied​ ​changes  2. Upward ​ ​Shift/​ ​Downward​ ​Shift  ● Price ​ ​Changes   ● Quantity ​ ​Demanded/​ ​Quantity​ ​Supplied​ ​does​ ​NOT​ ​change  ● Ex.  The Outcome of a $1 tax on ​​buyers​​ of a pack of cigarettes     Analysis  ○ Step   ■ A ​ ​tax​ ​on​ ​​buyers​ ​​shifts​ ​the  demand  ○ Step  2   ■ The ​ ​Demand​ ​Curve​ ​Shifts  down ​ ​(​Step  not necessary)  ○ Step   ■ The ​ ​Quantity​ ​traded  decreases  ■ Price ​ ​paid​ ​increases  ■ Price ​ ​received​ ​decreased   ■ Buyers ​ ​bear​ ​more​ ​of​ ​the  burden ​ ​of​ ​tax 
background image Erick ​ ​Razo MIDTERM ​ ​2  Professor ​ ​Shamoun   Introduction ​ ​to​ ​Economics​ ​(ECO​ ​301)    ● Ex.  The Outcome of a $1 Tax on ​​sellers​​ of a pack of cigarette    Analysis  ○ Step   ■ A ​ ​tax​ ​on​ ​​sellers​ ​​shifts​ ​the  supply ​ ​for​ ​cigarettes  ○ Step  2   ■ The ​ ​Supply​ ​curve​ ​shifts​ ​up  (Step  non necessary)  ○ Step   ■ Quantity ​ ​traded​ ​decreases  ■ Price ​ ​paid​ ​increases   ■ Price ​ ​received​ ​decreases   ■ Buyers ​ ​bear​ ​more​ ​of​ ​the  burden ​ ​of​ ​the​ ​tax    ● Conclusions  on Taxation  1. It ​ ​does​ ​NOT​ ​matter​ ​on​ ​whom​ ​the​ ​tax​ ​is​ ​levied,​ ​the​ ​market​ ​outcome​ ​is​ ​the​ ​same  2. Taxes ​ ​drive​ ​a​ ​wedge​ ​between​ ​the​ ​Price​ ​paid​ ​by​ ​buyers​ ​and​ ​the​ ​Price​ ​received​ ​by  sellers  3. Elasticity ​ ​=​ ​Escape​ ​→​ ​The​ ​move​ ​elastic​ ​side​ ​will​ ​bear​ ​a​ ​smaller​ ​share​ ​of​ ​the​ ​tax  burden ​ ​(i.e.​ ​elasticity​ ​affects​ ​the​ ​tax​ ​incidence) 

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School: University of Texas at Austin
Department: Economics
Course: Introduction to Economics
Professor: Schneider
Term: Summer 2015
Tags:
Name: Introduction to Economics: Mid-Term 2 Study Guide
Description: Hey guys! This here is the ultimate study guide for this Tuesday's Midterm. It has every concept that will be covered in the test. Good Luck!
Uploaded: 11/12/2017
22 Pages 76 Views 60 Unlocks
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