ECON 1010 Intro to Microeconomics, Jonathan Pritchett
ECON 1010 Intro to Microeconomics, Jonathan Pritchett ECON 1010
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This 33 page Study Guide was uploaded by Nicole Kaplan on Tuesday March 1, 2016. The Study Guide belongs to ECON 1010 at Tulane University taught by Jonathan Pritchett in Spring 2016. Since its upload, it has received 184 views. For similar materials see Into to Microeconomics in Economcs at Tulane University.
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Date Created: 03/01/16
proposition that people should pay taxes according to how easily they the ability to pay principle can bear the burden of the tax *rich person can bear burden more easily all points ___ in indifference curve are above, on/below preferred to the points ____ the curve all points on and inside affordable the budget line are: all points outside the unaffordable budget line are: balance of trade value of exports minus the value of imports proposition that people should pay taxes equal to the benefits they receive from the benefits principle the services provided by the government *those who benefit most pay the most taxes illegal market that operates black market alongside a legal market in which a price ceiling or other restriction has been imposed limited rationality by bounded rationality computing power of human brain, can't always work out rational choice limited self interest, bounded self-interest suppressing your own interests to help others (for a good cause) prevents us from making bounded willpower decisions that we know we will regret later (sometimes you have the will power to stop yourself, sometimes you don't) the closer that two goods are to being perfect substitutes, closer the ____ to the MRS is to being a constant straight line the utility-maximizing consumer equilibrium combination A consumer's total utility 1) spend all available income is maximized by the 2) equalize the marginal following rule: utility per dollar for all goods ____ consumption gives more, more ____ utility general tendency for a person to be willing to good x, while at the same time remainingnit of diminishing marginal rate indifferent as the quantity of good x increases of substitution ex: greater number of movies you see, less soda you are willing to give up because soda is more valuable as you have had an excess of movies the diminishing rate of marginal substitution has a graph in the shape of a ____, curve, ordinary goods and applies to what types of goods can be bought in any quantity divisible good definition along the budget line and example: ex: gasoline does international trade yes, it is a win-win benefit all? situation no, because tax incidence does tax incidence depend is the same regardless of on tax law? why? whether the law says sellers pay or buyers pay does the direction of the substitution effect ever no, never vary? do smaller quantities of a no, because the more quantity she has, the more good maximize utility? total utility she has the _____ elastic the more, larger supply, the ____ is the buyers share of the tax endowment effect valuing something more highly because you own it goods and services we sell exports to people in other countries for an inferior good, when decreases income increases, the quantity bought ______ for a normal good, a fall in price always _____ the increases quantity consumed For inferior goods, the income effect is ____. What negative, works against effect does it therefore the substitution effect work against? for normal goods, whiny have more income to spend, you more, positive can see ____ movies, proving that the income effect is _____ 1) export goods with gains from trade comparative advantage 2) import goods with comparative disadvantage how can a country by producing goods in increase their which they have a consumption? comparative advantage how can we describe the using a budget line limits of our consumption choices? makes it more expensive because you how does an increase in are losing more by not working at the higher rate the wage rate effect the expense of leisure? -in other words, there is a substitution effect toward less leisure and more work it shifts the budget line how does a rise in income outward, increased effect the budget line? demand, but slope is unchanged how does change in price of a good effect the changes the slope of the line budget line trade with richer and greener how does penalizing lax countries is a reward for improved environmental standards environmental standards, but a contribute to the case foreign country cannot afford to be against international trade? as concerned about its environment as a rich country can how does the cost/risk of breaking the law in markets demand decreases, market for illegal goods effect the price falls, and quantity demand and price of the decreases goods? how does the cost/risk of breaking the law in markets supply decreases and price for illegal goods effect the rises supply and price of the goods? multiply price of good by how do you calculate quantity of goods, and add expenditure? up that answer for all gods purchased how do you calculate real your income / price of a income? good how do you find a person's labor supply by changing the wage rate curve (between leisure and income?) how do you find the its he magnitude of the relative price on a budget line/curve? slope of the budget line by looking at the total how do you find the utility that arises from utility-maximizing choice? each affordable combination 1) determine just-affordable combos of how would you calculate the movies and soda at new prices 2) calculate new marginal utilities per dollar effect of a fall in price of a from good who's price has changed movie to the quantity of 3) determine quantities of movies and sodas movies and sodas consumed? that make their marginal utilities per dollar equal if I decided to buy more movies because of their demand for soda will cheaper ticket price, what will decrease, resulting in a happen to my demand of leftward shift soda? if marginal utility per dollar is greater for good A good B than for good B, what should you spend less on? if the income effect is stronger than the substitution effect, decreases, rises the quantity of work hours _____ as the wage rate ____ if the income effect is weaker than the substitution effect, increases, rises the quantity of work hours ____ as the wage rate _____ if the indifference curve is that the MRS is low relatively flat, what does (willing to give up a small that tell us about the quantity of y to get more MRS? of x) if the indifference curve is that the MRS is high steep, what does that tell (willing to give up a large us about the marginal rate quantity of y, to get just a of substitution (MRS)? little bit of x) if the negative income effect equals the positive quantity stays the same substitution effect, what happens with the price falls? if the negative income effect is greater than the positive substitution effect, then how quantity bought decreases does the fall in price effect quantity bought? if the negative income effect is less than the positive quantity bought increases substitution effect, then what happens to the quantity bought when the price falls? if the price doesn't rise at sellers pay the tax all, who pays the tax? if the price of a good rises buyers by the full amount of a tax, who pays the tax? if the price of good x falls, the budget line rotates outwards (point on Y axis doesn't move) ____ increase in QUANTITY if the price of movies goes down, what will that result demanded of movies, resulting in a movement in? along the curve if the price rises by a lesser amount than the buyers and sellers share the burden of the tax tax, who pays the tax? if the relative price of a they will substitute more good falls, how will it of that good for other effect the consumer? goods because it's cheaper if you receive a hypothetical pay cut, and the price of movie goes down, you will be original (but it'll move down along the curve) on your _____ indifference curve if your income decreases, leftward (stays parallel) your budget line shifts ___ restriction that limits the import quota maximum quantity of a good that may be imported in a given period imports goods and services we buy from other countries illegal arrangements where in a black market for rent, rents are set above rent ceilings what types of and generally above equilibrium arrangements are made? but they can get away with it because demand is so high the effect of a change in income effect income on the quantity of a good consumed increasing your exports producer surplus increases: increasing your imports consumer surplus increases: line that shows combination of goods among which a consumer is indifferent indifference curve -it joins all points that are preferred, not preferred, and just as good as point C aboutpoints on curve the consumer is indifferent must be bought in whole indivisible goods units at the points marks definition and example: ex: movies the _____ inelastic the demand, the ____ is the more, larger buyers share of the tax measures rate at which a person is willing to give up a good y to get an marginal rate of additional unit of good x while at the same time remaining indifferent substitution (MRS) (remaining on same indifference curve) change in total utility that marginal utility results from a one-unit increase in the quantity of a good consumed marginal utility per dollar marginal utility from a good divided by its price the model of consumer choice can be used to work and leisure study the allocation of tie between: spending all income and most affordable choice benign highest attainable indifference curve the most affordable choice opportunity cost is when willingness to pay is equal to: the ability of a nation to perform an activity or produce national comparative a good or service at a lower advantage opportunity cost than any other nation things that decrease in negative marginal utility value the more we get them ex: pollution the study of brain neuroeconomics mechanisms at work during economic decision making actions other than tariffs that non-tariff barriers restrict international trade definition and examples: examples: quantity restrictions, licensing requirements active on January 1st, 1994: North American Free -all trade barriers will virtually Trade Agreement (NAFTA) be eliminated between U.S., Mexico, and Canada preference map series of indifference curves regulations that make it price ceiling illegal to charge a price higher than a specified level effect of a change in the price effect price of a good on the quantity of the good consumed regulation that makes it price floor illegal to trade at a price lower than a specified level the principle of as quantity consumed of a good increases, the diminishing marginal marginal utility from utility consuming it decreases upper limit to the quantity production quota of a good that may be produced during a specified period what a household can real income afford to buy expressed as a quantity of goods relative price price of one good divided by price of another rent control price ceiling applied to housing markets lobbying for special treatment by the government to create economic profit or divert consumer rent seeking surplus or producer surplus away from other costs on others, with total benefits exceedings total costs time spent looking for search activity someone with whom to do business subsidy payment made by the government to a producer effect of a change in price on substitution effect the quantity bought when the consumer remains on the same indifferent curve collecting government tariff revenue revenue is costly, especially for governments in developing countries tax imposed by importing tariffs country when imported good crosses international boundary tax incidence the devision of the burden of a tax between buyers and sellers to show the income effect, actual we restore a person's income to its _____ level total utility total benefit a person gets from the consumption of goods utiles measure of pleasure the benefit or satisfaction utility from consuming a good or service we chose the maximizes consumption possibility that _____ total utility -strong example: buying gas, because what a good example of paying one more dollar gives you more gas when the marginal utility of -weaker example: buying a movie ticket, a good is influential? whats because you are spending more dollars a less influential example? at a time (movie ticket costs 8 bucks, for ex) what are consumption 1) household's income choices contracted by? 2) prices what are the two main types of intervention in 1) production quotas markets for farm 2) subsidies products? what are the two reasons 1) tariff revenue why international trade is 2) rent seeking restricted? what components make up the opportunity cost of the rent + time spent search activity housing? what did the European the largest unified tariff- Union create in terms of tariffs? free market in the world what does imposing a tax inefficiency, except when you have perfectly inelastic create? what is the demand or perfectly inelastic exception to this supply (unresponsive to price statement changes) what does the budge that your income = to you equation state? expenditure the marginal social benefit from labor (value of goods produced) what does the demand for labor measure? -how society benefits from labor and being able to purchase the goods being made what does the division of tax between buyers and the elasticities of demand and supply sellers depend on? what does the magnitude of the slope of the marginal rate of indifference curve substitution measure? the marginal social cost of labor to workers (leisure forgone) what does the supply of labor measure? -what they lose by choosing to spend their time working what happens if the price is there is a decrease in quantity lowered for an inferior good, demanded (demand curve and the negative income effect slopes upward, which doesn't is stronger than the substitution effect? occur in the real world) what happens to he decreases quantity, and budget line of a good if its increases slope (making it price rises? steeper) what happens to price and prices rise, and quantity quantity with an import produced in the U.S. quota? increases what happens to producer and consumer surplus they shrink with rent ceilings? there is a parallel shift. If what happens to the budget line when there is income decreases, budget line shifts a change in income? leftwards/inwards the market price for what happens to the consumers rises, cost for market with a quota? supplyers decreases the market price for what happens to the consumers falls, and the market with a subsidy? supply increases as well as their marginal cost what happens when both both demand for the drug sellers and buyers are and supply of the drug penalized for trading in decrease, quantity the illegal drug? decreases marginal social benefit what happens when there (demand) exceeds is a tax on supply? marginal social cost (supply) so it is inefficent when foreign firms sell their exports at a what is dumping and how lower price than the cost of production does it contribute to the -dump to try go gain global monopoly case against international because it drives domestic firms out of trade? why do firms dump? business what is it called when a minimum wage price floor is applied to labor markets? quantity of labor supplied is greater than what is the effect on the quantity of labor demanded so there is a market if minimum wage SURPLUS of labor is set above the -more people want the higher paying jobs, but equilibrium wage rate? less jobs are actually available at that new price, causing more people to be unemployed what is the effect on the market if the minimum no effect wage is set below the equilibrium wage rate? what is the effect on the market if the price ceiling no effect is set above the equilibrium rent? what is the effect on the quantity of housing demanded > market if the price ceiling quantity of housing supplied is set below the -there is a shortage of housing equilibrium rent? MU (good A) / P (good A) = MU 9 (good B) What is the equation that / P (good B) shows total utility is maximized? Once total utility -once total utility is maximized, you is maximized, what does that cannot further increase total utility and any change will result in a decrease in mean? utility what is the fundamental comparative advantage force the generates trade between nations? infant industries are not as productive, they what is the infant industry have had enough time to increase argument in the case productivity form learning-by-doing. against international Argument: this industry should be protected from international competition until it can trade? stand on its own and compete that the household what is the key chooses the consumption assumption of marginal possibility that maximizes utility theory? total utility tariffs bring in revenue for the what is the main government, but quotas bring in profit for the importers (can buy difference between tariffs products for cheaper world price and quotas? and then sell for more money and make profit) valuable water is cheap but diamonds are expensive what is the paradox of value? how can we explain explanation: water has low marginal utility and low price, diamonds have high marginal it? utility and high price, so when you calculate marginal utility per dollar, they are equal the wage rate forgone: what is the "price" of you buy leisure by not leisure? supplying labor and by forgoing income the cost of increased search activity due what might end up making -when homes become cheaper, there is an the cost of housing higher increase in demand but a decrease in supply than it would be without a causing people to spend lots of time searching for new homes, which ends up being more costly rent ceiling? (inefficient)rice remained at the equilibrium what point on the budget the point that maximizes line gives consumers the their preferences but is maximum attainable still on/within the budget utility? line producer surplus for producers in our country, what to import tariffs people won't buy expensive increase? why? imported brands but will buy U.S. brands what two concepts determine consumption 1) budget constraint 2) preferences choices? what two parts can we 1) substitution effect divide the price effect 2) income effect into? what type of effect does substitution effect the income effect reinforce? what type of elasticity does the supply of perfectly inelastic, smaller consumer surplus diamonds have? what (expensive) does that result in? what type of elasticity does the supply of water perfectly elastic, large have? what does that consumer surplus (cheap) result in? what type of market a black market would a shortage in housing create? what type of workers do minimum wage laws low-skilled younger increase unemployment workers for? what types of goods do goods with inelastic the buyers pay the most demand, like tobacco, gas, tax on? etc. what would a high enough tax rate on an illegal drug decrease demand to the same level of decreased (once legalized) do to the demand when it is illegal market? what would a marginal downward curve utility curve look like? what would a total utility upward curve curve for a normal good look like? when a price is regulated when does each activity and there is a shortage increase? (ex: price ceiling for rent below equilibrium price) when minimum wage is set they decrease because: above the equilibrium price, what happens to consumer 1) more time is spent on potential job search and producer surplus? why? 2) deadweight loss when people enjoy goods and want more of them, positive marginal utility what type of utility do they have? - us consumers lose (imports decrease, when the U.S. government higher price) imposes an import quota - us producers gain - importers gain on imported T-shirts, who - society loses (deadweight loss) - loses and who gains? increased production cost and loss from decreased imports the worker, because labor who pays most of the has a low elasticity of income tax and most of supply (its less responsive the social security tax? to changes in supply) because the marginal why does a deadweight social benefit (demand) is loss arise from rent greater than the marginal ceilings? social cost (supply) why does the opportunity the buyer pays the market cost rise why purchasing price plus the cost of an illegal good? breaking the law why do you want to export because you can sell your more when the world price products for more than is higher than your their worth, increasing domestic price? producer surplus why do you want to because the products are import more when the cheaper and it will world price is lower than increase your consumer your domestic price? surplus why when income changes does the slope of because the relative price the budget line not doesn't change change? why would the slope of a budget line remain because price doesn't unchanged even if your change income changes? with perfectly elastic the seller demand, who pays the entire tax? with perfectly elastic buyers supply, who pays the entire tax? with perfectly inelastic the buyer demand, who pays the entire tax? with perfectly inelastic sellers supply, who pays the entire tax?
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