ECON_ Study Guide Exam 2
ECON_ Study Guide Exam 2 ECON 224 002
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This 7 page Study Guide was uploaded by Brianna Dwinnell on Thursday October 15, 2015. The Study Guide belongs to ECON 224 002 at University of South Carolina taught by Elizabeth Marie Breitbach in Summer 2015. Since its upload, it has received 149 views. For similar materials see Introduction to Economics in Economcs at University of South Carolina.
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Date Created: 10/15/15
Types of Markets 1 Discuss the characteristics of competitive monopoly monopolistically competitive and oligopoly Compare and contrast each a Competitive markets Many rms all competing for your business like a farmers market Monopoly The goal is to collect all the money one person is selling all the products There are barriers to entry and price discrimination Monopolistically competitive market there are a relatively large number of sellers small market shares no collusion and independent action There are easy entry and exits small concentration ratio and differentiated products Oligopoly there are a few larger producers products can be homogeneous or differentiated there is limited control over products entry barriers collusion and a concentration ratio near orat100 2 Discuss ef ciency Which market is most ef cient a Competitive markets are the most ef cient markets market is in the equilibrium b Oligopolies and monopolies have a concentration ratio of 100 or very close to it which makes them the most ef cient Supply and Demand Part 1 De ne a market Explain where interactions can be completed 1 Any institution or mechanism that brings together buyers demanders and sellers suppliers of a particular good or service Discuss demand Name the two requirements for demanding a good or service 1 Demand is a schedule that shows the amount of a good or service that buyers wish to purchase at various prices during some time period Distinguish between Individual and Market Demand 1 The individual demand is the demand of one individual or rm It represents the quantity of a good that a single consumer would buy at a speci c price point at a speci c point in time 2 Market demand provides the total quantity demanded by all consumers In other words it represents the aggregate of all individual demands 4 De ne the Law of Demand Discuss the relationship between price and quantity demanded 1 A microeconomic law that states all other factors being equal as the price of a good or service increases consumer demand for the good or service will decrease and vice versa 2 higher the price the lower the quantity demanded because consumers opportunity cost to acquire that good or service increases and they must make more tradeo s to acquire the more expensive product 3 Fundamental characteristics of law of demand is that other things equal as price falls the quantity demanded rises and as price rises quantity demanded falls 5 Explain Price Elasticity of Demand 1 Is a measure used in economics to show the responsiveness or elasticity of the quantity demanded of a good or service to a change in its price 6 Discuss supply 1 Supply is a schedule or curve that shows the amounts of a product that producers will make available for sale at each of a series of possible prices during a speci c period 7 De ne the Law of Supply Discuss the relationship between price and quantity supplied 1 The principle that other things equal an increase in the price of a product will increase the quantity of it supplied and conversely for a price decrease 2 A supply schedule or curve reveals that other things equal rms will offer for sale more of their product at a high price than a low price 8 Explain Price Elasticity of Supply 1 The ratio of the percentage change in quantity supplied of a product or resource to the percentage change in its price a measure of the responsiveness of producers to a change in the price of a product or resource 9 Discuss the market equilibrium 1 A market state where the supply in the market is equal to the demand in the market The equilibrium price is the price of a good or service when the supply of it is equal to the demand for it in the market 10 Examine how the market moves toward the equilibrium 1 Part 2 Shortages below equilibrium will drive up price that decreases quantity demanded and increase quantity supplied moving toward equilibrium Surpluses will drive down price that increase quantity demanded and decrease quantity supplied moving toward equilibrium Name the determinants of Demand Discuss how each moves the demand curve 1 The determinants of demand are factors other than price that locate the position of a demand curve The basic determinants are consumers tastes the number of consumers in the market consumers incomes the price of related goods and expected pnces Tastes favorable change in consumer tastes for a product means more of it will be demanded at each price Demand will increase shifting curve rightward Number of buyers an increase in the number of buyers in market increases product demand lncome the effect of changes in income on demand is more complex A rise in income increases demand consumers collectively purchase more when incomes rise 1 Normal goods goods purchased second hand or cheaper 2 Inferior goods when income rises you can purchase higher priced goods Price of related goods can either increase or decrease the demand for a product depending on whether the related good is a substitute or a complement Expected prices a newly formed expectation of a higher price in the future may cause consumers to buy now in order to quotbeatquot the anticipated price rise this increasing current demand Explain how a shift in the demand curve can change the equilibrium price and quantity Show and discuss graphically 1 Demand shifts are de ned by more or less of a given product or service being required at a xed price resulting in a shift in both price and quantity An increase in demand will shift price upwards and volume to the right increasing the overall value of both metrics relative to the prior equilibrium point Contrast a change in demand with a change in the quantity demanded 1 The change in quantity demanded relies solely on the price of a certain good If the price of an item goes down the quantity demanded increases If the price goes up then the quantity demanded decreases 2 A change in demand only occurs when one of the economic factors other than price changes occur That is is there is a shift in income price of substitutecompliment goods number of buyers tastes or expectations 4 Name the determinants of Supply Discuss how each moves the supply CUFVE 1 2 Factors other than the price that locate the position of the supply curve Resource prices the prices of the resources used in production process help determine the cost of production incurred by rms 1 Higher resource prices raise production costs and squeeze pro ts Technology improvements in tech enable rms to produce units of output with fewer resources Taxes and Subsidies Biz treat sales and property taxes as costs Increases in those taxes will increase production costs and reduce supply Price of other goods Firms that produce a particular product can usually use their plant and equipment to produce alternative goods 1 Higher prices of these other goods may entice producers to switch production to different goods in order to increase pro ts Expected prices changes in expectations about future price of product may affect producer s current willingness to supply that product Number of sellers Other things equal the larger the number of suppliers the greater the market supply 1 As more rms enter into the industry the supply curve shifts to the right 2 The smaller the number of rms the less the market suppHes 5 Explain how a shift in the supply curve can change the equilibrium price and quantity Show and discuss graphically 1 2 3 A change in the price of a good or service holding all else constant will result in a movement along the supply curve A change in the cost of an input will impact the cost of producing a good and will result in a shift in the supply it will shift outward if costs decrease and will shift inward if costs increase A change in the expected demand for a good or service will result in a shift as well 1 Supply will shift outward if enthusiasm is expected to increase and will shift inward if there is an expectation for consumers preferences to change in favor of an alternate good or service Contrast a change in supply with a change in the quantity supplied 1 Supply refers to the entire relationship between prices and the quantity of this product supplied at each of these prices 2 Quantity supplied refers to one particular point on the supply curve not entire curve 1 How much of the product is supplied at one particular price 2 Is the horizontal distance between the vertical axis and the supply curve Discuss how elasticity in uences the size of the quantity change in the market 1 If elasticity is greater than or equal to one the curve is considered to be elastic If it is less than one the curve is said to be inelastic 2 The demand curve is a negative slope and if there is a large decrease in quantity demanded with a small increase in price the demand curve looks atter or more horizontal the atter the curve means that the good or service is elastic De ne a price ceiling Discuss a binding and nonbinding price ceiling 1 A legally established maximum price for a good or service 2 Binding price ceiling occurs BELOW the equilibrium price 3 Nonbinding is a not effective price ceilingabove equilibrium price De ne a price oor Discuss a binding and nonbinding price oor 1 A legally determined price above equilibrium price 2 A binding price oor occurs ABOVE the equilibrium price 3 Non binding price oor occurs below the market price Part 3 Discuss the labor market in reference to the Circular Flow Diagram List the characteristics of a purely competitive labor market Many employers competing for a speci c type of labor Many workers with identical skills supply Individual employers and workers are wage takersquot Supply curve is upward sloping and demand is downward Describe the difference between a product demand curve and a labor demand curve What two things impact the location of the labor demand curve Product household demand business supply demand depends on price of product Labor demand curve Business demand household supply biz want to pay lower price Product demand depends on productivity of labor how productive we are as laborers the price of the product it helps produce and derived demand Discuss and give examples of event that will shift the labor demand CUFVE Descr look like Demand curve will be downward sloping The lower the wage the increase in quantity of labor demanded ibe the supply of labor Who supplies labor What does the curve Workers with similar skills and abilities Upward sloping curve Competing forjobs De ne and give an example of a monopsony A market structure in which there is only a single buyer of a good service or resource Employer has buying power Labor is relatively immobile wages are going to be lower than in purely competitive market rm is a wake maker Evaluate the impact a union has on the labor market Effectively reduces supply of labor Restricts immigration reduces child labor enforces compulsory retirement and enforces shorter workweek Discuss reasons why different jobs yield different wages Demand supply curve is going to reduce the supply of labor and increase the new equilibrium and higher wages Market Failures each Discuss when markets fail and how it affects the use of scarce resources 1 Name 1 2 3 4 Exami Sometimes markets fail to produce the right about of a product 1 Either underallocating or overallocating the four categories of goods Explain each and give examples of Rivalry anything that can be consumed food or drink Nonrivalry cannot be consumed painting on a wall Excludability if you don t purchase ticket for game you cannot get in to see it Nonexcludability sidewalks parks outdoor concerts ne the free rider problem 1 A customer who has an incentive to underestimate the value of a good in order to secure its bene ts at a lower price Discuss positive and negative externalities Give an example of each 1 2 Side effects borne by people who are not directly involved in market exchanges Positive if your neighbor cleans out the outside of their house it bene ts the look of the entire neighborhood 3 Negative Pollution List some ways government intervention may improve the market outcome 1 Correct negative externalities de ne property rights speci c taxes direct control liability rules and lawsuits 2 Correct positive ex gov subsidies to consumers and producers tax refunds or deductions 3 Pollution peremissionunit tax tradable emission tax Explain the difference between a tax and a subsidy Discuss how they change the market outcome 1 The gov levies taxes and subsidies on many goods and services they can make the buyer or seller pay the tax 2 The tax can be a of the good s price or a speci c amount for each unit sold 3 When dealing with taxes you move left of the equilibrium 4 When dealing with subsidies you move right of the equilibrium Graphically depict a taxsubsidy on a graph Be sure to label the initial price and quantity and the prices and quantity after the tax is put in place 1 To gure out where to place the wedge on a graph for taxes move from the equilibrium to the left until the different between the curves the tax 2 and subsidies move from equilibrium to the right Contrast elastic and inelastic supply and demand when a tax is present in the market 1 When supply is more elastic buyers will pay more of a tax burden because they still want the products and sellers pay less 2 When demand is more elastic buyers have smaller portion of tax burden and sellers bear greater burden of tax Explain why it is dif cult to for the government to help the market achieve equilibrium 1 They have to make sure that the buyers and sellers are not paying too much of a tax too far away from equilibrium that they will stop getting the product all together
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