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AAEC Definitions (Review)

by: Gina Nam

AAEC Definitions (Review) AAEC 1005

Gina Nam
Virginia Tech

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About this Document

The study guide serves to give starting points and/ or a review of what is going to be on the test. These are a combination of notes I have taken, from the presentation, and from the book. I have a...
Economics of the Food and Fiber System
Kurt Stephenson
Study Guide
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This 3 page Study Guide was uploaded by Gina Nam on Sunday April 3, 2016. The Study Guide belongs to AAEC 1005 at Virginia Polytechnic Institute and State University taught by Kurt Stephenson in Spring 2016. Since its upload, it has received 14 views.

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Date Created: 04/03/16
Chapter 7: Taxes Definitions:  Excise tax­ a tax charged on each unit of a good or service that is sold  Incidence­ who really bears the burden of the tax  Tax rate­ amount of tax levied per unit of whatever is being taxed  Benefits principle­ those who benefit from public spending should bear the burden of the  tax that pays for that spending o E.g. those who benefit from a road should pay for that road’s upkeep  Ability­to­pay principle­ those with greater ability to pay a tax should pay more  Tax base­ measure or value that determines how much tax an individual or firm pays o Tax structure­ specifies how the tax depends on the tax base  Income tax­ tax that depends on the income of an individual or gamily  from wages and investments  Payroll tax­ depends on the earnings an employer pays to an employee  Sales tax­ depends on the value of goods sold (excise tax)  Profits tax­ depends on firm’s profits  Property tax­ depends on the value of property  Wealth tax­ depends on an individual’s wealth o Proportional tax­ flat tax; base tax that is the same percentage regardless of the  taxpayer’s income or wealth o Progressive tax­ tax that rises more than in proportion to income  High­income taxpayers pay a larger percentage of their income o Regressive tax­ the vice versa of a progressive tax Chapter 9: Definitions  Economic profit: Revenue­ opportunity costs  Principle of “either­or” decision making: total benefits vs. total costs o E.g. buy a cat or not; eat dinner or not ∆totalcosts(TC)  Marginal cost:  ∆Quantity(Q)  Economic gain: Total benefits – total costs  Optimal quantity: the quantity have provides the highest possible total profit  Sunk cost: costs that have already incurred and is not recoverable o E.g. non­refundable movie tickets  Risk aversion: willingness to sacrifice some economic payoff in order to avoid potential  loss  Loss aversion: loss hurts more than the gains even if the payoff is the same  Status quo bias: staying with something you started with  Ricks perception: overestimated risks of a low probability and catastrophic events o And underestimating risks we take voluntarily  E.g. driving  Anchoring effect: Well­formed preferences would be under no such influence; knowing  “true” value  Relative Social position matters: absolute values matter Chapter 10: Definitions:  Utility: measure of satisfaction of a consumer  Marginal utility: change in total utility generated by consuming one additional unit of a  good or service  Principle of diminishing marginal utility: each successive unit of a good or service  consumed adds less to the total utility than the previous; decreasing in the utils  Substitution effect: change in the quantity of a good consumed as the consumer  substitutes other goods that are now relatively cheaper than the current good or service Chapter 11:  Short run o There are fixed and variable inputs  Long run o All inputs are variable  Law of Diminishing Marginal Returns: an increase of variable inputs with fixed inputs  results in decreasing outputs  Average cost: total cost/ quantity of output  Average Fixed Costs: Total fixed costs/ quantity of output  Average Variable Costs: Total variable costs/ quantity of output  Revenue: total sold (or total quantity) x price of output  Profit: revenue – total costs  Marginal revenue: change in total revenue/ change in quantity  Marginal cost: additional cost of producing another unit of output o Not constant due to Law of Diminishing Returns Chapter 12 Definitions:  Price­takers: a market where there are multiple producers, multiple sellers, and identical  products o Markets set the price  Perfectly competitive market: all market participants are price­takers  Break­even price: when P (price of good) = ATC (average total cost) o Making profit: Price > ATC o Losing profit: Price < ATC  However if higher than AVC, then its losing money however its gaining  enough to cover fixed costs  If P < AVC, then the market should shut down  In the long run, economic profits tend to go to zero or the break­even price  Marginal Costs is the supply curve starting at the intersection between MC and ATV  curves


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