ECON101 Study Guide - Midterm Guide: Passive Smoking, Demand Curve, Luxury Goods

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taupefish251

30 Nov 2016

School

University of Delaware

Department

Economics

Course

ECON101

Professor

Kievana Haynes

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ECON

Rivalry goods: one person

consumes good and no one else

can consume it

Non-rivalry: Multiple people can

enjoy

Excludability: Anyone that

doesn’t pay cannot consume it

Consumers don’t have incentives to

show willingness to pay for public

goods

STUDY GUIDE

CHAPTERS 5, 6, 10, 11

CHAPTER 5

Market failure: Firm fails to produce efficient level of output

Externalities: unintended effects to 3rd parties

- Negative: costs (Air pollution, secondhand smoke); too much of

good is produced/consumed

~ Private Costs: cost paid by individual (orig. supply curve)

~ Social Costs:private costs + external cost (new supply curve)

- Positive: benefits (edu, vaccine); not enough

produced/consumed

~ Private benefit:benefit received by individual (orig demand)

~Social Benefit: Private benefit + external benefit (total benefit

to society) (new demand curve)

Property rights: Air/property rights of a firm

- Externalities arise from property rights

Coase Theorem: private bargaining; no barriers and property rights

Categories of goods

Private Goods

Excludable + Rival

One person buys, one person

benefits

Common Resources

Rival + Non-excludable

All people can benefit, used once

Tragedy of the Commons

Fish, pasture

Public Goods

Non-rival + Non-excludable

Free, multiple ppl can benefit

Free-rider problem

Quasi-Public goods

Non-rival + excludable

Must pay, many ppl can benefit

Cable TV

Social Cost

Private cost

Private benefit

Social Benefit

Market equilibrium

Efficient Equilibrium

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ECON

STUDY GUIDE

CHAPTERS 5, 6, 10, 11

CHAPTER 6

ELASTICITY: Measure of how quantity demanded/quantity supplied change in

response to price

Elasticity of Demand: Responsiveness of quantity demanded to price

- Not the slope, always negative,

- ED (AV) > 1 ELASTIC (More responsive)

- ED (AV) < 1 INELASTIC (Less responsive)

PERFECTLY INELASTIC: ED=0, completely unresponsive

PERFECTLY ELASTIC: ED= infinity, infinitely responsive

More substitutes available, more elastic demand

More passed time, more elastic

Luxury good, more elastic than necessity

Total Revenue and Price Elasticity

Dem and Inelastic

Price and revenue move in same

direction

Demand Elastic

Price and revenue move inverse

direction

Price is high and Qd is low

DETERMINITES OF ELASTICITY

1. Availibility of close substitutes

2. Passage of time: over time, ppl adjust buying habits

3. Luxury vs. Necessity

4. Definition of a market: more narrow market- more sub- more

elastic

5. Share of budget on good: more elastic for “Big ticket items”

***Time is the primary determinant of price elasticity of supply

Calculate Elasticity

ED= (Q2-Q1)/ (P2-P1)

Average Average

1. Find average quantity

2. Find % change

(new-old/average)

3. Find average price

4. Find % change price

5. % Qd/ %Pd (negative)

= %change in Q of good A

% change in P of good B

+Positive: Substitutes

-Negative: Complements

Zero: unrelated

Cross Price Elasticity

= % change in Qd

% change in income

Positive < 1: Normal

necessity (bread)

Positive > 1: Normal luxury

(Caviar)

Negative: Inferior (meat)

Income Elasticity

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Document Summary

Rivalry goods: one person consumes good and no one else can consume it. Excludability: anyone that doesn"t pay cannot consume it. Consumers don"t have incentives to show willingness to pay for public goods. Market failure: firm fails to produce efficient level of output. Negative: costs (air pollution, secondhand smoke); too much of good is produced/consumed. ~ private costs: cost paid by individual (orig. supply curve) ~ social costs:private costs + external cost (new supply curve) Positive: benefits (edu, vaccine); not enough produced/consumed. ~ private benefit:benefit received by individual (orig demand) ~social benefit: private benefit + external benefit (total benefit to society) (new demand curve) Coase theorem: private bargaining; no barriers and property rights. Average average: find average quantity, find % change (new-old/average, find average price, find % change price, % qd/ %pd (negative) Elasticity: measure of how quantity demanded/quantity supplied change in response to price. Elasticity of demand: responsiveness of quantity demanded to price.

Related Questions

home / study / business / economics / questions and answers / Question 1 Which Of The Following Is The Best Example ... Question: Question 1 Which of the following is the best exam... Bookmark Question 1 Which of the following is the best example of a positive externality? A car company lays off 10,000 employees in order to cut costs. An individual drives a large SUV, which increases the amount of greenhouse gases in the atmosphere. An individual smokes in a restaurant, which bothers other patrons. A child is vaccinated against a disease, which reduces the probability that other children will catch the disease. 4 points Question 2 As a result of a negative externality, the market equilibrium quantity is too ______ compared to the socially optimal quantity. As a result of a positive externality, the market equilibrium quantity is too ______ compared to the socially optimal quantity. high; high. low; low. high; low. low; high. 4 points Question 3 Based on the diagram below, the deadweight loss area associated with the market equilibrium equals: Week06_graph1.jpg $10 $50 $80 $1,000 4 points Question 4 A firm's accounting profit is given by total revenue: less implicit costs. less explicit costs. less economic profit. less implicit and explicit costs. 4 points Question 5 Suppose an activity has a private cost equal to $30 and a private benefit equal to $30. The associated social cost equals $35 and the social benefit equals $30. Which of the following statements is true about this activity? There is a negative externality associated with this activity but not a positive externality. There is a positive externality associated with this activity but not a negative externality. There is both a positive and a negative externality associated with this activity. There is neither a positive nor a negative externality associated with this activity. 4 points Question 6 The Coase Theorem implies that: the efficient level of an externality is generally zero. private individuals living in market economies should not be concerned with externalities. government intervention is not always needed to arrive at the efficient level of an externality. government laws are unnecessary. 4 points Question 7 An industry in which a small number of large firms sell products that are either close or perfect substitutes is: perfectly competitive. monopolistically competitive. an oligopoly. a monopoly. 4 points Question 8 When a negative externality is present in a market: a tax can increase the level of economic surplus. the social benefits are greater than the private benefits. there is generally too little of the good produced by private markets. the government should ensure that there are zero external costs associated in all markets. 4 points Question 9 In the presence of a positive externality, the government can arrive at the socially optimal output level by: paying producers a subsidy equal to the amount of social benefits associated with the activity. charging producers a tax equal to the amount of social costs associated with the activity. paying producers a subsidy equal to the amount of external benefits associated with the activity. charging producers a tax equal to the amount of external costs associated with the activity. 4 points Question 10 The tragedy of the commons is that: too few individuals have access to high quality healthcare. common people overconsume public goods. the quality of life for lower income people is generally lower than that of higher income people. a resource with no price tends to be exploited until its marginal benefit falls to zero. 4 points Question 11 One potential remedy to the tragedy of the commons is to: never allow a single individual to consume more than one percent of the common resource. criminalize the usage of common resources. allow individuals to use a common resource as long as they receive some benefit from doing so. place a common resource under private ownership. 4 points Question 12 As a result of a positional externality: contestants have a tendency to invest in a series of mutually offsetting investments in performance enhancement. there is generally an underinvestment in performance enhancement. the market price of performance enhancement materials is too high. the quality of performance in competitive situations is lower than the socially optimal level. 4 points Question 13 Which of the following statements is true regarding health insurance? Economics shows that all health related procedures should be free to individuals because the health of an individual is priceless. Total economic surplus would be larger if individuals faced an incentive to only use services when the benefit exceeds their costs. Health maintenance organizations provide an incentive for doctors to prescribe expensive nonessential services. First dollar insurance coverage has likely had very little to do with rising healthcare expenditures since World War II. 4 points Question 14 A strategy that yields a higher payoff no matter what the other players in the game choose is known as a: prisoner's strategy. dominated strategy. dominant strategy. Nash strategy.

ECON101 Study Guide - Midterm Guide: Passive Smoking, Demand Curve, Luxury Goods

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