Economics Test #2 Answers – Flashcards
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measures how responsive QD is to a change in price
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price elasticity of demand
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what is lifesaving medicine?
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perfectly inelastic
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if demand curve is horizontal "___"
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substitutes
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% c. QD _________ % c. Price
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cross-price elasticity
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% c. QS ________ % c. price
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price elasticity of supply
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marginal social cost of producing a good exceeds private cost
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negative externality
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marginal social benefit > private cost
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positive externality
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measures the net benefit from participating in a market
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consumer surplus
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at max: Marginal benefit = marginal cost
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economic surplus
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when there is a ___ the total net benefit to society is maximized
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competitive equilibrium
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has nonexcludibility and rivalry
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common resource
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Nonrivalry and excludability
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quasi-public good
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consumers are willing to purchase a product up to the point where
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the marginal benefit of consuming a product is equal to its price
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Marginal cost is
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the additional cost to a firm of producing one more unit of a good
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the total amount of PRODUCER SURPLUS in a market is equal to
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the area above the market supply curve and below the market price
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in a competitive market equalibrium
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the marginal benefit equals the marginal cost of the last unit sold
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refers to the reduction in economic surplus resulting from not being in competitive equalibrium
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deadweight loss
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__ is maximized in a competitive market when marginal benefit equals marginal cost
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Marginal profit
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when a competitive equilibrium is achieved in a market
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the total net benefit to society is maximized
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the actual division of the burden of a tax between buyers and sellers in a market
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tax incicence
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suppose the demand curve for a product is vertical and the supply curve is upward sloping. If a unit tax is imposed in the market for this product
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buyers bear the entire tax burden
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tex on bear $1
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shift to left $1
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when the government taxes a good or service, it
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affects the market equilibrium for that good or service
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in economics, the optimal level of pollution is
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the level for which net benefit from reducing the pollution is the greatest
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firms will supply an additional unit of a product only if
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they recieve a price equal to the additional cost of producing that unit
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price elasticity of supply is used to gauge
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how responsive suppliers are to price changes
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which of the following holds in an economically efficient competitive market equalibrium
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there is not positive and no negative external effects from consumption and production
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because producers do not bear the external cost of pollution
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private production exceeds the economically efficient level
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suppose the demand for milk is relatively inelastic. What happens to sales rev. if the gov. imposes a price floor above the free market equilibrium price in the market for milk?
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sales revenue rises
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a positive externality causes
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the marginal social benefit to exceed the marginal social cost of the last unit produced
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consider a demand curve that has a constant elasticity of 0. what happens to QD and total rev. when price increases?
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the QD doesnt change but the total revenue increases
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suppose the value of price elasticity of demand is -3. what does this mean?
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a 1% increase in the price of the good causes quantity demanded to decrease by 3%
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demand elasticity in terms of time
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demand is more elastic in the long run than in the short run
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suppose the value of the price elasticity of supply is 4. What does this mean?
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a 1% increase in the price of the good causes quantity supplied to increase by 4%
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if, for a given % increase in price, QS increases by a proportionately larger %, then supply is
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elastic
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cross- price elasticity is positive when products are
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substitutes
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cross- price elasticity is negative when products are
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complements
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when demand is elastic, a fall in price causes total revenue to rise because
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the increase in quantity sold is large enough to offset the lower price
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relationship between competitive equilibrium and deadweight loss
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no deadweight loss if it is in competitive equalibrium
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if demand is inelastic an increase in price __ rev
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increases
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if demand is inelastic a decrease in price __ rev
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decreases
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when there is a positive externality the gov may produce a quantity that is ___ than the efficient amount
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less
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neg. externality is ___ than the efficient amount
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greater
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the total amount of consumer surplus in a market is equal to
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the area below the demand curve and above the market price
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elasticity in relation to close substitutes
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the more substitutes available, the more elastic demand
