Summary of Weeks 1-7
- University of Missouri- Columbia
- Economics 1014
- Summary of Weeks 1-7
Last Modified: 2011-07-20
costs regardless of what you do now.
of your next best opportunity. This can include actual dollars paid as well as costs that are not dollar‐valued.
A rational decision may turn out to be bad if you had bad information to base your decision on, but it is rational if you make the best decision you could based on the information you had at the time.
You have to do an after‐the‐fact cost‐benefit analysis. In other words, once you have access to all the accurate information (which is usually not until after you already made your decision)
you ignore these costs/benefits when making your decision.
* The difference between benefit earned and cost paid.
b. Normative statements are more generally subjective value statements. Look for words without clear definitions (good, bad, better) or for words like ought, or should.
Allocation Efficiency: we are making sure the goods and services are going to the people who can best benefit from them
Ed = % Change Qd / % Change P
= 1 : unit elastic, price change and consumer demand equal
< 1 : Elastic, consumers are sensitive to prices
Es = % change Qs / % change P
Ei = % change Qd / % change I
Ei = % change Qd / % change P
Area under the demand curve and above price paid
Area above the supply curve and below the price recieved
Due to resource misallocation.
• Used to protect sellers from prices which the government feels are “too low”.
• Designed to increase PS and decrease CS.
• Only binding if set above Pe.
• If binding, a price floor usually results in RM and DWL (the size of the RM and DWL depend on the responsiveness of consumers and producers to price changes).
• Used to protect buyers from prices which the government feels are “too high”.
• Designed to increase CS and decrease PS.
• Only binding if set below Pe.
• If binding, a price ceiling usually results in RM and DWL (the size of the RM and DWL depend on the responsiveness of consumers and producers to price changes).
• Placing a tax on a seller will increase the marginal cost of production, (move the supply curve up vertical by the amount of the tax). This is a decrease in supply (shift left).
• Placing a tax on a buyer will reduce the willingness to pay the seller for the product since now you have to pay the seller and the government (move the demand curve down vertical by the amount of the tax). This is a decrease in demand (shift left).
• Giving a subsidy to a seller will reduce the marginal cost of production, (move the supply curve down vertical by the amount of the subsidy). This is an increase in supply (shift right).
• Giving a subsidy to a buyer will increase the amount they are willing to pay the seller since really the government is now paying part of the cost for them, (move the demand curve up vertical by the amount of the subsidy). This is an increase in demand (shift right).
• Taxing goods with high Ed (like luxuries) will have a lower tax effectiveness rate but are usually considered more equitable ways to raise tax revenue since the poor don’t buy as many luxuries, so the rich pay more of this kind of tax.
* Whoever is less responsive to price changes pays more of the tax and gets more of the subsidy.
Ex: USA produces 100 cars in a month VS. Canada produces 60 cars in a month
1 car = the loss of 5 bushels of wheat
Ex: 60 cars = 120 bushels of wheat
1 car = the loss of 2 bushels of wheat
Ex: 1 car = the loss of 5 bushels of wheat VS. 1 car = the loss of 2 bushels of wheat
Words From Our Students
"StudyBlue is great for studying. I love the study guides, flashcards, and quizzes. So extremely helpful for all of my classes!"
Alice, Arizona State University
"I'm a student using StudyBlue, and I can 100% say that it helps me so much. Study materials for almost every subject in school are available in StudyBlue. It is so helpful for my education!"
Tim, University of Florida
"StudyBlue provides way more features than other studying apps, and thus allows me to learn very quickly! I actually feel much more comfortable taking my exams after I study with this app. It's amazing!"
Jennifer, Rutgers University
"I love flashcards but carrying around physical flashcards is cumbersome and simply outdated. StudyBlue is exactly what I was looking for!"