...Effects of government action This chapter provides the following information in regards to how governments influence the economy. In it, we will look into depth about price ceilings and floors, and how they affect the markets. As well as price supports in agriculture. Then we will look at discussion on taxes, from income tax to fairness and tradeoff. When we reviewed price ceilings, it particularly discussed rent ceilings. Rent ceilings are a regulation that makes it illegal to charge more than a specified rent for housing. So if a rent ceiling was set above the equilibrium price, it wouldn’t do much because people are already paying that price range. But when it is below the equilibrium price, which is when there are very extreme effects. So with a rent ceiling is below, you will begin to have housing shortages, which in turn opens up black markets, and increases search activities. So the question of rent ceiling efficiency is answered, if there were no ceilings, then the market forces would determine its own equilibrium rent, thus the quantity demanded would equal supplied. But with a rent ceiling in place, the outcome would be inefficient as the marginal benefit would exceed marginal cost, and deadweight loss arises. We move on to price floors, where government regulation places a lower limit on which a particular good or service may be traded. Anything lower would be illegal. A good example provided in this chapter is the minimum wage law. The whole aim is to boost...
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...Chapter 6 Supply, Demand, and Government Policies MULTIPLE CHOICE 1. Price controls are a. used to make markets more efficient. b. usually enacted when policymakers believe that the market price of a good or service is unfair to buyers or sellers. c. nearly always effective in eliminating inequities. d. established by firms with monopoly power. ANSWER: b. usually enacted when policymakers believe that the market price of a good or service is unfair to buyers or sellers. TYPE: M DIFFICULTY: 2 2. Policymakers choose to enact price controls in a market because a. they believe the market’s outcome to be unfair. b. enacting price controls will directly increase tax revenues. c. they are required by law to improve market conditions. d. they believe that the market system is inefficient and their actions will improve efficiency. ANSWER: a. they believe the market’s outcome to be unfair. TYPE: M SECTION: 1 DIFFICULTY: 2 3. Policymakers are led to control prices because a. they view the market’s outcome as inefficient. b. they view the market’s outcome as unfair. c. all politicians enjoy exercising their power. d. they are required to do so under the Employment Act of 1946. ANSWER: b. they view the market’s outcome as unfair. TYPE: M SECTION: 1 DIFFICULTY: 2 4. Price controls a. always produce an equitable outcome. b. always produce an efficient outcome...
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...Use the Supply & Demand model to explain how a good’s price is determined In ordinary practice, price is the quantity of payment or reimbursement given by one party to another in return for goods and services. It is generally expressed in some form of currency. This essay will discuss how a good’s price is determined using the demand & supply model. Supply & demand is perhaps one of the most fundamental concepts of economics. It is an economic model of price determination in a market. It ascertains that in a competitive market the unit price for a specific good will fluctuate until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers, resulting in an economic equilibrium of price & quantity. DEMAND Demand refers to the want or the willingness of the consumers to buy commodities. The demand for a product may be defined as the quantity of the product that a consumer will purchase at the existing price during a particular period of time. Demand is influenced by the price of commodities. The higher the price of the commodity, the lesser will be the demand of a rational consumer; other things remaining constant. The hypothesis of – other things remaining constant – is known as the ceteris paribus. The demand curve illustrates the relationship between price & quantity demanded (as the price increases the quantity demanded decreases). Movement along...
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...quantity of gasoline demanded to move out along the demand curve. D. the quantity of gasoline supplied to move in along the supply curve. 2. Suppose the price of tomatoes dramatically increases. Which of the following could cause this change? A. Hurricanes during the late summer damages the Florida crop, shifting supply left B. A reduction in tariffs of tomatoes from Central American, shifting supply right C. A news report stating that a pesticide used on tomatoes might cause cancer, shifting the demand to the right D. Advertising for catsup increases demand for catsup, shifting the demand curve to the left 3. An increase in price and decrease in quantity are consistent with a: A. leftward shift in demand and no shift in supply. B. leftward shift in supply and no shift in demand. C. rightward shift in supply and a rightward shift in demand. D. rightward shift in supply and a leftward shift in demand. 4. An increase in quantity and an indeterminate change in price are consistent with a: A. leftward shift in demand and supply. B. rightward shift in supply and demand. C. rightward shift in supply, keeping demand constant. D. rightward shift in demand, keeping supply constant. 5. Suppose caviar sales soars at the same time price increases. What would lead to both a higher quantity sold and higher price of caviar? A. A shift in demand to the right and a larger shift in supply to the right. B. A shift in demand to the left and a smaller shift in supply...
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...factors that can or will control or influence what happens to the demand of computers. This graph shows that as the price of computer increases the demand for the computer decreases and supply of computers increase. The prices of the computer would be a determinant in this case. As the price of the computer decreased, the demand for the product also increased, but the supply of the product also goes down. What is the equilibrium price and quantity in this market? The equilibrium price is $125 and the equilibrium quantity is 1,750. Suppose the government imposes a special tax on these computers. Describe what would happen in this market in terms of the supply and demand curve. Taxes reduce both demand and supply and increases the equilibrium cost to a price higher than it would be without the tax and also decreases the amount that is wanted by the consumer that is lower without the tax. If a buyer has the option to buy an item that is equal to the item that has tax added, they will more likely purchase the product for a cheaper price. Assume that the government imposes a price floor of $150 in the computer market. What would happen in this market? If the government enforced a price floor of $150 on the E-Books a few things might normal, and there could be a surplus of the product created. “The consumers will purchase the quantity where the quantity demanded is equal to the price floor or where the demand curve intersects the price floor line” (Economics, 2006). “On...
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...Chapter 8 Producer and Consumer Surplus consumer surplus — the value the consumer gets from buying a product less its price. producer surplus — the price the producer sells a product for less the cost of producing it. Burden of Taxation A tax paid by the supplier shifts the supply curve up by the amount of the tax. The loss of consumer and producer surplus from a tax is known as deadweight loss . Deadweight loss is shown graphically by the welfare loss triangle — a geometric representation of the welfare cost in terms of misallocated resources caused by a deviation from a supply/demand equilibrium. The cost of taxation includes the direct cost of revenue paid, lost surplus, and administrative cost. Interestingly, in terms of aesthetics, people have come to like the style of Paris roofs; it is one of the many things that makes Paris distinct. Including aesthetics complicates the analysis enormously. Economic reasoning is based on the architectural view that form follows function. Who Bears the Burden of a Tax? Taxes are like hot potatoes: Everyone wants to pass them on to someone else. Nobody wants to pay taxes, and there are usually large political fights about whom government should tax. For example, should the Social Security tax (mandated by the Federal Insurance Contributions Act, or FICA) be placed on workers or on the company that hires them? The supply/demand framework gives an unexpected answer to this question. Burden Depends on Relative Elasticity ...
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...Main topics/concepts * Scarcity * Scarcity means that society has limited resources and cannot produce all the goods and services people want. * Opportunity costs * The opportunity cost of an item is what you give up to obtain that item. * Equity–efficiency trade off * Individual level * Allocation of time between work and leisure * Society level * Guns vs. Butter is the classic trade-off between production of consumption goods and military spending * The efficiency versus equity trade-off * Efficiency: Society gets the most that it can from its scarce resources. * Equity: The benefits of those resources are distributed fairly among the members of society. * Models: Circular flow diagram and PPF * The circular-flow diagram shows how dollars flow through markets among households and firms in an economy * Firms (Produce and sell goods and services) * Households (Buy and consume goods and services.) * The production possibilities frontier (PPF) is a graph showing the combinations of output that an economy can possibly produce given * the available factors of production; and * the available production technology. * Normative vs. positive statements * Positive statements are about how the world is. * Normative statements are about how the world ought to be. * When economists make normative statements, they are...
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...cost, meaning that resources are easily adaptable for producing either good. ● Bowed Out: Follows the law of increasing opportunity costs, meaning that as you produce more of any good, the opportunity cost (foregone production of another good) will increase; resources are NOT easily adaptable to producing both goods. Also known as a concave PPC. ● When points move along the curve, the market is at productive efficiency. ● Points outside of PPC: unattainable given present resources, can ONLY be reached with trade ● Shifters of PPC 1) Change in resource quantity or quality 2) Change in technology 3) Change in trade Specialization ● Who has the ________________ ? ○ Comparative Advantage: producer with lowest opportunity cost, determined by price per unit ○ Absolute Advantage: produce who can produce the most output with the least amount of resources ● To calculate comparative advantages for 2 countries and determine who...
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...Marshallian supply- demand synthesis of stable equilibrium T H A T with Marshall the price point o f view delimits the economic field, does not precisely Commit him to the demand-And-supply approach in price analysis. He is, however, .a and-supply economist. This, to be sure, is not much to say. All economists are so, no matter what they may accept, or purport to accept, as the principle, or the problem, or the group of problems, defining the economic field. Always and everywhere with all economists, price is the point of equilibrium or adjustment OJi equilibration between demand and supply. It is, then, safe as far as it goes-but always in the sense of the commonplace or the obvious-to announce that price is determined by demand and supply. It is merely an oracular way of asserting an undisputed thing. Knowing not even so much as the question One may always refer the solution to demand and supply. Never is the argument thereby advanced excepting, perhaps, in the sense of a formal indication of a desirable or necessary line of procedure. No. Influence that does not report itself in demand or in supply terms, or in both, is relevant to price determination. The demand- and-supply expression is merely a formula of the signboard sort pointing to the terms to which all economic analyses must finally get reduced. Difficulties appear only with the attempt to trace out the various influences that finally report themselves in demand and in supply terms-to render an account of these...
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...1. PRINCIPES OF ECONOMICS-MANKIEW CHAPTER 1- QUESTION FOR REVIEW (18) No 3. What is inflation and what causes it? = Inflation is an increase in the overall level of prices in the economy. Inflation happen because culprit is growth in the quantity o money when a government creates larges quantities of the nation’s money, the value of the money. No 5. Explain the two main causes of market failure and give an example of each! = Externality, is the impact of one person’s action on the well being of a bystander Example: pollution. = Market power, is the ability of a single economic actor (or small group of acors) to have a substantial influence on market prices. Example : if everyone in town needs water but there is only one well, the owner of the well is not subject to the rigorous competition with which the invisible hand normally keeps self interest in check. 2. Principles of economics-mankiew CHAPTER 2 –question for review (38) No. 1. Why do economists sometimes offer conflicting advice to policymakers? = economist who advise policymakers offer conflicting advise either because of differences in scientific judgements or because of differences in values. At other times, economist are united in the advice they offer, but policymakers may choose to ignore it. No. 7. What are the subfields into which economics is divided? Explain what each subfield studies. = microeconomics and macroeconomics. Microeconomics is the study of how households and firms are...
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...Scarcity: A situation in which unlimited wants exceed the limited resources available to fulfill those wants. Economics: the study of the choices people make to attain their goals, given their scarce resources. Economic model: A simplified version of reality used to analyze real-world economic situations. Market: a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade. Markets three important ideas:1.people are rational 2.People respond to economic incentives. 3.Optimal decisions are made at the margin. Marginal analysis:Analysis that involves comparing marginal benefits and marginal costs.. Trade-off: the idea that because of scarcity, producing more of one good or service means producing less of another good or service. Opportunity cost: the highest-valued that must be given up to engage in an activity. Three fundamental questions:1. What goods and services will be produced? Consumers, firms, and the government face the problem of scarcity by trading off on good or service for another. 2. How will the goods and services be produced? Firms may need to choose between a production method in the united state that uses fewer workers and more machines and a production method in china that uses more workers and fewer machines. 3. Who will receive the goods and services produced? People are willing to give up some of their income-and, therefore, some of their ability to purchase goods and services- by donating...
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...Population Growth Rate ii. Increased oil price iii. Increase Demand for Biofuel iv. The Exchange Rate of US Dollar v. Weather Disruption & Natural Disaster vi. Low Global Stocks of Grains vii. Tariffs and policies 1.2 The Effects of Global Food Crisis i. Effects at the national level ii. Effects at the household level | 1-11 | | 11-13 | Question 2 i. How the governments intervene ii. Why the governments intervene | 13-20 | References and Appendices | 21-23 | Question 1: Causes and effects of global food price rises. 1.1 The Causes of Global Food Crisis Figure 1: Sources of Food Price Increases, January 2007–February 2011 (percentage points, year-on-year) Source : FAO The Food and Agriculture Organization of the United Nations (FAO)Food Price Index is a measure of the monthly change in international prices of a basket of food commodities. According to the data of FAO, FAO Food Price Index (FFPI) reached an average of 234 points in June 2011, which is approximately 1 percent higher than in May and 39 percent higher than in June 2010. It reaches its peak that is 238 points in February. A high rise in international sugar prices was behind much of the increase in the June value of the index. International dairy prices rose slightly in June, while meat prices are stable. Among the major cereals, prices of wheat fell most and rice increased. Among the oils and fats, prices of soybean oil are steady but palm oil...
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...Introduction to Economics Course outline Instructor/ teaching assistants details Details | Instructors name | Ayesha Samie | Email address | ayesha_samie@yahoo.com | Counseling hours | | Teaching assistants name | Uroosa Jeelani | Email address | uroosaj@gmail.com | Tutorial timings and days | Thursday 12:45-13:45 | About the course. This course will teach students the basic tools of microeconomics and macroeconomics issues such as price determination, supply and demand, consumer behavior, costs of production and market structures growth, inflation, unemployment, interest rates, exchange rates, technological progress, budget and trade deficits. The course will provide a unified framework to address these issues and to study the impact of different policies, such as monetary and fiscal policies, on the aggregate behavior of individuals. Evaluation of Student Performance: | Weightage in grade | Hourlies | 30% (15% of each hourly) | Final exam | 30% | Assignments/presentations/quizzes | 25% | Class Participation | 15% | Total | 100 | Description of each component: * The term exams (hourlies) and final exam will be conducted as per the rules set by IBA. There will be no makeup exams, unless instructed. All IBA rules of examination apply to undertaking the exam * Assignments will be split in class assignments and home assignments. Class assignments must be handed over to the instructor at the end of the class (unless otherwise)...
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...non-monetary measures. Monetary Measures for Correcting the BoP ↓ The monetary methods for correcting disequilibrium in the balance of payment are as follows :- 1. Deflation Deflation means falling prices. Deflation has been used as a measure to correct deficit disequilibrium. A country faces deficit when its imports exceeds exports. Deflation is brought through monetary measures like bank rate policy, open market operations, etc or through fiscal measures like higher taxation, reduction in public expenditure, etc. Deflation would make our items cheaper in foreign market resulting a rise in our exports. At the same time the demands for imports fall due to higher taxation and reduced income. This would built a favourable atmosphere in the balance of payment position. However Deflation can be successful when the exchange rate remains fixed. 2. Exchange Depreciation Exchange depreciation means decline in the rate of exchange of domestic currency in terms of foreign currency. This device implies that a country has adopted a flexible exchange rate policy. Suppose the rate of exchange between Indian rupee and US dollar is $1 = Rs. 40. If India experiences an adverse balance of payments with regard to U.S.A, the Indian demand for US dollar will rise. The price of dollar in terms of rupee will rise. Hence, dollar will appreciate in external value and rupee will depreciate in external value. The new rate of exchange may be say $1 = Rs. 50. This means 25% exchange depreciation...
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...Name: Bradley Johnson Course Title: Business Ethics Course Time: Mondays; 420pm - 7pm Titles of Articles: “Chesapeake council to vote on whether condemnation can be used to take land for Elbow Road” and “Chesapeake council Oks plan to use eminent domain for road widening” Theories: Kantian Ethics and Libertarian Justice ODU Honor Pledge: "I pledge to support the Honor System of Old Dominion University. I will refrain from any form of academic dishonesty or deception, such as cheating or plagiarism. I am aware that as a member of the academic community it is my responsibility to turn in all suspected violations of the Honor Code. I will report to a hearing if summoned." Signature: ____________________________________________________________ Have you ever driven down a two-lane road where there are deep ditches on both sides with no shoulders and the lanes are only separated by a few inches? In Chesapeake, Virginia, we have one of those aforementioned roads and it’s known as Elbow Road. It’s very dangerous road to drive on, and you can wreck if you are not paying attention. Mary Beth Gahan reported on July 22nd that the city of Chesapeake has had a plan in place to widen Elbow Road from the Centerville Turnpike to the Virginia Beach line for awhile now. Around 2.2 million dollars has been budgeted for this project, and the city predicts for it be done in 2016. (Gahan). Gahan explained that in order to start the project of widening Elbow Road, the city of Chesapeake...
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