# ECON 131 Midterm #2

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• the total loss in Consumer and Producer Surplus due to a change in policy
• Excess Burden
2. Consumer Surplus
Top half of triangle
3. Producer Surplus
Bottom half of triangle
4. Elasticity
• A measure of the response of one variable to a change in another.
• highly responsive is elastic
• highly unresponsive is inelastic
5. Price Elasticity of Demand
• The ratio of the percentage change in the quantity of a good demanded to a given percentage change in its price, other things being equal.
• Demand is always on top of equation
6. Elastic demand
• Situation in which quantity demanded changes by a larger percentage then price.
• Elasticity > 1
7. Inelastic Demand
• A situation in which quantity demanded changes by a smaller percentage then price
• Elasticity < 1
8. Perfectly Elastic
E=infinity
9. Perfectly Inelastic
E=0
10. Different types of Elasticities
• Cross Elasticity
• Income Elasticity of Demand
• Price Elasticity of Supply
11. Determinants of price elasticity of demand
• Availability of Substitutes
• Proportion of income
• Luxury vs. necessity
• Time Horizon
• Who Actually Pays?
12. More substitutes = more elastic
13. Big ticket items
• cars houses
• more elastic
14. Luxuries tend to be very elastic
Necessities tend to be very inelastic
15. Goods tend to be INELASTIC in the short run and ELASTIC in the long run
16. If demander doesn't face the real opportunity cost then demand tends to be inelastic
17. Policies to make demand more elastic for textbooks
• Force professors to list the price of the textbook on their syllabus
• Deduct the cost of textbooks from professor's salaries
• Allow students to choose the textbook themselves
18. The elasticity of demand curve is not the same as the slope
Elasticity is different on different points on the demand curve
Elastic towards the top
19. Revenue = Price x Quantity
20. increase prices with inelastic demand and you will make money
increase prices with elastic demand and you will so money
21. Prices declined over time creating the farm problem because
• Low income elasticity of demand for farm goods
• high rate of technological progress and increased supply form other countries
22. Three policies that could be implemented for the farm problem
• Price Supports
• Supply restrictions
• Subisidies
23. Farm Problem
Demand has shifted a little and Supply has shifted a lot
24. Tax incidence
the distribution of the economic burden of a tax
25. "Read my lips: No new taxes"
• George Bush
• Omnibus Budget Reconciliation Act of 1990
• tax on yachts
26. Raised Salt Tax
• Gabelle- Salt tax
• Jean Baptiste Colbert
• French Minister of Finance
27. Wrote Progress and Poverty
• Henry George
• proposed abolishing all taxes and placing a single tax on land
28. Firms supply in the prodcut market
29. What do firms have in common?
• How much to produce
• how many people to hire
• what type of captal equipment to use
30. Criticism of Ricardo Example
Trade may not benefit some people and may make people worse off.

it assumes that factors of production are mobile with in country but not between

ricardo assumes no negative effects associated production
31. what happens to consumers when imports occur?
they gain
32. What happens to consumers when exports occur?
they lose
33. when did Prohibition start
1840's
34. Initial effects of prohibition
• Overall Drinking reduced
• Incentives of buyers and sellers were changed
• consumption of hard alcohol sky-rocketed
35. 3 main economic effects of prohibition
• Small reduction in quantity consumed
• large increase in price
• massive increase in spending on alcohol
36. Legalization and taxation
• Both D and S go up
• easeier to enforce age restrictions
• drugs safer
• Addcits might be more willing to accept treatment

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 Author: jo73 ID: 298031 Filename: ECON 131 Midterm #2 Updated: 2015-03-10 22:17:11 Tags: daf Folders: dafd Description: dasff Show Answers:

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