How do we use the factors of production to produce these goods

land earns ___

labor earns ___

capital earns ___

entrepreneurs earn ___

rent

wages

interest

profit

1. are about what is

2. can be right or wrong

3. can be checked against the facts

1. about what ought to be

2. depend on values that cannot be tested

natural experiment

statistical investigation

economic experiment

marginal cost

marginal benefit

PPF

Point A is ___ and point B is ___.

This PPF ___ illustrates scarcity because ___.

attainable; unattainable

does; the firm cannot produce points outside the PPF, and as the firm produces along the PPF, it cannot produce more of one good without producing less of another

1. opportunity cost is a ratio

2. the opportunity cost of moving between two points on the PPF curve when increasing the quantity of x produced is equal to the inverse of the opp cost of moving between the same two points in the opp direction when increasing he quantity of y produced

PPF

As we move from point A to B to C, the opportunity cost of producting a sweater _____. Opportunity cost _____ because resources _____.

1. The point on the PPF at which MR = MC

2. We are producing at a point on the PPF that we prefer above all other points

occurs when we produce more of any one good without giving up some other good

all points on the PPF are at ____ efficiency

occurs when goods and services are produced at the lowest possible cost and in quantities that provide the greatest possible benefit

2. when we produce at the point on the PPF that we prefer above all other points we achieve ____ efficiency

1. capital acumulation

2. technological advance

1. they can buy some goods for less than their opp cost of producing them

2. they can sell some goods for greater than the opp cost of producing them

3. they can conusme at a pt outside their PPF

1. The flows in the market economy that go from firms to households are ____.

relative price and a

ratio

the amount that consumers plan to buy during a given time period at a particular price

(not necessarily the same as quantity actually bought)

% change in quantity demanded

divided by

% change in the price

When is demand inelastic?

a good with a negative income elasticity is,

income elasticity positive and less than 1

1. are scarce

2. must be allocated using some system

1. the cost of producing one more unit of a good or service

2. the minimum price that producers must receive to induce them to offer to sell another unit of a good or service

3. a supply curve

taxes and subsidies

prices and quantity regulations

increase in price

technological advance

increase in wage rates

1. its not fair if the rules arent fair

2. its not fair if the results arent fair

principle that states we should try to achieve "the greatest happiness for the greatest #"

; income must be transferred from the rich to the poor up to the point of complete equality

1. state must enforce laws that estb and protect private property

2. private property must be transferred from one person to another only through voluntary exchange

fair by rules view

unfair by results view

creates a shortage;

marginal benefit > marginal cost

unfair by results and rules view

with an efffective rent ceiling, housing is allocated by  ____

search activity ___ and black markets ____

a method other than market price;

increases;

arise

price floor;

set below EQ has no effect on market

greater;

greater;

greater

True or false?

the greater the elasticity of demand, the smaller the tax revenu

true

greater elasticity of demand --> greater decrease in quantity bought and sold --> smaller tax revenue

smaller;

greater;

greater

True or false?

the smaller the elasticity of supply, the greater the tax reveune collected by govt

true

smaller elasticity of supply --> smaller change in quantity bought and sold --> greater the tax rev

1. causes MB of last unit sold to be greater than MC of last unit produced

2. tax drives a wedge b/t price paid by buyer and price received by seller

3. with a tax, the market produces less than EQ quantity

ppl should pay taxes equal to the benefits they receive from the services provided by the govt.

fair arrangement

1. if all growers produce more than their assigned limit, the production quota becomes ineffective, and price falls to no quota price

2. growers can get a larger profit by producing one more unit

3. price exceeds marginal cost

1. black markets would not be eliminated

2. quantity of drug bought could be decreased

3. extremely high tax rate would be needed to cut the quantity of drugs bought to the level prevailing with a prohibition

4. a sufficiently high tax could be imposed to decrease supply, raise price, and achieve the same decrease in the quantity bought as with a prohibition of drugs

1. the demand for food is inelastic, so when the global food supply fluctuates, the world price of food (and the price faced by a country that imports food, fluctuates

2. at times, the price will be high

3. at times of global food shortages, producers restrict exports and the price of food rises even higher 

because in the import market the inc in consumer surplus is greater than the dec in prod surplus;

and in the export market the inc in producer surplus is greater than the dec in consumer surplus

1. tarrifs

2. import quotas

3. health, safety, and regulation barriers

4. voluntary export restraints

5. export subsidies

consumers in the US because the price is lower

and

workers in the foreign country b/c their demand for their labor increases, and their wage rate increases

1. bounded rationality

2. bounded will power

3. bounded self interest

sum of the cost of

1. using resources bought in the market

2. owned by the firm

3. supplied by firms owner

return an entrepreneur can expect to receive on the avg;

cost of forgone alternative, which is running another firm

arises when there are many firms each selling an identical product, many buyers, and no restriction on theh entry of new firms to the industry

HHI is really small

one firm which produces a good or service that has no close substitutes, and the firm is protected by barrier to entry

HHI = 10000

1. barriers to entry are clearly identifiable and not overstated or understated

2. the market is national

3. the maret corresponds to industry

time frame in which the quantity of at least one factor of production is fixed;

for most firms capital, land, and entrepreneurship is fixed, and labor is the variable factor of production

past cost of buying a plant that has no resale value;

irrelevant to firms current decisions