Microeconomics Test #2 Review

Microeconomics Test #2 Review - Microeconomics Test#2...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Figure - Consumer and Producer Surplus before Tax Microeconomics Test #2 Review Saturday, November 10 th from 2 to 4pm Covers textbook chapters 6 , 8 , 10 , 13, 14 and 15; Covers PowerPoint topics: Externalities (slide 34 to the end), Government Policies and Taxes , Costs of Production , Firms in Perfect Competition and Monopoly Textbook Chapter Six and Chapter 8: Supply, Demand and Government Policies and the Costs of Taxation/PowerPoint #7 Government Policies and Taxes Price Controls - Used when policymakers think that market prices are unfair to buyers or sellers - Government freezes prices at a predetermined level to make society more better off Price Ceilings - The legal maximum on the price at which a good can be sold - Example: If the maximum price of that sellers can sell apples at is $4, that means they cant sell them for $5 - The price ceiling is not binding (not effective) if it is set above equilibrium price - Example: If the government imposes a price ceiling of $4 and the EP is at $3, the price ceiling has no effect. - The price ceiling is binding (effective) if set below EP, leading to a shortage. - Example: If the government imposes a price ceiling of $2 and the EP is at $2, the market price = EP. At this price, 125 cones are demanded and 75 are supplied, therefore there’s a shortage of 50 cones. Price Floors - The legal minimum on the price at which a good can be sold - Example: If the minimum price of that sellers can sell apples at is $4, that means they cant sell them for $3 - The price ceiling is not binding (not effective) if it is set below equilibrium price - Example: If the government imposes a price floor of $2 when the EP is $3, the price floor is not binding. - The price ceiling is binding (effective) if set above EP, leading to a surplus. - Example: If the government imposes a price ceiling of $4 and the EP is at $3, the market price = price floor. At this price, 120 cones exceeds the Qd of 80 Quotas - Quantity control - An upper limit on the quantity of a good that can be sold - Government issues quota licenses that give producers the right to produce a specified amount of a good - Example: The number of taxis in a city; amount of fish you can catch and sell Taxes - When the government levies a tax on a good, who bears the burden of the tax?
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 5

Microeconomics Test #2 Review - Microeconomics Test#2...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online