midterm_review

midterm_review - Midterm Review Ch.1 One of the key...

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Midterm Review Ch.1 One of the key conclusions from Market Theory is market participants (buyers and sellers) acting out of their own self-interest could result in a socially optimal outcome if certain assumptions are met. Normative – subjective, includes opinion Positive – objective, fact only Fiscal Policy is executed by the Government (Congress) through Government Spending and Taxation. Monetary Policy is executed by the Fed through interest rates. Opportunity Costs, defined for both consumer and producer As a worker you “produce” your labor – op.cost is income from next best foregone work option. Ch. 2 Decision Makers are decentralized (far apart and independent) in a market economy. Who, What, and How are key economic questions both for Demand and Supply. The PPC helps analyze a nations output by looking at the producion tradeoffs for two goods. MRT (marginal rate of transformation) is diminishing. Efficiency on curve. Inefficiency inside. Unattainable outside. PPC asks the question, What combination of these two goods should be supplied? Example Figures Factor Factor Price Functional Distribution Income Approach Labor Wages 70% 7 T Entrepreneurial Skills Profits 8 800 B Capital Interest 15 1.5 T Land Rent 7 700B Total: 100% GDI: 10T 1
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Progressive, Proportional, and Regressive taxation; what happens to effective t-rate in ea (3 types) of taxation as you move up the income ladder? Ch. 3 Advantages and disadvantages of 1. Sole Proprietorships 2. Partnerships 3. Corps Relative to corps, SPs and Partnerships have far less access to capital (both in Quantity and the range of investment options available) Government failure vs. market failure Government failure – inefficiency due to intervention that prevents a competitive outcome – tax or price control Mkt Failure – inefficiency resulting from mkt power leading to an anti-competitive outcome. Monopoly has hi price lo Q, may slow innovation, stifle rivals, prevent interoperability, that’s inefficient. Ch. 4 Demand determinants Income Tastes Prices of other goods (Complements and substitutes) Expectations of the future price of the good Market population Price changes influence Qd Supply determinants Technology improvement Input prices Prices of alternative goods Expectations of the future price of the good # firms in industry Tariff, sales or excise tax (S1 still exists for S, but D sees Sat) Price changes influence Qs AS is kinked at maximum capacity 2
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Ch. 5 1. Rent control and other forms of government intervention through price controls (floors and ceilings that –when effective and binding- cause surpluses and shortages,
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This note was uploaded on 12/11/2011 for the course ECON 1 taught by Professor Farin during the Spring '10 term at Foothill College.

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midterm_review - Midterm Review Ch.1 One of the key...

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