Podcast
Questions and Answers
What should Kania do more of based on her comparative advantage?
What should Kania do more of based on her comparative advantage?
- Both tasks equally
- Washing
- Cooking (correct)
- Neither task
In a market with a binding price ceiling, an increase in the ceiling will result in what effect on the quantity supplied?
In a market with a binding price ceiling, an increase in the ceiling will result in what effect on the quantity supplied?
- Increase (correct)
- Become zero
- Decrease
- Remain the same
What does the area D+F represent in the context of a tariff?
What does the area D+F represent in the context of a tariff?
- Surplus
- Consumer gain
- Total tax revenue
- Deadweight loss (correct)
How does the Laffer curve suggest a government can increase tax revenue?
How does the Laffer curve suggest a government can increase tax revenue?
If consumer preferences shift towards fried chickens, which of the following will happen?
If consumer preferences shift towards fried chickens, which of the following will happen?
How do taxes on sellers affect their market outcomes?
How do taxes on sellers affect their market outcomes?
What happens to the quantity demanded when a price ceiling increases?
What happens to the quantity demanded when a price ceiling increases?
What is a potential outcome when a tariff is imposed?
What is a potential outcome when a tariff is imposed?
If demand is elastic, what happens to revenue when there is an increase in price?
If demand is elastic, what happens to revenue when there is an increase in price?
In which scenario are the gains from trade between Heru and Mayang least obvious?
In which scenario are the gains from trade between Heru and Mayang least obvious?
What effect does a binding price ceiling have on the quantity supplied and quantity demanded?
What effect does a binding price ceiling have on the quantity supplied and quantity demanded?
When a tax is levied on buyers for a good, what is the effect on the demand curve?
When a tax is levied on buyers for a good, what is the effect on the demand curve?
In a market where there is a binding price ceiling, what happens when the ceiling is increased?
In a market where there is a binding price ceiling, what happens when the ceiling is increased?
What describes the impact of a poorly matched skill set between Heru and Mayang on their trade?
What describes the impact of a poorly matched skill set between Heru and Mayang on their trade?
What is the relationship between price elasticity of demand and total revenue?
What is the relationship between price elasticity of demand and total revenue?
Which statement about the signs of supply and demand shifts in response to taxes is correct?
Which statement about the signs of supply and demand shifts in response to taxes is correct?
What concept describes the ability of each country to benefit from producing goods they are relatively more efficient at making?
What concept describes the ability of each country to benefit from producing goods they are relatively more efficient at making?
Which term refers to the difference between what consumers are willing to pay and what they actually pay?
Which term refers to the difference between what consumers are willing to pay and what they actually pay?
How does the scientific method apply to economists?
How does the scientific method apply to economists?
What happens to a nation with lower domestic prices for textiles than the world price if it opens up international trade?
What happens to a nation with lower domestic prices for textiles than the world price if it opens up international trade?
What characteristic of a production possibilities frontier (PPF) indicates a constant rate of trade-offs between two goods?
What characteristic of a production possibilities frontier (PPF) indicates a constant rate of trade-offs between two goods?
Which type of goods should a policymaker tax to minimize deadweight loss?
Which type of goods should a policymaker tax to minimize deadweight loss?
Which of the following describes the short-run effects of monetary injections in an economy?
Which of the following describes the short-run effects of monetary injections in an economy?
What is the significance of elasticity in economics?
What is the significance of elasticity in economics?
What is the status of a price ceiling at $6 if market demand is represented by Demand B?
What is the status of a price ceiling at $6 if market demand is represented by Demand B?
What is a primary benefit of specialization and trade?
What is a primary benefit of specialization and trade?
When two individuals engage in trade based on comparative advantage, what is the outcome?
When two individuals engage in trade based on comparative advantage, what is the outcome?
Which statement about deadweight loss is true?
Which statement about deadweight loss is true?
If a government sets a price ceiling below the equilibrium price, what is likely to occur?
If a government sets a price ceiling below the equilibrium price, what is likely to occur?
How do monetary injections influence employment levels in the short run?
How do monetary injections influence employment levels in the short run?
Which scenario illustrates the concept of comparative advantage?
Which scenario illustrates the concept of comparative advantage?
Why would a nation not engage in international trade despite having lower prices?
Why would a nation not engage in international trade despite having lower prices?
What does it mean when we can consume more goods than we otherwise would be able to consume?
What does it mean when we can consume more goods than we otherwise would be able to consume?
In what situation would a life-saving medicine have a small elasticity of demand?
In what situation would a life-saving medicine have a small elasticity of demand?
What occurs if a price ceiling is not binding?
What occurs if a price ceiling is not binding?
Why is production at a point inside the production curve considered inefficient?
Why is production at a point inside the production curve considered inefficient?
What does a slope of -2 indicate in the relationship between price and restaurant meals?
What does a slope of -2 indicate in the relationship between price and restaurant meals?
Which outcome is not typically associated with monetary injections in the economy?
Which outcome is not typically associated with monetary injections in the economy?
What is a likely consequence of increasing the amount of money in circulation?
What is a likely consequence of increasing the amount of money in circulation?
What effect does higher demand due to increased monetary supply typically have on businesses?
What effect does higher demand due to increased monetary supply typically have on businesses?
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Study Notes
Elasticity of Demand
- When demand is elastic, percentage change in quantity demanded will be greater than the percentage change in price.
- If there is an increase in the price of the good, the revenue will fall.
Comparative Advantage
- Individuals and countries with comparative advantage in producing goods should specialize in the production of these goods.
- Gains from trade are maximized when each country specializes in the production of the good for which they have a comparative advantage and trade those goods.
- The lower the opportunity cost of producing a good, the more comparative advantage an individual has in that good.
Taxes on Sellers
- Sellers get a lower price for their product before paying the tax.
- The deadweight loss from a tax is greater when the demand and supply for the good are more elastic.
Price Ceiling
- A binding price ceiling will cause a shortage in the market and will generally decrease the quantity supplied and increase the quantity demanded.
- A price ceiling is non-binding when it is set above the equilibrium price.
Price Floor
- Buyers would lobby for a price floor, whereas sellers would lobby for a price ceiling.
- A binding price floor causes a surplus in the market.
Monetary Injections
- An increase in the quantity of money in the economy will stimulate the overall level of spending.
- An increase in the quantity of money will, over time, encourage firms to hire more workers and produce a larger quantity of goods and services.
- An increase in the quantity of money in the economy will lead to lower unemployment levels in the short run.
- Higher prices are a consequence of an increase in the quantity of money in the economy.
Tariff
- A tariff causes deadweight loss, represented by D+F on the graph.
- A tariff is a tax levied on imported goods.
- Tariffs are used by countries to protect domestic industries from foreign competition.
International trade
- A country has a comparative advantage in producing a good if its domestic price for the good is lower than the world price.
- If a country opens up trade, a domestic price lower than the world price indicates that country will become an exporter of that good.
Government Revenue
- The government can increase tax revenue if it lowers the tax on a good when the tax is initially set at a high rate.
- This is because the Laffer curve illustrates that when a tax is set at a high rate, a reduction in the tax may result in an increase in the tax base as more people are willing to pay the taxes.
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