- •3. Difference between micro and macro economics.Role of economists in making policy
- •4 . Absolute advantage and comparative advantage.
- •5. How comparative advantage explains the gains from trade
- •6.The meaning of market. Determine the characteristics of competitive market
- •7.Describe a type of market that is not perfectly competitive
- •8.Determine the demand for a good in a competitive market.
- •14.Explain the relationship between total revenue and the price elasticity of demand
- •11.Describe the role of prices in market economies
- •12.The meaning of the elasticity of demand.Determine the elasyicity of Demand
- •13.Explain the ways of computing the price elasticity of demand
- •15.Explain the meaning and types of the elasticityof Supply. Determine the elasticity of Supply
- •17. Describe the different types of controls on prices. Give the real world examples of these two kinds of price controls.
- •18. Explain how price ceilings affect market outcomes. Draw the graphs.
- •19. Explain how price floors affect market outcomes. Draw the graphs.
- •21. The meaning of tax. Explain how taxes on buyers affect market outcomes.
- •22. How does elasticity affect the burden of a tax? Justify your answer using supply-demand diagrams.
- •24. Explain how to define and measure producer surplus.
- •25. Using a demand-supply diagram, explain and identify the following areas:consumer surplus, producer surplus, total surplus.
- •26. The meaning of total surplus in a market, and describe why might it be a good measure of economic well-being. Using a demand-supply diagram, show the areas representing total surplus
- •27. Name two types of market failure. Explain why each may cause market outcomes to be inefficient
- •28. Explain how taxes reduce consumer and producer surplus.
- •29. The meaning and causes of the deadweight loss from a tax.
- •30 Describe why some taxes have larger deadweight losses than others. Explain how tax revenue and deadweight loss vary with the size of a tax.
- •31. Explain the Laffer curve and supply-side economics.
- •32. Explain what determines whether a country imports or exports a good.
- •33. Explain who wins and who losses from international trade.
- •37The meaning of tariff. Describe its economic effects.
- •39Determine the arguments people use to advocate trade restrictions.
- •40 Describe what happens to the gains from trade when a tax is imposed.
- •42 Describe why externalities can make market outcomes inefficient. Use the graphs to explain.
- •43 The types of private solutions to externality. Define the Coase theorem.
- •44. Determine why private solutions to externalities sometimes do not work
- •45. Identify the various government policies aimed at solving the problem of externalities
- •46. Describe the different kinds of goods, and give an example of each
- •47. The importance of free-rider problem. Explain why private markets fail to provide public goods.
- •Implicit Costs
- •53.Explain the various measures of cost. Give the meaning of average total cost and marginal cost and explain how they are related.
- •Variable Costs
- •54 Describe the relationship between short-run and long-run costs
- •55. Explain how competitive firms decide when to shut down production temporarily and how competitive firms decide whether to exit and enter a market?
- •56. Explain why some markets have only one seller. Describe how a monopoly determines the quantity to produce and the price to charge.
17. Describe the different types of controls on prices. Give the real world examples of these two kinds of price controls.
To see how price controls affect market outcomes, let’s look at the market for ice cream. , if ice cream is sold in a competitive market free of government regulation, the price of ice cream adjusts to balance supply and demand: At the equilibrium price, the quantity of ice cream that buyers want to buy exactly equals the quantity that sellers want to sell. To be concrete, suppose the equilibrium price is $3 per cone. Not everyone may be happy with the outcome of this free-market process. Let’s say the American Association of Ice-Cream Eaters complains that the $3 price is too high for everyone to enjoy a cone a day (their recommended daily allowance). Meanwhile, the National Organization of Ice-Cream Makers complains that the $3 price—the result of “cutthroat competition”—is too low and is depressing the incomes of its members. Each of these groups lobbies the government to pass laws that alter the market outcome by directly controlling the price of an ice-cream cone. Because buyers of any good always want a lower price while sellers want a higher price, the interests of the two groups conflict. If the Ice-Cream Eaters are successful in their lobbying, the government imposes a legal maximum on the price at which ice-cream cones can be sold. Because the price is not allowed to rise above this level, the legislated maximum is called a price ceiling. By contrast, if the Ice-Cream Makers are successful, the government imposes a legal minimum on the price. Because the price cannot fall below this level, the legislated minimum is called a price floor. Let us consider the effects of these policies in turn.
A price ceiling is a legal maximum on the price of a good or service. An example is rent control. If the price ceiling is below the equilibrium price , then the price ceiling is binding, and the quantity demanded exceeds the quantity supplied. Because of the resulting shortage, sellers must in some way ration the good or service among buyers. • A price floor is a legal minimum on the price of a good or service. An example is the minimum wage. If the price floor is above the equilibrium price, then the price floor is binding, and the quantity supplied exceeds the quantity demanded. Because of the resulting surplus, buyers’ demands for the good or service must in some way be rationed among sellers.
18. Explain how price ceilings affect market outcomes. Draw the graphs.
When the government, moved by the complaints and campaign contributions of the Ice-Cream Eaters, imposes a price ceiling on the market for ice cream, two outcomes are possible. In panel (a) of Figure 1, the government imposes a price ceiling of $4 per cone. In this case, because the price that balances supply and demand ($3) is below the ceiling, the price ceiling is not binding. Market forces naturally move the economy to the equilibrium, and the price ceiling has no effect on the price or the quantity sold. Panel (b) of Figure 1 shows the other, more interesting, possibility. In this case, the government imposes a price ceiling of $2 per cone. Because the equilibrium price of $3 is above the price ceiling, the ceiling is a binding constraint on the market. The forces of supply and demand tend to move the price toward the equilibrium price, but when the market price hits the ceiling, it can, by law, rise no further. Thus, the market price equals the price ceiling. At this price, the quantity of ice cream demanded (125 cones in the figure) exceeds the quantity supplied (75 cones). There is a shortage: 50 people w ho want to buy ice cream at the going price are unable to do so. In response to this shortage, some mechanism for rationing ice cream will naturally develop. The mechanism could be long lines: Buyers who are willing to arrive early and wait in line get a cone, but those unwilling to wait do not. Alternatively, sellers could ration ice-cream cones according to their own personal biases, selling them only to friends, relatives, or members of their own racial or ethnic group. Notice that even though the price ceiling was motivated by a desire to help buyers of ice cream, not all buyers benefit from the policy. Some buyers do get to pay a lower price, although they may have to wait in line to do so, but other buyers cannot get any ice cream at all.