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37 Cards in this Set

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Law of Demand
^ P = v D
Price elasticity
% Change in qty
------------------------
% Change in Price
Things that effect elasticity
Quality of substitutes, % of income it consumes
Elastic Goods
> 1
Decrease in prices to increase total revenue
Goods are more elastic in the long run
Inelastic Goods
<1
Increase price to increase total revenue
Unit Elasticity
=1
TR is maximized
When demand changes, the entire curve shifts because...
Change in preferences, expectations, price of substitute/complement, or income
Equilibrium
Qty Demanded = Qty Supplied
Price Ceiling + 2 Examples
Maximum prices above where price cannot rise
Rent Control
Interest Rates
Price Floor
Minimum prices below which price cannot fall
Guarantees producers a minimum revenue
What happens if you set a price ceiling below equilibrium?
Qty supplied < Qty demanded = SHORTAGE
What happens if you set a price floor above equilibrium?
SURPLUS
What is an excise tax and how does it effect the supply curve?
Tax the supply/production of a good. Shifts supply curve up by the size of the tax.
Top 3 Sources of FEDERAL Tax Revenue
1. Income Tax
2. Social Section
3. Corporate Tax
Top 3 Sources of FEDERAL Spending
1. Social Sector
2. Health Care
3. Defense
Major source of Local Level revenue
Property Tax
Law of Supply
Increase in price leads to an increase in Qty Supplied
Explain Profitability and Opportunity Cost in terms of Law of Supply
Profitability: As the price increases, so does your profit, so you supply more
OC: As the price of good A rises, the opportunity cost of producing good B rises
What is the solution to Negative Externalities?
Tax
What're the 3 types of Tax Structure?
Proportional/Flat Tax, Progressive, Regressive
Define Proportional/Flat Tax
same tax rate on all income
Define Progressive Tax
Tax rate increases with increase in income
Define Regressive Tax
Tax rate decreases as income increases
* Acciental
What're the three components of Mercantilism?
1. Export > Import
2. Accumulate Wealth
3. Support the Army
Who developed the theory of Absolute Advantage?
Adam Smith
Who developed the theory of Comparative Advantage?
Ricardo
What is the equation for Production Gain from Trade?
World Price
-----------------
Autarkic Price
Define Autarkic Price
the domestic price of a good if no trade happened
sets the range of the terms of trade
Production gain should be >/< 1?
>1
Consumption gains should be >/< 1?
<1
Explain the Importance of Being Unimportant
small countries gain more from trade than large countries do due to the fact that they don't affect global demand/supply by much so they don't influence the world price by much
What is the balance of payments?
BP = CA + FA
What is the current account made up of?
X-M + net remittances

TRADE FLOW
What is the Financial account made up of?
FA - Adom
What're two benefits of a fixed exchange rate?
Promotes trade by reducing exchange rate risk
Lose Monetary Autonomy
What're two negatives of a fixed exchange rate?
Loss of Monetary Autonomy
Internalize external shocks
What kind of country is a fixed exchange rate best for?
Small, developing countries