AGEC 3503 PENN FINAL EXAM 2025

Define demand - -the relationship between the price of a good , the quantity that consumers will wish to consume, and the value they place Define consumer surplus - -the total benefit that a person derives from consuming a good or service, minus the amount paid Define complements - -foods consumed together so that consumers tend to buy both What would lead to the decrease in supply of pizza - -tax on pizza production Statement that is true about market equilibrium - --on a graph, market equilibrium occurs at the intersection of the demand and supply curves. -market equilibrium exists when the quantity demanded equals the quantity supplied at market Demand curves can be interpreted as - --quantity demanded given a change in price -the amount of additional (marginal) benefits for an additional unit consumed. If goods x & y are production substitutes, then we expect that if the price of x ______________ , then the quantity of y supplied will _______________. - -Falls, rise and rise, fall (a & b) Inverse relationship To an economist, the most desirable outcomes are efficient, which : - -maximizes net benefits to society Economists generally believe that pollution: -should be zero -should be ignored in decision making -abatement maximized -none of them - -none of them We typically think that marginal abatement cost (Mac) curves are __________, meaning that the cost increases at an increased rate as more pollution is abated. - -convex Does the demand curve slope positively or negatively? Why? - -Negatively sloped because of law of demand and diminishing utility; increased price = decreased demand How is the demand curve related to consumers' benefit from buying widgets? - Inversely related AGEC 3503 AGEC 3503 What does the area under the demand curve represent? - -Total benefit - everything under demand curve What is the difference between marginal benefit and total benefit? - -one additional unit of utility vs all available utility Does the supply curve slope positively or negatively? Why? - -Positively sloped; increased cost of input = increased cost of production; law of supply and diminishing marginal productivity How is the supply curve related to producers cost for producing widgets? - -positive relationship = increased inputs = increased cost of production What does the area under the supply curve represent? - -graphical representation of total cost What is the difference between marginal cost and total variable cost - -one additional unit of cost vs all variable cost Must the demand and supply curves be straight lines? Why? - -No; doesn't necessarily need to be a constant rate Must the demand and supply curves intersect each other? WhY? - -Not always. Supply can be above demand Why does the point on the graph where supply crosses demand represent the equilibrium? - -Marginal benefit = marginal cost What do we mean by the term equilibrium? - -Qd = Qs Are markets usually in equilibrium? Why? - -production factors change; weather, land, tastes How do you define consumer surplus? How is the definition related to the two lines that define its area? - -difference from price paid and willingness to pay How would you define producer surplus? How is that definition related to the two lines that define its area? - -TR - TC = profit Which is better higher or lower values of consumer, producer, and joint surplus? Better for whom? - -Higher is always better Income tax on the labor market would shift the supply curve to the - -Left Tax deduction on mortgage interest in the housing market would shift the supply curve to the - -Right AGEC 3503 AGEC 3503 Tax deduction for energy efficient appliance would shift the supply curve to the - -Right Goals of government policy are to - -maximize joint surplus Efficiency of markets generate - -max benefits to society Pareato efficiency means - -benefits to one harming none Kaldo-hicks efficiency means - -benefits to the many out weigh the costs to the few; are benefits to society posititve What is an example of a distorted market - -a market that produces an inefficient outcome due to government intervention What describes Kalder-Hickers efficiency - -total net benefit is maximized The best definition of non marginal pricing - -The pice is not equal to marginal cost Best define rent-seeking behavior - -Taxis at an airport lobbying to ban ride sharing like uber Define/describe the term (consumer) substitutes, as used in economics models - consumer substitutes are products that both fulfill a similar need, so that consumers tend to use X or Y, but not both. For example soda or beer brands. Define/describe the term joint products, as used in economic models. - -Joint products are goods that are both produced by a single process, so that suppliers tend to produce X & Y together. For example , distilling a barrel of petroleum produces both gasoline and diesel fuels. Suppose that widgets and thingamabobs are joint products, and that the price of thingamabobs increases substantially. What will happen to the equilibrium price and quantity in the widget market? Price will increase or decrease? Quantity of widgets will increase or decrease? - -Price decreases Quantity increases If the price of one joint product increases, the supply of the second good increases since producers will increase the process that generates both goods. The supply in the widget market will increase, which decreases price and increases quantity. You own a beekeeping operation that provides pollination services to CA almond farms. Describe how imposing a price floor for pollination services affects your profits and what else it causes. - -Price floor is good for me because it normally means I will receives a larger profit. Price floors also mean that fewer hives are demanded and a deadweight loss is created. AGEC 3503 AGEC 3503 Which of the following provides the best definition of consumer surplus? - -The total benefit that a person derives from consuming a good or service, less the amount that she paid Which of the following best characterizes the Law of Supply? - -All else being equal, producers supply lower quantities as prices fall, and higher quantities as prices rise. Based on economic models, which of the following statements about the marginal benefits of eating pizza is true? - -Marginal benefit is the additional utility gained from eating one more pizza. Which of the following provides the best definition of a Pareto-efficient outcome? - -No person can be made better off with out harming someone else When are price floors ineffective or have