AREC 202 (Kroll) Final Exam Study Guide 2024

AREC 202 (Kroll) Final Exam Study Guide 2024 What insight(s) did we get from the classroom clicker experiment where students had to choose how many points to contribute to a class account? -Answer-Some people were willing to give more in order to acquire a higher point total, but other would keep all of their points. The people who decided to keep all of their points ended up better in the long-run. What insight(s) did we get from the Moblab experiment on asymmetric information (the Lemons Market experiment) -Answer-The seller knows more about the value of the car. The buyer is losing money. Moreover, if this process is repeated high-price purchases will decrease. High-quality goods are being pushed out by low-quality goods. What insight(s) did we get from the Moblab experiment on externalities? -Answer-Two supply curves. People are not taking externalities into account when they make trades. When a tax was imposed, people started to take it into account. With a tax people cared (increased the price), but without a tax they didn't take externalities into account. The tax puts the market at the equilibrium and market the same. What insight(s) did we get from the Moblab experiment on fishing? -Answer-The Tragedy Of The Commons. Everyone was supposed to take out half of the fish, but in overfishing took place. As soon as April and May came around, there would be no fish. Fish were rival, but non-excludable. What insight(s) did we get from the classroom experiment in which "sellers" had to choose which one of four markets to enter (the "free-entry-free-exit" experiment)? -Answer- Some market had prices and high profits and some markets had low prices and low profits. Sellers were moving to a better alternative. These were all short-run decisions in search of the long-run. It is the long-run equilibrium when no one has any incentive to move. Lastly, people tried to put up barriers to entry. Companies try to do this in order to preserve positive profit. Do you understand the basic problem with "asymmetric information"? (from chapter 11) -Answer-Occurs when one party to an economic transaction possesses greater material knowledge than the other party. This normally manifests when the seller of a good or service has greater knowledge than the buyer, although the reverse is possible. What impact does an increase in tax rates have on tax revenues? -Answer-• Does doubling the excise tax rate on a good double the amount of revenue collected? • No, because the tax increase will reduce the Q of the good or service transacted. • In some cases, raising the tax rate may actually reduce the amount of revenue the government collects. What impact do price-elasticities of demand and of supply have on "tax incidence"? - Answer-1) It does not depend on where the revenue is collected, but on the price elasticity of demand and price elasticity of supply. 2) Tax incidence falls mostly upon the group that responds least to price (the group that has the most inelastic price-quantity curve).