Consumer / Producer Surplus, Tax Incidence, International Trade

Economics Mr. Bekemeyer Consumer / Producer Surplus, Tax Incidence, International Trade & Utility (Unit IV Quizam -- Review Sheet) Please read Krugman - Wells Chapters 4, 7, 8 (pg. 205 - 220), and 10

Chapter 4 (be sure to review the text problems, note sheets, and extra worksheets if available) 1. Explain consumer and producer surplus. How is total surplus computed? What do they measure? 2. What is willingness to pay (WTP)? What is cost? 3. Build a demand curve using individual demands. 4. Why do markets typically lead to efficient outcomes and why do market sometimes fail? When is a market efficient? (Review pages 106 - 108) (also page 112) What is the efficiency formula? 5. How do changing prices impact consumer surplus? Can you graph consumer surplus? (Can you differentiate individual demand and general demand as it relates to consumer surplus?) 6. How do changing prices impact producer surplus? Can you graph producer surplus? (Can you differentiate individual supply and general supply as it relates to producer surplus?) 7. Think about the efficiency and equity. Do you see any issues? 8. Why do markets work so well? Discuss property rights and economic signals. (page 111) 9. What is welfare economics? 10. What does {CS = WTP - P} and {PS = P - cost} mean? 11. How does the market allocate resources? 12. How do supply and demand curves determine who gets the good and who gets to produce the good? 13. What does Adam Smith have to say about this market stuff? 14. Can you show individual and market demand on a graph? How do you calculate market demand?

Chapter 7 (be sure to review the text problems, note sheets, and extra worksheets if available) 1. What is an excise tax? 2. What is the impact of a tax on quantities and prices? 3. What is tax incidence? 4. Wow, bottom of the page and we just started chapter 7. 5. When is an excise tax paid for by consumers? Producers? Think elasticity. When are demand and supply curves perfectly elastic, elastic, unit elastic, inelastic, and perfectly inelastic?

6. Be sure you are very comfortable determining where the tax incidence will fall. Could you graph the phenomena? 7. Who benefits from taxes? 8. How is revenue determined when a tax is placed on the market? Could you graph this? 9. What is a tax rate? 10. Discuss high taxes and low taxes in with regards to the relationship with revenue. (pages 175 - 177) (see notes as well) 11. What is the Laffer Curve? (see text page 177 and notes) 12. What are the costs of taxation? How does a tax impact CS, PS and TS? How does deadweight loss fit in to this? Wait a minute, what is deadweight loss? Can you graph CS, PS, TS and DWL? 13. What are administrative costs with regards to taxes? 14. Explain deadweight loss and elasticity (in other words -- how big is the DWL and why does the elasticity impact the DWL?). Can you graph this phenomena? 15. Describe the benefits principle and the ability-to-pay principle. 16. What is a lump sum tax? Why is the most efficient tax? 17. Know the terms progressive tax, regressive tax, proportional tax and marginal tax. 18. Beyond taxes, how does the government alter the private market outcome? 19. You must be able to graph a tax wedge and determine the new Quantity and Price. Chapter 8 (pg. 205 - 220) (be sure to review the text problems, note sheets, and extra worksheets if available) 1. Explain comparative advantage. Explain opportunity cost. 2. Define an import and export. 3. What is autarky? 4. Describe / graph a domestic demand and supply curve. 5. Graph the world price onto a domestic demand and supply curve. 6. Explain why the world price is used rather then the domestic price. 7. What conditions are necessary for a nation to export, import goods and services? Can you graph this phenomena? How does this relate to comparative advantage? 8. What is free trade? 9. What is trade protection? 10. Define a tariff. You should be able to graph a tariff and determine the new import quantity, CS, PS, TS, and DWL. You should be able to remove the tariff and graph the return to the world price. 11. What is an import quota? You should be able to graph one and determine the change in imports, CS, PS, TS, and DWL. You should be able to remove the quota and graph the return to the world price. 12. What are the three significant arguments for trade protection? How would an economist refute these arguments? 13. Describe international trade agreements. 14. What does the WTO do? NAFTA? 15. Describe the new challenges to globalization. (pages 218 - 219 and notes) 16. What is offshore outsourcing? 17. What are the benefits of international trade? 18. What industries tend to have tariffs in the U.S.?

Chapter 10 (be sure to review the text problems, note sheets, and extra worksheets if available) 1. Describe utility, utils, total utility, marginal utility, and diminishing marginal utility. 2. You should be able to graph total utility, and diminishing marginal utility. 3. What is a consumption bundle? Describe a budget constraint and a budget line. 4. Can you graph a budget line? When is consumption affordable and unaffordable? 5. Describe the optimal consumption bundle. When is consumption optimized? 6. What is the marginal dollar? 7. How can we use the marginal dollar to determine the optimal consumption? 8. What is the formula for the optimal consumption? 9. Are consumers really rational? (page 262) 10. Explain the substitution and income effects on the demand curve. 11. How are marginal utility, the substitution effect and the law of demand related? (pages 263 - 264) 12. What does the slope of the budget line tell us about the budget constraint between the two goods / services? 13. Can you determine the optimal consumption bundle?