Market failure notebook

http://imgur.com/a/H1c5Q

Market failure

http://imgur.com/Z24ZC,ABxnL#1

EMI 14 and 16

EMI14
1. direct taxes- taxes the individual pay the government directly.
indirect taxes- taxes collected by the supplier
specific taxes- a tax that adds a specific amount of tax onto the product price.
ad valorem tax- a tax that add a percentage onto the price of the good.
subsidies- a payment made by the government to the firms to reduce costs of production in order to allow them to lower their prices.
2. in book
3. in book
EMI 16
price ceiling- a price set below the equlibrium price intended to help consumers.
price floor- a price set above the equilibrium price in order to guarntee an income for the producer.
quota- is the minimum sales goal for a set time span.
buffer stock scheme- is an attempt to use commodity storage for the purposes of stabilising prices in an entire economy or, more commonly, an individual (commodity) market.
2. a. they will sell tickets below the equilibrium price to fill up all the seats.
b. in order to have affordable housing there is rent control.
c. medical care has a price ceiling so people can afford it.
d. fuel has a price ceiling so that everyone can afford it.
3. milk and eggs are higher calorie and more luxury goods then rice and wheet also they are more expensive to produce therefore to keep the producers making money but also so that they are more equally spread to the public.
4. look in book

Indirect taxes and subsidies

Indirect taxes and subsidies
Effect on an indirext tax on the demand for and supply of a product Indirect tax- one imposed upon expedenture. it is put on the selling price of a product because of this tax less products will be made
A specific tax-
A fixed add on to a price so s+1
A percentage tax- this is where the tax is a percentage of the selling proce so as the price of something goes up so does the tax.
Producers revenue




Government tax revenue
Government gets new taxes





Tax burden
The burden is on both of them





Price elasticity
Demand is elastic and supply is inelastic
However as the price goes up demand falls.
So the suppliers have to carry most of the burden




Demand is inelastic and supply is elastic.



Rules-
Where the value of ped is equal to the value of pes for a product then the burden of any tax imposed will be shared equally.
PED Value is greater- greater on the producer
PED value is less- greater on the consumer
So taxes are placed on cigs and booze
The effect of a subsidy on the demand for and supply of a product. A subsidy is an amount of money paid to a firm by the government per unit of income

To lower the price of essential goods

To guarantee products that the governemnt thinks are necessary

To enable producers to compete with overseas trade








Subsidys-
Opportunity cost-
Will the subsidy make companies inefficient
Who is paying the taxes
What damage will it do to companies ofshore who are not recivieng subsidies.

work point 4.7

1.
2. (500/5000*100)/(3/15*100)=0.5

work point 4.6

Work point 4.6
1. 25% increase in income
25% increase on plane trips
0% increase in gym
and a 25% decrease in clothes
so 25%/25% is 1
2. they are somewhere between a nessecity and superior
3. 0
4. they are unrelated
5. 25%/-25%
-1
6. it is a inferior good.

work book 10-13

EM|10

1. ELASTICITY: The measurement of how changing one economic variable affects others.

PRICE ELASTICITY OF DEMAND: PED is a measure of responsiveness of the quantity of a good or service demanded to changes in its price

2. Calculate the PED if: a) 5/-15=-3

b)10/25=2.5

3. a) inelastic, because they are addictive therefore if the does increase, revenue will also go up

b) elastic, because of substitute goods

c) inelastic, because people will still buy them for the occasion

d) elastic, because of substitute goods

4. It is intended to do both, but it really only creates revenue for the government. This is because the product is inelastic and there for demand for cigarettes will hardly decrease because of how addictive they are.

EM|11

1. INCOME ELASTICITY OF DEMAND: measures the responsiveness of the demand for a good to a change in the income of the people demanding the good.

NORMAL GOODS: normal goods are any goods for which demand increases when income increases and falls when income decreases but price remains constant.

NECESSITY GOODS: Necessity goods are goods that we can't live without and won't likely cut back on even when times are tough, for example food, power, water and gas.

LUXURY GOODS : Luxury goods are products and services that are not considered essential and associated with affluence.

INFERIOR GOODS: An inferior good is a good that decreases in demand when consumer income rises, unlike normal goods, for which the opposite is observed.

CROSS PRICE ELASTICITY OF DEMAND: The cross elasticity of demand or cross-price elasticity of demand measures the responsiveness of the demand for a good to a change in the price of another good.

2. a. 10/20= 0.5 for fish

25/20= 1.25 for pork

b. fish is the inferior good and pork is the normal good

c. farm more pigs

3. a.50/50=1

50/20=2.5

b. gasoline is a sub for ethonol and gas and trucks are compliments

c. NEW TRUCKS- can now be used with ethanol..

4 . because tourism is stable.

5. yachts- luxury

clothes- normal

used clothes- inferior

EM|13

1. PRICE ELASTICITY OF SUPPLY- Price elasticity of supply (PES or Es) is a measure used in economics to show the responsiveness, or elasticity, of the quantity supplied of a good or service to a change in its price.

PRODUCER SUBSTITUTES- a substitute for production.

2. points chosen at 4 dollars and 8 dollars

25/50=0.5

inelastic.

3. a. autos because they are more widely available

b. mp3s because they are very dependednt on a lower price

c. new homes in a building boom because there are so many new homes

4. because there would be more suppliers

Elasticity

Elasticities-

Eladticity	Is a measure of responsiveness. It measures how much something changes when there is a change in one of the factors that determines it.
Elasticity of demand	Elasticity of demand is a measure of how much the demand for a product chages when there is a change in one of the factors that determine demand. PED XED YED
PED	Price elasticity of demand is a measure of how much the quantity demanded of a product changes when there is a change in the price of the product. PED= Percentage change in quantity demanded of the product/percentage change in the price of a product
The range of values of price elasticity of demand	The range can be from zero to infinity but that’s just theoretical If ped is zero then the change has no effect on the quantity demanded
Inelastic demand	The value ped is less than one and greater then zero This means as the price is raised . the quantity demanded will not fall by much and so the revenue gained by the firm will increase.
Elastic demand	The ped is greater then one and less than infinity This means that when the price is raised the total revenue is not raised enough to make more then before
Unit elastic demand	If the price is raised the demand is proportionate
Determinates of price elasticity of demand	The number and closeness of substitutes- People have more things to chose from and will switch brand The necessity of the product – Inelastic because when we don’t get them we die… The time period considered- It takes consumers time to change their buying habits
Price elasticity of demand and taxation	Governments need to take care of taxing products. The price will rise. Quantity demanded will fall and unemployment will happen,
Cross elasticity of demand XED	XED is the measure of how much the demand of a product changes when there is a change in the price of another product. XED= percentage chane in quantity demand for product x/ percentage change in quantiy demand for product Y
RANGE OF vALuES	Positive and negative matters If the number is positive then the two things Are substitutes. If the number is negative then the two goods are compliments Negative- complements Zero- unrelated Positive- substitutes
Income elasticity of demand YED	Income elasticity- how much the demand for a product changes when there is a change in the consumers income. YED= percentage chane in quantity demanded of the product/percentage changein income of the consumer Positive number- normal good, income elastic Nessecery good have low income elassiticy Superior goods have high income elastity Infererior goods- yed is negative- demand decreases as income increases.
Elasricty of supply	Suppæy change as the price changes- PES=percentage change in quantity supplied of the product/Percentage change in price of the From zero to infinity, but extremes do actually happen Less than one its inelastic- Elastic supply- more then one Unit elastic supply- one
Determinates of price elasticity	How much costs rise as output is increased.- The extistance of unused capcity The mobility of factors of production The time period considered The ability to store stock.
Primary commodities	Cotton or coffee- inelastic because they are nessesary to the production of other goods- no substitutes Manufactured goods are more elastic

Work point 4.5

1. -0.4/0.5= 8%

-60/400= 15%

-15%/.8%

1.8--->XED

2. due to the act that the Xed is 1.9 it means tjat tjese two produccts are substitutes

3. -0.4/5=-8%

30/600=5%

5/-8%= -0.6

4. due to the fact that the XED is -0.6 the two goods are compliments.

work point 4.4

1. 10%increase in price

¤p=+10%

Adult demand change=-4%

youth demanded=-13%

Youth -> 13/10= 1.3 ped elastic

Adult-> -4/10=0.4-> PED

2, Adults have a large income and inalstic have a more steady habits youth are more likely to have less money which they are likely to spend on other goods.

3. Govenrments would tax cigarettes because they are demerit goods and not good for the population. the government can also make alot of revenue from the taxes

work point 4.2

1. Change in price= 5/0.5=10%

Change in demand= 72/12*100=20%

2. 2*1=2---- price elasity---- price is elastic

3. 5*60=300

4.5*72=24

4.

5. Yes beacuse there is a positive revenue change of 24 dollar

Work point 4.1

1. % change in peice= (-0.4/4)100=-10%

% change n Qd = 30/600(100)= 5%

2. Priced elasiticity= %change in P/%change in Qd= %/-10=0.5, ped elastic

3. Revenue initially=4*600= 2400

revenue after price change= 3.6* 630=2268

%change in revenue= -132/2400*100=-5.5%

4-

5. No, because their overal revenue dropped 5.5%

Elasticities

elastic- inelastic

work point 4.1

1. 0.5 and

Buffer stock schemes notes

Buffer stock schemes are applicable in

Comomodity (raw material) markets becayse their prices are ofton unstable.

1. Agricultuaral commodities- wheat, rice, coffee, cocoa-

-Volotile prices due to supply shifts caused by natural phenomena like weather.

2. industrial/mineral commodities- copper, rubber or tin.

-volatile prices due to changes in demand caused by rising and falling national incomes.

agricultural commodities

at the mercy of natural dangers like weather, insects or or disease.

- when conditions are excellent , agricultural commodities ofton have a bumper crop and abundant crop

industrial

changes in the world economy are likely to have a large impact on producers.

Both demand and supply side factors create instability in commodity markets.

difficult for producers to plan with uncertainity

instability can result in lower standards of living with negative consequences for prodcucers and the community.

these conditions may cause governemtns to intevene to protect prices from extreme fluctuations.

http://economicsonline.co.uk/Market%20failures%20graphs/Price+ceilings.png

Prices are allowed to fluctuate normaly when within the price band.

government intervention occurs when the free market pushes prices above the top price or below the bottom price.

bumper crop situation

in this case the buffer stock manager would need o buy uo excess supply and store it- has an oppurtunity cost

poor weather or pest problem

in this case the stock manager would release stock to bring price down.

Problems- only suitable for non perishable goods.

-storage

-improvements in technology that must be bought by governments.

-choosing the right price band is problematic.

- producers wll pressure the governemnt to make the price band high

commodity agreements

when different countries work togehrt to opperate buffer stock scheme

UNTAD in th 1960s

fail.

Price bands

http://img695.imageshack.us/img695/3329/econ1d.jpg -page 1
http://imageshack.us/photo/my-images/708/econ2.jpg/ -page 2

Chapter 4

The interaction of, and applications of demand and supply

Price controls

Price controls	Free market may not have the best outcome Government intervenes -max price -min price -price support Comodity agreements
Max price control	Government sets a max price below the equilibrium price Product is a nessecity Druing times of food shortage To ensure poor have food Problems- black market Queues at storees Government might have to reduce the shortage Shift demand curve to the leftm goes against imposing max cost as it limits consumption Move supply curve to the right 1-offer subsidys 2- produce good themselves 3- realease stored goods The governemnt inccurs a cost and forced to take money out of other areas.
Max price control	Sets a a min price above the equilibrium prices Floor prices 1. to raise income for the producers of goods such as agriculture 2. to proteect workers with min wage Excess suply creates problems Surplusses governemt intervenes Store the surplus, destroy it or sell it abroad Oppurtinity cost for this though 2 waysfor min cost to be matainined Quotas and advertizement Problems may occur Innificiency and waste of resoruces
Price support and buffer stock schemes	Governments stabilise prices- raw materials Bumper crop- abundent supply Poor weather will drive priices up Big swings in demand on other raw materials too Swings in the commodity market Unstabel will cause negative consequences governmetns will intervene Buffer stock manager sts a price band Problems- non parishable goods High costs of storage Financial preasure People want high proffit
Commodity agreements	Different countrys ina buffer stock scheme commodity price agreement Support commodity producers in noob countrys Rubber

Chapter 3 notes

Market equilibrium, the price mechanism and market efficiency

Equilibrium	Equilibrium- a state of rest at, self perpetuating in the absence of outside disturbances Both demand and supply are there The market is in equilibrium at point p since the amount people will buy for and the suppliers price are the same. Market clearing price- everything supplied will be sold Price is raied Quantit demanded has fallen Excess supply Producers will need to lower their prices Eventualy go back to equalibrium
The effect of changes in demand and supply upon the equilibrium	Outside disturbance A change in the determince of supply or demand The price will rise with the income to eliminate excess demand Thus price will rise till it reaches equilibrium.
The role of the price mechanism	Price mechanism Allocate resources Suppliers allocate to where the demand is too make more money The increase in price is what tells people what to make Invisible hand
Market efficiency	Consumur surplus is what he is gaining Willingness to pay vs what he paid Supplier surplus A price higher then what she was willing to accept
Allocative efficiency	Socially effecient The greatest community surplus Best for the consumer and supplier MSC- marginal social cost curve Effeciency is msb- marginal social benefit curve
Calculating and illustratin market equilibrium using linear demand and supply functions	Math of the curve QD=2000-200p QS=-400+400p Create a graph Plot the graph Where they meet is the equalibrium Qd +2000-200p Qs=-400+400p At equilibrium QD=QS 2000=-400+600p 2400=600p P=2400/600=4 dollars Substitute in the number 1400-200p Price will all until they are equal again 1400-200p Qs=-400+400p Qd+Qs Add 200 to both sides and simplify 1400=-400+600p Simplyfying further and adding 400 to both sides 1800=600p P=1800/600=3 dollar Plugit in
	the pictures above are in the correct placement in the notes on my printed copy

Emi 6

look in book

EMI5

look in book

EMI4

1. Define

a. supply is the quantity of output that producers are willing and able to provide at a given price in a given time period cetirus paribus.

b. the law of supply states that as the price per unit of a product rises the quanitity that producers are willing to offer per time period rises cetirus paribus.

2. The fourth one because as most firms specialize.

3. a-3

b- 1

c- 4

4. 5 unit

b. 7 units

EMI3

1. look at book

2. look at book

3. they are different as they start at a different price. The same with the graph.

4. 20- 1p and 22-1p

EMI2

Define

1. complements

goods that are used with other goods such as a vcr player and home video.

substitutes.

goods used instead of your good

2. it is necessary because the there is more of a demand in it so the curve shifts up.

3.look at book

EMI1

EMI 1

1. define-

a. demand is the quantity of a product that buyers are willing and able to purchase per time period at a specific price, ceterus paribus.

b. law of demand is as the price per unit of a product rises quantity demanded per time period decreases, cetirus paribus

c. Utility is happiness.

2. the weakest is number 2 as there are several other ways to get happiness such as being with your parents or friends.

3. 1-2

2- 3

3- 4

4. none, since no one produces things for zero price.

5. yes there is when the demand for it is higher such as changes in season or your taste in something is higher.

EP4

Ep4

1. Greek prime minister pledges a battle to avoid "disastrous bankrupcy" . the article talks about

NEW: Prime Minister George Papandreou says privatization is "necessary"

Clashes were reported in Thessaloniki

Greece is on the brink of default

It shows how the Greeks want to privatize companies thus giving the government less power.

2.a. the problem of economic sustainability

b. the role of government in the country

c. the problem of firm equity

d. the role of government

e. the problem of efficiency and fareness

F. the role of government

EP3

EP3

define-

opportunity cost- The loss of potential gain from other alternatives when one alternative is chosen.

accounting cost- the monetary cost

economic cost- the costs added together

production possibility curve- In economics, a production-possibility frontier (PPF), sometimes called a production-possibility curve or product transformation curve, is a graph that compares the production rates of two commodities that share the same factors of production. The PPF curve shows the specified production level of one commodity that results given the production level of the other.

law of diminishing returns- a law affirming that to continue after a certain level of performance has been reached will result in a decline in effectiveness

2. the opportunity cost is facebook and studying.

3.they decide that its more important to go to college instead of a family thus the opportunity cost is a family.

4.

a. no because they are made in different quantities

b. yes because they meet on the graph

5. the production of cola and lemon sodas

EP 2

EP2

1. define-

social science- The scientific study of human society and social relationships using the scientific method

ceteris paribus- With other conditions remaining the same.

Economic models- A collection of assumptions, often expressed as equations relating variables, from which inferences can be derived about economic behavior and performance.

Positive economics- economics based on fact that can be tested

normative economics- a statement based on opinion that can't be tested.

2. His model is a fair one as it only includes one variable- the homework being finished. However both the assumptions have no proof thus being normative. This may need to change.

3. What could have upset you're cetirus paribus is the use of real students. Also there is no way of being sure that the kids actually like economy or doing homework. Also several other come into play such as, other work that day, sports etc.

4.I think normative are more common as many political idealogies are based on opinion. such as saying raising taxes will help the economy.