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