|
Econ 200 - Principles of Economics -Introduction
Phil
Martinez
|
Study Guide for Exam 2
Supply
and Demand
Role of the Government
and Taxation
Inequality
Concepts
and Definitions:
Definition Income
Definition of wealth
Examples of wealth
Data/History
Know the percent of total income that the top 20% and
bottom 20% earn, as reported in Chap. 2
Know how the percent of income of the top 20% and bottom
20% have changed over time as reported on the Inequality
webpage.
Know how the percent of household wealth owned by the top
1% and bottom 99% have changed over time as reported on
the Inequality webpage.
Application/Interpretation
Why is the wealth gap more important than the income gap?
Chapter 3 - Supply and Demand
Concepts and
Definitions:
What are the assumptions
of the S & D model?
Maximizing
Behavior
Economic
Rationality
Law of Demand
Law of Supply
Ceteris paribus
The difference between
Demand and quantity demanded.
The difference between Supply and quantity supplied.
The determinants
(factors) of demand and their impact.
The determinants (factors) of supply and their impact.
A change in Demand versus
a change in quantity demanded.
A change in Supply versus a change in quantity supplied.
Complimentary goods
Substitute goods
Normal goods
Inferior goods
The Income Effect
of a price change (the ability to pay, affordability)
The Substitution Effect of a price change (the willingness to
pay, relative value)
Graphical
and technical issues:
Slopes of the demand
curve and supply curve
Direct versus inverse relationship
Positive versus negative relationship
Movement (or sliding ) along a curve versus shifting of the
entire curve
Applications and
interpretations:
How is Demand represented
graphically?
How is quantity demanded represented graphically?
How is Supply represented
graphically?
How is quantity supplied represented graphically?
How is the slope
interpreted?
Why is the Demand curve sloped downward?
Why is the Supply curve sloped upward?
How to represent and
interpret changes in the economy (e.g. prices of inputs,
technology, resource availability, the impact of natural forces,
expectations, prices of other goods, preferences, income,
wealth, etc.) graphically on supply and demand graphs.
Ch. 4 – The Role of the Government
Market
Failure
The invisible hand of the market =
the generation of mutual benefits via pursuit of self-interest.
The price (market) mechanism = the
process by which independent price
adjustments inform consumers and producers regarding the
availability (or desirability) and relative value of goods and
resources.
What is market failure?
How can a market fail?
What is a public good?
Why are public goods failures of the market?
When does a public good exist?
What is excludability?
When is a good "non-rival"?
What is the role of the government in responding to the market’s
failure to provide public goods?
What is an externality? What is an external cost? What is
an external benefit?
Why is the government justified in intervening in markets that
produce externalities?
What are the options the government has to respond to
externalities?
What is the goal of government intervention in response to
external costs and external benefits?
What is an imperfect market (or price system)?
What is Market Power?
What happens if the economy is dominated by a few corporations
that can manipulate prices?
What is the role of government in addressing these areas:
Externalities?
Public Goods?
Market Power?
Inequity?
Instability?
How does a perfectly private market address the problem equity
(or inequity)?
Equity and efficiency are both goals of the economy. Can both be
achieved?
The
Role of Government in the Economy
What are the economic roles of government?
What does "internalizing costs" mean?
What is macro-instability?
What is stabilization policy?
How does government spending as a percent of GDP caompare with
other developed nations?
What are direct expenditures and income transfers?
What are progressive, proportional, and regressive taxes?
Know the different kinds of taxes and which level of government
levies them: Income, Social Security, Corporate, Excise,
Property, Sales, and User charges.
Which of the above taxes are regressive?
Know the single largest expenditure at both the local and state
government levels.
Know the two largest sources of Tax Revenue for federal, state,
and local governments.
Size of Government (Figure 4.4)
Total Government spending is approximately what percent of total
output (GDP)?
Federal Government spending is approximately what percent of
total output (GDP)?
State and Local Government spending is approximately what
percent of total output (GDP)?
How has government spending as a percent of GDP changed since
since WWII? since the 1950s?
Taxation
What is a progressive tax?
What is a regressive tax?
Which Federal taxes are progressive and which are regressive?
Which State taxes are progressive and which are regressive?
Which taxes are Federal taxes? Which are state taxes? Which are
local taxes (city, municipal, county)?
Approximately what percent of Federal tax revenue comes from
Corporate taxes? Individual Income taxes? Social Security Taxes?
Excise taxes? Estate/Gift taxes?
Government
Failure
What is government failure?
How can government fail?
Inefficent
Ineffective
Opportunity costs of the program
What are the opportunity costs of government
programs?
When should government become involved in the economy?
What is Public Choice Theory? What is Social Choice Theory?
Chapter - 33 Taxation
Know the following terms and know how to calculate them:
a progressive tax
a regressive tax
a proportional tax
the marginal tax rate
the average tax rate
the nominal tax rate
the effective tax rate
the tax elasticity of supply
horizontal equity
vertical equity
tax base
tax incidence
Know the history of the changes in the marginal tax rates:
Current marginal tax rates are lowest in 90
years.
GWBush 2001-10 tax cuts
Obama proposed tax increase
Know which taxes federal, state, and local governments rely on
to raise most of their revenue.
Know which federal, state, and local taxes are progressive and
which are regressive.
Is the overall tax structure of the US progressive, regressive
or neutral?
Short
Answer
Essay Study Questions
1. Write out and Explain the Law of Demand.
OR...Write out and Explain the Law of Supply.
2. Explain the difference between Demand and
quantity demanded. Be sure to note what causes each to change.
OR...Explain
the difference between Supply and quantity supplied. Be sure
to note what causes each to change.
3. Explain why the Supply Line is sloped
upward.
OR...Explain
why the Demand Line is sloped downward.
4. Explain the
concept of equilibrium.
5. Define external cost. Give an example. What is the
appropriate government response to a market
generating external
costs?
OR...Define external benefit. Give an example. What is the
appropriate government response to a market
generating external benefits?
6.
What happens if the economy is dominated by a few corporations
that can manipulate prices?
7.
Why is the government justified in intervening in markets that
produce externalities?
8.
Why are public goods failures of the market?
9.
How can the government respond to the market’s failure to
provide public goods?
10. How
can markets fail?
11.
Why is a progressive tax preferable over a regressive tax?
12. Is the overall tax system of the U.S. (including all
federal, state, and local taxes) progressive, regressive or
neutral. Explain your answer.
Site Manager: Phil Martinez.
Constructed by Phil Martinez. Union made: LCCEA, OEA, NEA
Copyright Phil Martinez and Lane Community
College
