PRINCIPLES OF MACROECONOMICS Study Guide for Appendix to Chapter Three, Chapter Four, and Chapter Five February 3, 2014 Definitions: Illustrations: 1. 2. 3. Be able to recognize the definition of terms identified in lecture. UNDERSTAND WHAT YOU ARE ILLUSTRATING!!! Government taxation (on buyers or sellers) a. Impact on consumer surplus b. Impact on producer surplus c. Impact on government revenue d. Deadweight loss The relationship between the size of a tax and deadweight loss. The relationship between the size of a tax and tax revenue (The Laffer Curve) Math: Given 1. a. 2. 3. a. P = 1200 - 2Q P = 200 + 8Q c. P = 220 - 5Q P = 60 + 3Q Determine equilibrium price and quantity. P _____ Q _____ b. P _____ Q _____ b. d. P = 300 - 2Q P = 4000 - 6Q c. P _____ Q _____ P = 50 + 3Q P = 400 + 10Q d. At what price is demand equal to zero? a. _____ b. _____ c. _____ d. _____ At what price is supply equal to zero? a. _____ b. _____ c. _____ d. _____ P _____ Q _____ 4. In each of the above markets, if the government imposed a tax on producers how much of the tax would be paid by a. tax = $100 consumers? _____ producers? _____ b. tax = $50 consumers? _____ producers? _____ c. tax = $40 consumers? _____ producers? _____ d. tax = $160 consumers? _____ producers? _____ 5. In each of the above markets, if the government imposed a tax on consumers how much of the tax would be paid by a. tax = $100 consumers? _____ producers? _____ b. tax = $50 consumers? _____ producers? _____ c. tax = $40 consumers? _____ producers? _____ d. tax = $160 consumers? _____ producers? _____ 6. In each of the above markets, if the government imposed the tax noted in 4a-d or 5a-d, what would be the size of __________ after the tax? Consumer Surplus b. Producer Surplus c. Tax Revenue What is consumer surplus and producer surplus before the tax in each instance? a. e. d. Deadweight Loss Short-Answer Essays For 1-3: What determines the price of a good or service? Answer this question utilizing the methods of 1. David Ricardo and Karl Marx 2. Stanley Jevons, Carl Menger and Leon Walras . 3. Alfred Marshall 4. a. What is the Law of Demand? b. According to lecture, what is the explanation for the Law of Demand? 5. a. List the factor(s) that will change quantity demanded? b. List the factor(s) that will change demand? How do changes in these factors impact price and quantity in the market? 6. What is the Law of Supply? 7. a. List the factor(s) that will change quantity supplied? b. List the factor(s) that will change supply? How do changes in these factors impact price and quantity in the market? 8. Explain the difference between absolute and relative prices. 9. List and briefly explain the limitations of supply and demand analysis. 10. What is the relationship between a. the size of a tax and deadweight loss? b. the size of a tax and tax revenue? 11. What is the strong and weak form of Supply Side economics? 12. According to Arthur Laffer, if taxes are reduced what will happen to tax revenue? What must you assume for this to be true? Book Questions from Chapter Three Appendix 1. Define the following terms from the text: a. market economy b. c. capitalism d. e. feudalism f. g. Industrial Revolution h. 2. private property rights socialism mercantilism laissez-faire The appendix to Chapter Three details the history of economic systems. From this section... a. What are the problems with a traditional based economy? b. What system bridged the gap between feudalism and capitalism? How did that system function? c. What question did Adam Smith address in “The Wealth of Nations”? d. When did the Industrial Revolution occur? e. Karl Marx saw capitalist society divided into which two groups? f. What did Marx get right? What did he get wrong? g. What economic system did Russia employ before it attempted to implement Marx’s writings? What problems did Russia have implementing Marx’s ideas? h. What economic system is employed by most nations in North America, Europe, and Asia today? Book Questions from Chapters Four 1. According to Thomas Carlyle, how can you transform a parrot into an economist? 2. What are six things to remember about the demand curve? 3. What are six things to remember about the supply curve?