AP Microeconomics I

Question 1

Externality

Answer 1

The uncompensated impact of one person’s actions on the well-being of a bystander, can be positive(restoring old buildings) or negative(take pollution for example)

Question 2

Arrow’s impossibility theorem

Answer 2

A mathematical result showing that, under certain assumed conditions, there is no scheme for aggregating individual preferences into a valid set of social preferences. Conditions ae :No dictators, transitivity, unanimity, independence of irrelevant alternatives.

Question 3

moral hazard

Answer 3

The tendency of a person(the agent) who is imperfectly monitored by the principal(boss) to engage in dishonest or otherwise undesirable behavior. Can be reduced by delayed payment, high wages, or better monitoring.

Question 4

John Stuart Mill

Answer 4

English philosopher and economist remembered for his interpretations of empiricism and utilitarianism (1806-1873) Benthamite, wrote “On Liberty”. Advocated right of workers to organize, equality for women, and universal suffrage

Question 5

Hidden characteristics

Answer 5

Things one party of a transaction knows about itself but which are unknown to the other party, one of the causes of asymmetric information.

Question 6

Asymmetric information

Answer 6

Situations in which buyers and sellers are not equally well informed about the characteristics of goods and services for sale in the marketplace

Question 7

adverse selection

Answer 7

The tendency for the mix of unobserved attributes to become undesirable from the standpoint of an uninformed party. (In other words the seller knows more about a product, then the buyer does, which causes “adverse” problems.)

Question 8

agent

Answer 8

a person who is performing an act for another person(the principal)

Question 9

principal

Answer 9

A person for whom another person, called the agent, is performing some act, otherwise known as a BOSS.

Question 10

delayed payment

Answer 10

One of the ways the principal (boss) attempts to reduce the chance of moral hazard of his agent (employee), it works because the agent perceives that their will be a greater loss if he engages in undesirable behavior. Example : End of year bonus.

Question 11

Hidden action

Answer 11

Action taken by one party in a relationship that cannot be observed by another party, one of causes of asymmetric information.

Question 12

lemons problem

Answer 12

When buyer’s can’t tell if if the good they are buying is high-quality or low-quality. ex. Used Cars (people assume that since they are used, there is something wrong with them). Extreme Case- People with HQ goods don’t want to sell for the low prices offered and so drop out, leaving only lemons (low quality goods).

Question 13

Screening

Answer 13

An action taken by an uninformed party to induce an informed party to reveal information or reduce asymmetric information. For example : Interviews, Credit History, phone records, etc,.

Question 14

Premium

Answer 14

The periodic amount of money the insured pays to a health plan for insurance coverage, insurance companies use this as away to screen between risky and safe people.

Question 15

Political Economy

Answer 15

the study of government using the analytic methods of economics.

Question 16

Condorcet paradox

Answer 16

The failure of majority rule to produce transitive preferences for society. Shows that the order that things are voted on effects the overall results.

Question 17

transitivity

Answer 17

The ability to recognize relations among elements in a serial order (for example, if A > B and B > C, then A > C).

Question 18

Broda count

Answer 18

A system where voters use numbers to mark their preferences for all the nominated candidates. preferences are assigned a value (1, .9 .8 .7 .6). Is supposed to counter and correct Condorcet paradox.

Question 19

Kenneth Arrow

Answer 19

An American economist and joint winner of the Nobel Memorial Prize in Economics, proved that when there are 3 or more options it is impossible to aggregate individual preferences into a valid set of social preferences.

Question 20

unanimity

Answer 20

state of total agreement or unity, one of the conditions of arrow’s impossibility theorem.

Question 21

Median voter theorem

Answer 21

Mathematical result that shows if voters are choosing a point along a line and each voter wants the point closest to his preferred point, then majority rule will pick the most preferred point of the median voter. Condorcet paradox actually does not arise in this situation.

Question 22

Independence of irrelevant alternatives

Answer 22

A principle that the ranking between any two outcomes A and B should not depend on whether some third outcome C is also available , one of the conditions of arrow’s impossibility theorem.

Question 23

behavioral economics

Answer 23

The sub-field of economics that integrates the insights of psychology

Question 24

satisficers

Answer 24

Decision makers who tend to settle for something that is satisfactory, even if it may not be ideal. Some economist believe that this term should replace the idea of rational customers.

Question 25

ultimatum game

Answer 25

A game in which a proposer is given a sum of money and makes an offer to a responder as to how this money should be split between them. The responder must choose to accept or reject the offer. This game has been used to study people’s decision-making strategies.

Question 26

Perfect Complements

Answer 26

Goods that a consumer is interested in consuming but only in fixed proportions; has L shaped(right angled) indifference curves. Like left shoes and right shoes.

Question 27

Perfect Substitutes

Answer 27

Two goods with straight line indifference curves. Like Nickels and dimes.

Question 28

Indifference Curve

Answer 28

A curve that shows consumption bundles that give the consumer the same level of satisfaction (utility). Are ALWAYS downward sloping, NEVER cross other ___________ _________s, and higher __________ _________s are ALWAYS preferred when compared to lower __________ __________s. Also they are always bowed inwards.

Question 29

Marginal Rate of substitution

Answer 29

The rate in which a consumer is willing to trade one good for another and stay on the same indifference curve. (MRS)

Question 30

Budget Constraint

Answer 30

The limit on the consumption bundles that a consumer can afford., the set of all bundles a consumer can purchase for given values of income and price (first point is buying all one product and the end point is all of the other product)

Question 31

Consumer Optimum

Answer 31

A choice of a set of goods and services that maximizes the level of satisfaction for each consumer, subject to limited income. The point where the budget constraint is tangent to the indifference curve. Is also where the marginal rate of substitution(MRS) = relative price.

Question 32

Normal Good

Answer 32

A good for which, other things equal, an increase in income leads to an increase in demand.

Question 33

inferior good

Answer 33

a good for which, other things equal, an increase in income leads to a decrease in demand

Question 34

income effect

Answer 34

The change in consumption that results when a price change moves the consumer to a higher or lower indifference curve.

Question 35

substitution effect

Answer 35

The change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution.

Question 36

Giffen Good

Answer 36

A good for which an increase in the price raises the quantity demanded, usually an inferior good accounting for a large share of a consumers budget that has a positively sloped demand curve because the income effect of a price change out weighs the substitution effect. Important because it VIOLATES Law of Demand. Potatoes in 19th century.

Question 37

Interest Rate

Answer 37

Cost of borrowing money, expressed as a percentage of the amount borrowed per year.

Question 38

Poverty

Answer 38

The condition of lacking an adequate amount of money, belongings, and/or means of financial support. Is correlated with race. age, and family composition.

Question 39

Poverty Rate

Answer 39

Percentage of people whose income falls below the poverty line, measures distribution of income. All time low achieved in 1973, however has increased or remained near the same level since then which is related to income inequality.

Question 40

Income inequality

Answer 40

The existence of disproportionate distribution of total national income among households whereby the share going to rich persons in a country is far greater than that going to poorer persons. From 1930 to 1970 the gap between the rich and poor closed, but from the 1980’s to 2000’s this trend has reversed itself in the U.S.

Question 41

Poverty line

Answer 41

An absolute level of income set by the federal government for each family size below which a family is deemed to be in poverty, roughly 3 times the cost level of proving an adequate diet.

Question 42

in kind transfers

Answer 42

Transfers to the poor given in the form of goods and services rather than cash, one of the problems that result when measuring inequality or poverty.

Question 43

Life Cycle

Answer 43

The regular pattern of income variation over a person’s life. A persons income generally is low when young, then increases until about 50 and drops off after retirement at age 65. Another problem when measuring poverty and income inequality especially when compared to true living standards.

Question 44

Permanent income

Answer 44

A person normal (average) income. Differs from transitory income which depends on outside conditions.

Question 45

utility

Answer 45

A measure of happiness or satisfaction

Question 46

Transitory income

Answer 46

the unexpected gain or loss of income that a person experiences. It is the difference between a person’s regular(permanent) and actual income in any year.

Question 47

economic mobility

Answer 47

The degree of upward mobility in a society; refers to the economic fortunes of different groups often measured by the percent of income each group makes. Is really apparent in the U.S as only 1/5 millionaires actually inherited their income.

Question 48

Utilitarianism

Answer 48

The theory, proposed by Jeremy Bentham in the late 1700s, that government actions are useful only if they promote the greatest good (utility) for the greatest number of people.

Question 49

liberalism

Answer 49

The political philosophy according to which the government should choose policies deemed just, as evaluated by an impartial observer behind “a veil of ignorance” Started by Philosopher John Rawls. Based on idea that we should maximize the minimum.

Question 50

Jeremy Bentham

Answer 50

The creator of Utilitarianism. Believed that public problems should dealt with on a rational scientific basis. Believed in the idea of the greatest good for the greatest number. Wrote, Principles of Morals and Legislation.

Question 51

diminishing marginal utility

Answer 51

The principle that our additional satisfaction, or our marginal utility, tends to go down as more and more units are consumed.

Question 52

John Rawls

Answer 52

Harvard philosopher who argued that justice is fairness and social equality. Wrote” A theory of Justice” which founded liberalism(as it relates to economics).

Question 53

maximum criterion

Answer 53

The claim that gov’t should aim to maximize the well-being of the worst-off person in society. Also known as Rawls rule, is a fundamental part of his economic theory of liberalism.

Question 54

Social Insurance

Answer 54

Government policy aimed at protecting people against the risk of adverse events

Question 55

libertarianism

Answer 55

The political philosophy according to which the government should punish crimes and enforce voluntary agreements but not redistribute income. Belief in the equality of opportunities.

Question 56

Anarchy, State, and Utopia

Answer 56

A work of political philosophy written by Robert Nozick in 1974, argues in favor of a minimal state, “limited to the narrow functions of protection against force, theft, fraud, enforcement of contracts, and so on.” When a state takes on more responsibilities than these, Nozick argues, rights will be violated. Support libertarianism.

Question 57

the liberty principle

Answer 57

Each person is to have an equal right to the most extensive system of basic liberties that’s compatible with everyone Else’s right to the same thing. This principle is the more important than the difference principle, as this requirements come first(or at least according to Rawls)

Question 58

the difference principle

Answer 58

Economic inequalities should be arranged so that they are to the benefit of everyone, including the least well off

Question 59

Welfare

Answer 59

Government programs that supplement the incomes of the needy,

Question 60

Negative income tax

Answer 60

A tax system that collects revenue from high-income households and gives transfers to low-income households

Question 61

EITC

Answer 61

EARNED INCOME TAX CREDIT: a program that gives tax credits and even cash payment to qualified workers, works like an negative income tax.

Question 62

child labor

Answer 62

Full-time employment of children for work otherwise done by adults.

Question 63

Workfare

Answer 63

Programs that require welfare recipients to exchange some of their labor in return for benefits.

Question 64

1996 Welfare reform bill

Answer 64

Signed by Clinton. Ended AFDC and required Congress to appropriate a total of $16.8 billion to states annually through 2002. Clinton said “ Welfare should be a second chance, not a way of life”.

Question 65

Gini coefficient

Answer 65

A measure of income inequality that ranges from 0 (perfect equality) to 1 (perfect inequality). It is calculated by dividing the area between the perfect equality line and the Lorenz curve by the total area on the right of the equality line

Question 66

Lorenz curve

Answer 66

A widely used graph of the distribution of income, with cumulative percentage of families plotted along the horizontal axis and cumulative percentage of income plotted along the vertical axis. Used in Gini coefficent calculation.

Question 67

Compensating differential

Answer 67

A difference in wages that arises to offset the non-monetary characteristics of different jobs. Why garbage disposers earn more than someone with the same skills.

Question 68

Beauty

Answer 68

________ pays big money. That is why most movie stars are this. Is an average increase in wages of 5 to 10% on average when compared to normal population. A type of discrimination.

Question 69

Human Capital

Answer 69

The accumulation of investments in people, such as education and on-the-job training, just as important if not more important than physical capital.

Question 70

Signaling Theory

Answer 70

Theory that employers are willing to pay more for people with certificates, diplomas, degrees, and other indicators of superior ability. More of a correlation to natural ability.

Question 71

Superstar Theory

Answer 71

A theory that states that superstars will rise in markets where: 1. Every customer wants to enjoy the good supplied by best producer. 2. The good is supplied with technology that makes it possible for customers to receive it at a low cost.

Question 72

Union

Answer 72

A worker association that bargains with employers over wages, benefits, and working conditions, Usually earn 10 to 20% more than similar unionized workers. Usually successful because of ability to strike.

Question 73

Strike

Answer 73

the organized withdrawal of labor from a firm by a union

Question 74

selection bias

Answer 74

The tendency for a sample to differ from the population because of systematic exclusion of some part of the population

Question 75

Efficiency wages

Answer 75

above equilibrium wages paid by firms to increase worker productivity

Question 76

Discrimination

Answer 76

The offering of different opportunities to similar individuals who differ only by race, ethnic group,sex, age or other personal characteristics.

Question 77

employer discrimination

Answer 77

An arbitrary preference by an employer for one group of workers over another. Usually decreases over time due to competitors advantage of making more profit. Also if and when it occurs it is more often due to policy enacted by local governments.

Question 78

customer discrimination

Answer 78

The willingness of consumers to pay more for a product produced by members of a favored group, even if the quality of the product is unaffected.

Question 79

Labor

Answer 79

The effort that people devote to a task for which they are paid, is a factor of production. The most important factor of production because it creates the most income.

Question 80

Dividends

Answer 80

A part of a company’s profit that is divided among the people with shares in the company

Question 81

Factors of production

Answer 81

Land, labor, and capital(LLC), sometimes entrepreneurial ability ; the three groups of resources that are used to make all goods and services

Question 82

Land

Answer 82

All natural resources that are used to make goods and services, factor of production

Question 83

Capital

Answer 83

Assets available for use in the production of further assets, serve as an investment, for example factory equipment

Question 84

Derived Demand

Answer 84

Business demand that ultimately comes from (derives from) the demand for consumer goods. Describes the demand of all factors of production.

Question 85

Labor market

Answer 85

The input/factors of production market in which households supply work for wages to firms that demand labor.

Question 86

Production Function

Answer 86

The relationship between quantity of inputs used to make a good and the quantity of output of that good

Question 87

Marginal product of labor

Answer 87

the change in output from hiring one additional unit of labor

Question 88

diminishing marginal product

Answer 88

the property whereby the marginal product of an input declines as the quantity of the input increases.

Question 89

value of marginal product

Answer 89

marginal product times market price; demand curve for labor augmenting

Question 90

Wage

Answer 90

Equals the value of the marginal product o labor and adjusts to balance the supply and demand of labor.

Question 91

Real Wage

Answer 91

The wage paid to workers measured in terms of purchasing power; the real wage for any given period is calculated by dividing the nominal (dollar) wage by the CPI for that period, is usually linked directly with productivity.

Question 92

CPI

Answer 92

Consumer Price Index (changes in average price of consumption the or cost of living). , (Total Cost this Period/Total Cost Base Period) x 100

Question 93

Monopsony

Answer 93

A market with only one buyer or employer of a factor of production. Is similar to a monopoly just in the opposite sense. Causes deadweight losses because the single buyer would limit the factors of employment in order to increase profit, and prevent reasonable transactions from taking place.

Question 94

Purchase Price

Answer 94

_________ _______ of land and capital is the price a person pays to own the factor of production indefinitely. Distinguished from the rental price.

Question 95

Rental Price

Answer 95

Is the price a person pays to use that factor for a limited period of time. Distinguished from purchase price.

Question 96

marginal product

Answer 96

The equilibrium rental income at ant point in time equals the value of that factors _________ ______.

Question 97

capital income

Answer 97

Income earned on savings that have been put to use through financial capital markets.

Question 98

labor income

Answer 98

The sum of wages, salaries, and fringe benefits paid to workers

Question 99

Stockholder

Answer 99

An owner of one or more shares of a corporation

Question 100

Neoclassical theory of distribution

Answer 100

Economic theory that states that the amount paid to each factor of production depends on the supply and demand for that factor, with the derived demand. In equilibrium, each factor of production earns the value of its marginal contribution to the production of goods and services.

Question 101

Game Theory

Answer 101

The study of how people behave in strategic situations(involving the anticipation of actions taken by others and yourself).

Question 102

Oligopoly

Answer 102

A market structure with only a handful of competitors selling products that are either similar or different. Barriers to entry are typically high. For example the market for Tennis Balls. More interdependence in these markets.

Question 103

Prisoners dilemma

Answer 103

A particular “game” between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial to do so. Useful when analyzing oligopoly

Question 104

self interest

Answer 104

A key feature of oligopoly is between tension and _____ _________.

Question 105

Duopoly

Answer 105

Two firms compete vigorously with the other for customers using non-price competition. There are very strong barriers to entry

Question 106

Collusion

Answer 106

An agreement among firms in a market about quantities to produce or prices to charge, happens in an oligopoly, and forms a cartel.

Question 107

Cartel

Answer 107

A group of firms acting in unison (In collusion), a hallmark of oligopoly.

Question 108

Antitrust laws

Answer 108

What limits oligopoly’s in the U.S from explicitly colluding and forming a cartel.

Question 109

Nash Equilibrium

Answer 109

A situation in which economic participants interacting with one another each choose their best strategy given the strategies that all the others have chosen

Question 110

John Nash

Answer 110

Prominent theoretical mathematician who suffered from schizophrenia; awarded Nobel Prize for his game theory that is used by economists today. Life was portrayed in the book and movie “A Beautiful Mind”

Question 111

oligopoly

Answer 111

When firms in an ________ choose production to maximize profit, they produce a quantity of output greater than the level produced by monopoly and less than the quantity produced by competition.

Question 112

Collusion

Answer 112

_________ among members of an oligopoly generally decrease when more members are added..

Question 113

Output effect

Answer 113

Because price is above marginal cost, selling one more unit at the going price will raise profit

Question 114

Price effect

Answer 114

Raising production increases market quantity, which reduces market price and reduces profit on all units sold.

Question 115

output effect

Answer 115

If the ________ ____ is larger than the price effect than firms will increase production , if not they will decrease production.

Question 116

Dominant Strategy

Answer 116

A strategy that is best for a player in a game regardless of the strategies chosen by the other players

Question 117

OPEC

Answer 117

Organization of Petroleum Exporting Countries; international cartel that inflates price of oil by limiting supply; Venezuela, Saudi Arabia and UAE are prominent members

Question 118

tit for tat

Answer 118

A strategy for the repeated prisoner’s dilemma in which players cooperate on the first move, then mimic their partner’s last move on each successive move. The most successful strategy in game theory.

Question 119

Predatory Pricing

Answer 119

Selling below cost with the intention of punishing a competitor or gaining higher long-term profits by putting competitors out of business.

Question 120

Tying

Answer 120

Practice of requiring a customer to purchase on good in order to purchase another, a controversial business practice.

Question 121

Advertising

Answer 121

Any paid form of communication through mass media directed at identified consumers to provide information and influence their actions, is a hallmark of mainly monopolistic competition and some oligopolistic competition, because firms are selling slightly differentiated products they need to distinguish themselves.

Question 122

Monopolistic competition

Answer 122

Market or industry characterized by numerous buyers and relatively numerous sellers trying to differentiate their products from those of competitors(similar but not identical), like the book and music industry.

Question 123

Imperfect competition

Answer 123

Market structure where all conditions of pure competition are not met; monopolistic competition, oligopoly, and monopoly

Question 124

Brand names

Answer 124

The use of party names to evoke certain positions or issues. For instance, “Adidas” might immediately call to mind athletics in the same way that “Democrat” might remind you of environmental policies or universal health care.

Question 125

oligopoly

Answer 125

A market structure in which only a few sellers offer similar or identical products, like Internet search industry dominated by Google, Bing and Yahoo.

Question 126

Concentration ratio

Answer 126

A measure of market power - the percentage of all sales that is accounted for by the four or eight largest firms in the market

Question 127

Product differentiation

Answer 127

Manufacturers’ use of minor differences in quality and features to try to differentiate between similar goods and services, found in monopolistic competition.

Question 128

Short run

Answer 128

In the ____ ____ monopolistic competition is similar to a monopoly when it comes to maximizing profit. The quantity is determined from where MC intersects with MR and then demand at that quantity determines the price.

Question 129

Long run

Answer 129

In the ____ ____ monopolistic competition makes economic profits = 0, as the demand curve shifts ad has a point of tangency with the ATC curve. This makes the area between the curves at the quantity sold zero.

Question 130

Excess Capacity

Answer 130

The difference between the long-run output in monopolistic competition and the output at minimum average total cost, one of the two distinguishing features, monopolistic competition does NOT produce at efficient scale like competitive markets and therefore has _______ ________.

Question 131

Markup

Answer 131

A difference between perfect competition and monopolistic competition, monopolistic has a _______ because P>MC compared to perfect competition which P=MC in the long run.

Question 132

Deadweight losses

Answer 132

Monopolistic competition also creates ___________ _______. In that respect it is similar to monopolies.

Question 133

Product variety externality

Answer 133

The externality where consumers get consumer surplus from the intro of new product, so the entry of new firm conveys positive externality on customers. Associated with monopolistic competition

Question 134

Business-stealing externality

Answer 134

The externality where new businesses (associated with monopolistic competition) take customers from old businesses because they are new, people like trying out new places, which hurts established businesses

Question 135

The Affluent Society

Answer 135

1958 book by John Kenneth Galbraith; Covers Consumerism and prosperity in the 1950s; Galbraith criticized society where increasing private affluence(opulence) exists alongside increasing poverty(squalor). He urged greater governmental expenditures on education and health care.

Question 136

John Kenneth Galbraith

Answer 136

Economist who published The Affluent Society, in which he claimed that the nations postwar prosperity was a new phenomenon.

Question 137

Sherman Antitrust Act

Answer 137

First federal action against monopolies, it was signed into law by Harrison in 1890 and was extensively used by Theodore Roosevelt for trust-busting. However, it was initially misused against labor unions. “To reduce the market power of the large and powerful “trusts”. Succeeded by the Clayton Antitrust Act.

Question 138

Monopoly

Answer 138

A firm that is the sole seller of a product without any close substitutes, (For example Standard Oil for much of the 20th century). Makes the firm a price maker. Is created when their are barriers to entry which have 3 main sources: Monopoly resources, Government regulation, and the production process.

Question 139

Copyright

Answer 139

Protection giving the owner the exclusive right to reproduce or distribute copies of his or her own work for a given period of time.

Question 140

Cecil Rhodes

Answer 140

British entrepreneur and politician involved in the expansion of the British Empire from South Africa into Central Africa. The colonies of Southern Rhodesia (now Zimbabwe) and Northern Rhodesia (now Zambia) were named after him. Founded the De Beers Mining Company which has a monopoly on diamonds. The benefactor of the Rhodes Scholarship.

Question 141

Price maker

Answer 141

A firm whose own activity in the market affects price. The firm has the ability to choose among combinations of price and output. Firms operating as monopolists, oligopolists, and monopolistic competitors are _______.

Question 142

Monopoly resources

Answer 142

A barrier to entry in a monopolistic market, when a key resource required for production is owned by a single firm, classic example is DeBeers.

Question 143

DeBeers

Answer 143

A company that has a monopoly in diamonds (70% of the world’s diamonds), started by Cecil Rhodes. Is based on having monopoly resources.

Question 144

Movie Tickets

Answer 144

A classic example of price discrimination involves this product. Usually the price at a movie theater changes if you are older or younger because of a differing willingness to pay.

Question 145

Natural Monopoly

Answer 145

A monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms. Occurs because there are economies of scale over the relevant range of output. For example : Local Cable, Water distribution ,etc,.

Question 146

economies of scale

Answer 146

Factors that cause a producer’s average cost per unit to fall as output rises, helps explain the natural monopoly.

Question 147

Average Revenue

Answer 147

For competitive firms as well as monopolies _________ ________ equals the price of a good.

Question 148

Marginal Revenue

Answer 148

A Monopolist’s ___________ ___________ is ALWAYS less than the price of its good, and by extension its Average Revenue.

Question 149

output effect

Answer 149

The situation in which an increase in the price of one input will increase a firm’s production costs and reduce its level of output, thus reducing the demand for other inputs; conversely for a decrease in the price of the input.

Question 150

price effect

Answer 150

After a price increase, each unit sold sells at a higher price, which tends to raise revenue, despite the inclination of people to buy goods at least in the case of a monopoly.

Question 151

Marginal Revenue

Answer 151

_________ _________ in the case of monopolies is always less than the price, and because of that can even become negative as the Demand(average revenue) decreases.

Question 152

profit maximizing

Answer 152

The monopolist _____ __________ quantity of output is determined by the intersection of the marginal revenue curve and the marginal cost curve. The price at that quantity is determined by a demand curve.

Question 153

supply curve

Answer 153

Monopolies do not have a ________ _______. This is because they are price makers.

Question 154

deadweight loss

Answer 154

The inefficiency of a monopoly causes a __________ ______. Similar to that created by Tariffs and taxes. This is because the monopoly charges higher than the marginal cost, which prevents mutually beneficial trade from taking place. In many ways a monopoly is like a private tax collector.

Question 155

Price discrimination

Answer 155

the business practice of selling the same good at different prices to different customers, not possible when a good is sold in a competitive market, but does occur in monopolies.

Question 156

arbitrage

Answer 156

The process of buying a good in one market at a low price and selling it in another market at a higher price. My brother does this all the time.

Question 157

Perfect price discrimination

Answer 157

Describes a situation in which the monopolist knows exactly the willingness to pay of each customer and can charge each customer a different price (in this case, the monopolist charges each customer exactly his willingness to pay, and the monopolist gets the entire surplus in every transaction)

Question 158

Discount Coupons

Answer 158

They may seem like a deal but _______ ________ allow companies to price discriminate. Also explains why Financial aid is a form of price discrimination.

Question 159

Financial aid

Answer 159

A general term that includes all types of money, loans, and work-study programs offered to a student to help pay tuition, fees, and living expenses. Form of price discrimination.

Question 160

Antitrust laws

Answer 160

Laws to minimize unfair competition. Illegal to conspire to fix prices, allocate customers or markets, limits market power and the deadweight losses created by monopolies.

Question 161

Clayton Antitrust Act

Answer 161

1914 Act that corrected the problems of the Sherman Antitrust Act; outlawed certain practices that restricted competition; unions on strike could no longer be considered violating the antitrust acts.

Question 162

Synergies

Answer 162

Benefits that are observed in some mergers resulting from a more efficient joint production model.

Question 163

sunk costs

Answer 163

Costs that cannot be avoided because they have already been incurred. But don’t cry over spilled milk. You must ignore these costs when making rational decisions and remember to think at the margins.

Question 164

Competitive Market

Answer 164

A market with many buyers and sellers trading identical products so that each buyer and seller is a price taker, sometimes defined as a perfectly competitive market. Also firms must have open access and open exit.

Question 165

Average Revenue

Answer 165

Total revenue divided by the quantity sold, or in symbolic terms TR/ Q, on average the revenue added by selling one unit, also equals the price of the good.

Question 166

Marginal Revenue

Answer 166

The extra revenue associated with the production and sale of one additional unit of output. For all competitive markets equals the price of the good, which also means that it equals average revenue.

Question 167

Profit maximization

Answer 167

Primary goal of any firm - to earn the most profit possible from the sale of its goods or services. In order to do this most competitive firms do this by making sure MC=MR

Question 168

Increase

Answer 168

If marginal revenue (MR) is greater than marginal cost (MC), then a firm should ________ its production because it will put more money in there pockets.

Question 169

decrease

Answer 169

If marginal revenue (MR) is less than marginal cost (MC), then a firm should ________ its production because it will cost more money than they will gain in production.

Question 170

Marginal-cost curve

Answer 170

A graphical representation showing how the cost of producing one more unit depends on the quantity that has already been produced, always an upward sloping line.

Question 171

Horizontal

Answer 171

The price line in competitive markets will always be ___________ (think graphically) because everybody is a price taker.

Question 172

Shutdown

Answer 172

A short-run decision not to produce anything during a specific period of time because of current market conditions. Firms that do this still have to pay fixed costs(like rent) which turn into sunk costs. A firm that takes this course of action will only do this if their TR(total revenue) is less than variable costs of production. Symbolically a firm will _______ if P

Question 173

Exit

Answer 173

A long term decision to leave the market, distinguished from a shutdown which is a short term decision. In this mode the fixed costs are not sunk. In symbollic terms will only happen when TR(Total revenue) is less than TC(Total costs), when symplified if P>ATC.

Question 174

greater

Answer 174

A firm will only enter the shutdown mode if their variable costs is ______ than their total revenue that they are producing

Question 175

above

Answer 175

The competitive firm’s short run supply curve is the portion of its marginal cost curve that lies ______ average variable cost(AVC)

Question 176

Profit

Answer 176

Can also be calculated symbolically as (P-ATC) x Q

Question 177

zero

Answer 177

Firms that remain in a market must be making ______ economic profits, which like stated in an earlier quizlet are not the same as accounting profits

Question 178

equality

Answer 178

The process of long run entry and exit ends only when ATC and Price are driven to _______. This happens because ATC curve is a measure of efficient scale, and that is where it is realized.

Question 179

efficient scale

Answer 179

The quantity of output that minimizes average total cost

Question 180

marginal firm

Answer 180

The firm that would exit the market if the price were any lower, is reflected as being used to calculate the ATC

Question 181

elastic

Answer 181

Because firms can more easily enter and exit in the long run than in the short run the long term supply curve is typically more _______ than the short run supply curve.

Question 182

Profit

Answer 182

Total Revenue - Total Cost or in symbolic terms P = TR - TC.

Question 183

Explicit costs

Answer 183

Input costs that require an outlay of money by the firm (e.g. rent). Money that actually leaves a firm in the productive process. Distinguish from implicit costs.

Question 184

Total revenue

Answer 184

The total amount of money a firm receives by selling goods or services symbolized by TR.

Question 185

Total Cost

Answer 185

The market value of ALL the inputs a firm uses in production, symbolized by TC, is calculated by adding fixed costs and variable costs. Also depends on accounting perspective and economic perspective.

Question 186

Implicit costs

Answer 186

Input costs that do not require an outlay of money by the firm (e.g. interest forgone on money used). The opportunity costs associated with a firm’s use of resources that it owns.

Question 187

Interest

Answer 187

A large amount of money losses implicitly can be the cost of capital (investment), by buying the capital you forgo _______ you could have gained.

Question 188

Accounting profit

Answer 188

Total revenue minus total explicit cost, Profit will equal more than 0 in this calculation.

Question 189

Economic profit

Answer 189

Total revenue minus total cost, including both explicit and implicit costs, in this view profits are usually not as large as accounting profit.

Question 190

Production function

Answer 190

The relationship BETWEEN quantity of inputs (usually worker) used to make a good and the quantity of output(product or services) of that good. Gets flatter as input inceases.

Question 191

Marginal Product

Answer 191

The increase in output that arises from an additional unit of input( usually a worker acts as the unit of input).

Question 192

Diminishing Marginal Product

Answer 192

The property whereby the marginal product of an input declines as the quantity of the input increases. Makes the production function level off after a while. Makes sense because the firm may become more crowded which reduces overall efficiency.

Question 193

Total cost curve

Answer 193

A graph that shows the relationship between total variable cost and the level of a firm’s output. Gets steeper as the amount produced increases.

Question 194

Fixed costs

Answer 194

Expenses that remain the same for a period of time; must be paid regardless of the quantity of a good or service produced/sold. Like rent., salary ,etc,.

Question 195

Variable costs

Answer 195

Costs that change directly with the amount of production (e.g. energy supply and labor costs).

Question 196

Industrial Organization

Answer 196

The study of how firms’ decisions about prices and quantities depend on the market conditions they face. An example of questions that this can answer is : “How does the number of firms in a industry affect the prices in a market and the efficiency of the outcome.

Question 197

average total cost

Answer 197

Total cost divided by the quantity of output produced. Decreases in a somewhat parabolic rate.

Question 198

average fixed cost

Answer 198

Fixed cost divided by the quantity of output. Decreases at a somewhat parabolic shape.

Question 199

average variable cost

Answer 199

Variable cost divided by the quantity of output. Always rises at a constant rate.

Question 200

marginal cost

Answer 200

the increase in total cost that arises from an extra unit of production, Always rises at a pretty constant rate.

Question 201

Efficient scale

Answer 201

The quantity of output that minimizes average total cost, is at the bottom of the ATC curve which happens to be an intersection with the MC curve.

Question 202

falling

Answer 202

Whenever marginal cost is less than average total cost, average total cost is ________

Question 203

rising

Answer 203

Whenever marginal cost is more than average total cost, average total cost is ________

Question 204

economies of scale

Answer 204

The property whereby long-run average total cost falls as the quantity of output increases (left-most downward sloping part of the long-run ATC). Arises because higher production levels allow specialization among workers, allowing each of them to get better at a specific task.

Question 205

diseconomies of scale

Answer 205

The property whereby long-run average total cost rises as the quantity of output increases (right-most upward sloping part of the long-run ATC). Usually arise because of coordination problems.

Question 206

constant returns to scale

Answer 206

The property whereby long run average total cost stays the same as the quantity of output changes

Question 207

Federal Government

Answer 207

The U.S. __________ ___________ collects about 2/3 3 of the total taxes in our economy, around $2,568 billion in 2007, an average of about $8, 503 per person. Most of it is from the income tax, uses it to correct externalities that cannot be made efficient by private markets.

Question 208

Social Security

Answer 208

An act passed in 1935 gave government-payed pensions to American citizens over the age 65 as well as provided help for the unemployed, the disabled, and the needy. Largest transfer payment in U.S. SPENDING.

Question 209

16th Amendment

Answer 209

Amendment passed in 1913 giving the Federal Govt the power to tax. The more you make, the more you’re taxed (Progressive Tax System).

Question 210

richer

Answer 210

The general trend when comparing GDP and taxes over time shows the ______ a country gets the more taxes that it has.

Question 211

tax liability

Answer 211

The amount of total tax due the IRS after any credits and before taking into account any advance payments (withholding, estimated payments, etc.) made by the taxpayer.

Question 212

Income Tax

Answer 212

Shares of individual wages and corporate revenues collected by the government. The Sixteenth Amendment explicitly authorized Congress to levy a tax on income.

Question 213

Marginal tax rate

Answer 213

Tax rate that applies to the next dollar of taxable income, that increases as the amount of taxable income increases, DO NOT BE confused by this. For the first amount of money every pays the same at each level. (Just ask me if you don’t get it). Is more useful than the average tax rate at showing how the current tax system distorts incentives.

Question 214

Payroll Tax

Answer 214

The tax on wages and salaries to finance Social Security and Medicare costs. 2nd largest source of revenue for the Federal Goverment.

Question 215

Social insurance taxes

Answer 215

Taxes collected from employees and employers to pay for major social programs; also known as PAYROLL TAXES, and unemployment compensation programs; regressive taxes

Question 216

Corporation

Answer 216

An organization that is authorized by law to carry on an activity but treated as though it were a single person(or single legal entity). Usually owned by stockholders who share in its profits but are not personally responsible for its debts

Question 217

Corporate Income tax

Answer 217

A tax levied on a corporation’s income BEFORE dividends are distributed to stockholders. 3rd largest source of income to the Federal government. Is actually a bigger burden to consumers and workers than to the owners because their elasticity is greater.

Question 218

Transfer Payment

Answer 218

A public expenditure (as for unemployment compensation or veteran’s benefits, or social security(the largest)) that is not for goods and services

Question 219

National Defense

Answer 219

The second largest transfer payment of the federal government after social security.

Question 220

Net Interest

Answer 220

The difference between interest paid and interest received by firms

Question 221

Budget Deficit

Answer 221

An excess of government spending over government receipts(revenue).

Question 222

Budget Surplus

Answer 222

An excess of tax revenue over government spending

Question 223

Sales Taxes

Answer 223

Taxes assessed on the prices paid on most goods and services. Is a State and local government tax NOT Federal Government. Are usually 6 or 7 percent in states. Make up the vast majority of taxes in states and counties.

Question 224

Property taxes

Answer 224

A tax on the value of property (capital, land, stocks and bonds, and other assets) owned by firms and households. This is a state government tax.

Question 225

Education

Answer 225

The biggest expenditure for state and local governments is _________. Is followed by public welfare, then highways, and other miscellaneous stuff you could probably just guess.

Question 226

Deadweight losses

Answer 226

The reduction in economic surplus resulting from a market not being in competitive equilibrium, usually caused by a tax.

Question 227

consumption tax

Answer 227

A tax on spending, or on the difference between what people earn and what they save, regardless of how much they earned, also called a national sales tax, is an alternate system that economists believe would work better.

Question 228

value added tax

Answer 228

A tax on increased value of a product at each stage of production and distribution rather than just at the point of sale

Question 229

tax evasion

Answer 229

Willful failure to pay taxes.

Question 230

average tax rate

Answer 230

The total tax paid divided by total (taxable) income, as a percentage, is more useful than the marginal tax rate to determine the sacrifices made by taxpayers.

Question 231

Lump sum taxes

Answer 231

Everyone owes the same amount(in dollar amount), regardless of earnings; Most efficient tax possible, but the least equitable.

Question 232

401 k

Answer 232

A defined contribution plan that automatically takes out money from an employee’s paycheck before income taxes and invests it in mutual funds for purposes of retirement savings.

Question 233

Benefits principle

Answer 233

A principle of taxation, states that people should pay taxes based on the BENEFITS they receive from government services. Tries to make public goods more like private goods.

Question 234

Ability to pay principle

Answer 234

The principle that taxes should be levied on a person according to how well that person can shoulder the burden. Sometimes is stated that “Individuals must make an equal sacrifice” Leads to two corollary notions of equity :vertical and horizontal.

Question 235

vertical equity

Answer 235

The idea that taxpayers with a greater ability to pay taxes should pay larger amounts, is a corollary of the ability to pay principle. It’s sister corollary is horizontal equity.

Question 236

horizontal equity

Answer 236

The idea that taxpayers with similar abilities to pay taxes should pay the same amount , is a corollary of the ability to pay principle, It’s sister corollary is vertical equity.

Question 237

proportional tax

Answer 237

A tax for which the Percentage of income paid in taxes remains the same for all income levels

Question 238

regressive tax

Answer 238

A tax whereby people with lower incomes pay a higher fraction(percentage) of their income than people with higher incomes. (Sales taxis an example).

Question 239

progressive tax

Answer 239

a tax for which high-income taxpayers pay a larger fraction(percentage) of their income than do low-income taxpayers

Question 240

Tax incidence

Answer 240

The actual division of the burden of a tax between buyers and sellers in a market

Question 241

flypaper theory of tax incidence

Answer 241

A unbelievably stupid and untrue theory of tax incidence that states wherever the tax lands first pays the brunt of the tax. You would know by now that you must first analyze the elasticity.

Question 242

Ronald Reagan

Answer 242

U.S. President during the conservative ascendancy of the 1980’s. Argued that high tax rates distorted economic incentives to work and save. While in office he signed huge cuts in the tax rate.

Question 243

Common Resources

Answer 243

Goods that are rival in consumption but not excludable, One one person uses the good it does diminish the ability of another person to use it, but you can’t stop people from taking the good. For example: fish in a pond, enviromental resources, etc,.

Question 244

Public Goods

Answer 244

Individually and socially desirable goods that are non-excludable and non-rival in consumption, such as national defense, tornado sirens,etc,.

Question 245

Excludability

Answer 245

The property of a good whereby a person can be prevented from using it. (For example clothing is , while National Defense is not).

Question 246

Rival in Consumption

Answer 246

The property of a good whereby one person’s use diminishes other people’s use. (For example congested roads are, while uncongested toll roads are not).

Question 247

Private Goods

Answer 247

Goods that are both excludable and rival in consumption, most Goods in economy are this. For example : Ice Cream, Clothing, Shoes , Congested Toll Roads.

Question 248

Free rider

Answer 248

A person who receives the benefit of a good but avoids paying for it, happens when goods are public. Leads to a market failure.

Question 249

Free rider problem

Answer 249

The problem faced by unions and other special interest groups when people do not join because they can benefit from the group’s activities without officially joining(The groups activity is a pubic good). The bigger the group, the more serious the problem. Can lead to a severe market failure. Gov’t can remedy this problem

Question 250

National Defense

Answer 250

The classic example of a public good. It is non-excludable( no one is prevented from enjoying it in the nation state). It is also non-rival in consumption (the benefit of increased protection does not diminish someone else’s benefit).

Question 251

Welfare System

Answer 251

Once called “Aid to Families With Dependent Children” now called “Temporary Assistance for Needy Families” . Is a classic example of a public good. One person’s enjoyment of other people living in a society without poverty would not reduce anyones enjoyment of it(non-rival in consumption), also once poverty would be eliminated, no one can be prevented from taking pleasure in this fact. (Reason why it is IMPOSSIBLE for the private markets to resolve this, and Gov’t is needed.

Question 252

Cost benefit analysis

Answer 252

A study that compares the costs and benefits to society of providing a public good. Helps gov’t decide which public goods to provide and in what quantities. When choosing between alternatives, you must make sure that values are in the same units.

Question 253

Tragedy of the Commons

Answer 253

A parable that illustrates why common resources get used more than is desirable from the standpoint of society as a whole, Leads to a depletion or degradation of a potentially renewable resource to which people have free and unmanaged access, in other words social and private incentives differ.

Question 254

Enclosure movement

Answer 254

The process of consolidating small landholdings into a smaller number of larger farms in England during the eighteenth century. Reduced the tragedy of the Commons by turning the grounds from common resources into private goods.

Question 255

Clean Air Act

Answer 255

1970 reaction to Rachel Carson in her 1962 in Silent Spring, It describes one of a number of pieces of legislation relating to the reduction of smog and air pollution in general. The legislation forced the country to enforce clean air standards to improve health and showed that American was moving towards certain environmentalist measures.

Question 256

Silent Spring

Answer 256

A book written to voice the concerns of environmentalists. Launched the environmentalist movement . Had suspicion that the pesticide DDT (Negative externality), by entering the food chain and eventually concentrating in higher animals, caused reproductive dysfunctions. In 1973, DDT was banned in the U.S. except for use in extreme health emergencies.

Question 257

Positive externality

Answer 257

A beneficial side effect that affects an uninvolved third party. (Research,restoration) for example. Leads to smaller quantities than are socially desirable.

Question 258

Negative externality

Answer 258

A situation where a third party, outside the transaction, suffers from a market transaction by others (pollution, traffic congestion, dogs barking at you when you’re walking ,etc,.) Leads to larger quantities than socially desirable.

Question 259

Patent

Answer 259

A document granting an inventor sole rights to an invention for a given time, a way that the government creates positive externalities.

Question 260

Private cost

Answer 260

The cost borne by the producer of a good or service

Question 261

Coase Theorem

Answer 261

The proposition that if private parties can bargain WITHOUT cost (or very little cost) over the allocation of resources, they can solve the problem of externalities on their own, proposed by Ronald Coase, other words this sould work if there are no transaction costs.

Question 262

Social cost

Answer 262

The total cost of a good to society (social cost) includes the costs of production incurred by the industry as well as the external costs (externalities)

Question 263

Internalizing the externality

Answer 263

Altering incentives so that people take account of the external effects of their actions, can be done by imposing taxes(negative externality) or subsidies(positive externality)

Question 264

Education

Answer 264

A prominent example of a positive externality, the consumer of it becomes a more productive worker and reaps the benefit of higher wage. Also leads to more informed voters, which leads to a more efficient government, lower crime rates, and higher levels of technological innovation. Internalizing this externality requires the use of a government subsidy.

Question 265

Technological progress

Answer 265

___________ __________ is a key to why living standards rise over time.

Question 266

Technology spillover

Answer 266

The impact of ones firms research &production efforts on other firms access to tech. advance. positive externality.

Question 267

Industrial Policy

Answer 267

Government intervention in the economy that aims to promote technology enhancing industries.

Question 268

Regulation

Answer 268

A rule or order issued by an executive authority or regulatory agency of a government and having the force of law

Question 269

Command and Control Policy

Answer 269

Forms of regulation that depend on government laws and agencies to enforce rules, including such things as regulated limits on pollution or fuel efficiency standards; contrasts with market-based or incentive-based approaches.

Question 270

Market Based Policy

Answer 270

A way to counter externalities by providing incentives so that private decision-makers will choose to solve the problem on their own(maybe).

Question 271

Corrective tax

Answer 271

A tax designed to induce private decision makers to take account of the social costs that arise from a negative externality, also called Pigovian tax

Question 272

EPA

Answer 272

An independent federal agency established to coordinate programs aimed at reducing pollution and protecting the environment

Question 273

Pigovian tax

Answer 273

A tax designed to induce private decisions makers to take account of the social costs that arise from a negative externality, same as corrective tax.

Question 274

Gas Tax

Answer 274

What is the name of the tax imposed upon vehicles which do not meet specified fuel economy targets? Actually makes the economy work better and does not cause a deadweight loss.

Question 275

Rachel Carson

Answer 275

United States biologist remembered for her opposition to the use of pesticides that were hazardous to wildlife (1907-1964)

Question 276

Charities

Answer 276

Not-for-profit organizations that are established to support good causes, from society’s point of view. A private response to negative externalities.

Question 277

Contracts

Answer 277

Legal agreements for the exchange of resources and services, another private response to externalities.

Question 278

Ronald Coase

Answer 278

Economist who won a Nobel prize in economics for arguing that assigning property rights to either party would result in the internalization of externalities, Coase Theorem.

Question 279

Transaction costs

Answer 279

The costs that parties incur in the process of agreeing to and following through on a bargain, will be the reason that private parties do not internalize externalities according to the Coase Theorem.

Question 280

Import

Answer 280

commodities (goods or services) bought from a foreign country

Question 281

World Price

Answer 281

The international market price of a good or service, determined by world demand and supply. If higher than domestic price country will export if not it will import.

Question 282

Price takers

Answer 282

Buyers and sellers in a competitive market that must accept the price that the market determines (Usually small)

Question 283

Export

Answer 283

to sell goods to another country

Question 284

Exporter

Answer 284

When a country allows trade and becomes an _______ of a good, domestic producers of the good are better off, but domestic consumers of the good are worse of, however trade still raises economic well being in the way that winners exceed losers.

Question 285

Importer

Answer 285

When a country allows trade and becomes an _______ of a good, domestic producers of the good are worse off, but domestic consumers of the good are better off, however trade still raises economic well being in the way that winners exceed losers.

Question 286

Tariff

Answer 286

A tax on goods produced abroad and sold domestically. Reduces the quantity of imports and create a deadweight loss.

Question 287

Import Quotas

Answer 287

A limit imposed by a nation on the quantity (or total value) of a good that may be imported during some period of time.

Question 288

Increase

Answer 288

International trade can lead to an _________ in the variety of goods. German Beer is not the same as American Beer.

Question 289

Economies of scale

Answer 289

A phenomenon that describes as a company produces larger numbers of a particular product, the cost of each of these products goes down, can be tied to international trade.

Question 290

Outsourcing

Answer 290

The procuring of services or products, such as the parts used in manufacturing a motor vehicle, from an outside supplier or manufacturer in order to cut costs, actually economically efficient and mutually beneficial.

Question 291

competition

Answer 291

Opening up international trade can reduce market power(a type of market failure), by increasing _________. The firm will no longer be shielded.

Question 292

Infant industry argument

Answer 292

Proposed by Alexander Hamilton in 1792, this oldest economic argument for government intervention states that developing countries have a comparative advantage in manufacturing, proposes that new industries should be protected from foreign competition until they are large enough to compete in international markets

Question 293

Unfair competition argument

Answer 293

A common argument that free trade is desirable only if all countries play by same rules otherwise it is unfair 2 expect the firms to compete in the international marketplace. (WRONG), because ultimately it will be that other country that will bear the brunt of the costs for having favorable laws.

Question 294

Bargaining chip argument

Answer 294

The argument that a threat of a trade restriction can help remove a trade restriction already imposed by a foreign government,HOWEVER in the REAL world countries most often retaliate with more trade restrictions

Question 295

NAFTA

Answer 295

A trade agreement between Canada, the United States and Mexico that encourages free trade between these North American countries.

Question 296

GATT

Answer 296

General Agreement on Tariffs and Trade; international trade organization that encourages free trade by lowering tariffs and other trade restrictions

Question 297

WTO

Answer 297

The World Trade Organization - an international body that enforces agreements that reduce barriers to international trade; successor to the GATT, now has 151 member states. Headquarters in Geneva, Switzerland of course.

Question 298

Great Depression

Answer 298

A depression starting with collapse of the US stock market in 1929, period of worldwide economic stagnation and depression. Heavy borrowing by European nations from USA during WW1 contributed to instability in European economies. Sharp declines in income and production as buying and selling slowed down. Widespread unemployment, countries raised tariffs to protect their industries. America stopped investing in Europe. Lead to loss of confidence that economies were self adjusting, HH was blamed for it, led to more international multilateral trade agreements.

Question 299

Smoot-Hawley Tariff

Answer 299

This tariff was one of Herbert Hoover’s early efforts to protect the nation’s farmers at the onset of the Great Depression. Raised price of foreign imports so they couldn’t compete with American goods. It didn’t work and hurt international trade further deepening the Great Depression.

Question 300

Supply Side Economics

Answer 300

An economic philosophy that holds the sharply cutting taxes will increase the incentive people have to work, save, and invest. Greater investments will lead to more jobs, a more productive economy, and more tax revenues for the government.

Question 301

Wage

Answer 301

Earnings paid by the hour or unit of production

Question 302

Deadweight loss

Answer 302

The fall in total surplus that results from a market distortion, such as a tax, in other words the loss to buyers and sellers exceeds the revenue gained by the government. This is because they prevent the gains from trade.

Question 303

Laffer curve

Answer 303

Explains relationship between tax rates and tax revenues (total tax revenues initially rise but then eventually fall as the tax rate continues to increase after reaching some unspecified tax-revenue-maximizing rate at the top of the curve) Can be also explained b6y deadweight losses.

Question 304

Elastic

Answer 304

The more _____ demand or supply is the larger the deadweight loss. This is because people find it easier to leave the marketplace and don’t realize the gains from trade.

Question 305

Marginal tax rate

Answer 305

Tax rate that applies to the next dollar of taxable income, increases as the amount of taxable income increases, around 40% for middle class.

Question 306

Deadweight loss

Answer 306

The ______________ _____ of a tax rises even faster then the tax itself, because it equals the square of a certain size. So doubling a tax quadruples the deadweight loss.

Question 307

Henry George

Answer 307

Economist who wrote Progress and Poverty in 1879, which made him famous as an opponent of the evils of modern capitalism.

Question 308

Land Tax

Answer 308

An annual tax imposed on land. The value of the land is calculated and taxed at a specified rate. Very similar to the modern local body rates. First proposed by Henry George.

Question 309

Progress and Poverty

Answer 309

Written by Henry George, critical of entrepreneurs, after studying poverty in America, determined that rich didn’t pay fair share of taxes and proposed “Single Tax” on incremental value of land

Question 310

Welfare economics

Answer 310

Study of how the allocation of resources affects economic well-being. (We are now entering the realm of normative economics) Sorry Cody.

Question 311

Willingness to pay

Answer 311

The maximum amount that buyer will pay for a good

Question 312

maximizes

Answer 312

The equilibrium of supply and demand in a market _______ the total benefits received by buyers and sellers.

Question 313

Consumer surplus

Answer 313

The amount a buyer(or buyers) is willing to pay for a good minus the amount the buyer actually pays for it. Measures the benefit buyers receive from participating in the market. Closely related to the demand curve for a product.

Question 314

consumer surplus

Answer 314

The area below the demand curve and above the price measures the in ______ _______ a market.

Question 315

Lower prices

Answer 315

______ ________ lower consumer surplus

Question 316

Cost

Answer 316

The value of EVERYTHING a seller must give up to produce a good. Represents opportunity cost.

Question 317

Producer Surplus

Answer 317

The amount a seller( or sellers) is paid for a good minus the seller’s cost of providing it.

Question 318

Marginal buyer

Answer 318

The buyer who would leave the market first if the price were any higher. Represented at every quantity.

Question 319

Marginal seller

Answer 319

The seller who would leave the market first if the price were any lower. Represented at every quantity.

Question 320

Producer surplus

Answer 320

The area below the price and above the supply curve measures the ___________ ______

Question 321

Higher prices

Answer 321

______ _______ raise producer surplus. Also allows new firms to enter the market because they are willing to produce those goods at _______ ______.

Question 322

Efficiency

Answer 322

The property of a resource allocation of maximizing the total surplus received by all members of society, takes into account producer surplus and consumer surplus.

Question 323

Total Surplus

Answer 323

The _____ _______ in a market is the sum of all the individual economic surpluses gained by buyers and sellers who participate in the market, otherwise calculated as Value to Buyers - Cost to Sellers

Question 324

Equality

Answer 324

the property of distributing economic prosperity uniformly among the members of society

Question 325

Laissez faire

Answer 325

Doctrine based on the idea that government should play as small a role as possible in the economy

Question 326

Market Power

Answer 326

The ability of a company to change prices and output like a monopolist, can cause markets to become inefficient because it keeps price and quantity away from the equilibrium supply and demand.

Question 327

Externalities

Answer 327

Economic side effects or by-products that affect an uninvolved third party; can be negative or positive

Question 328

FTC

Answer 328

Federal Trade Commission. Protects consumers from misleading and fraudulent advertising. Reviews advertising claims. Can order a company to change their ad.

Question 329

Long Lines

Answer 329

_______ _______ , along with seller bias, are examples of efficiency that can be created by government policies.

Question 330

Price floor

Answer 330

A legally determined minimum price that sellers may receive, can have the effect of causing a shortage, or if it is not binding(does not conflict with equilibrium price) nothing

Question 331

Price ceiling

Answer 331

A legally determined maximum price that sellers may charge for a good or service, can have the effect of causing a surplus, or if it is not binding(does not conflict with equilibrium price) nothing

Question 332

Discrimination

Answer 332

When the government imposes a price ceiling on a competitive market, a shortage of the good arises,and sellers ration scarce goods among a large number of buyers, in a way buyer _________ occurs.

Question 333

OPEC

Answer 333

Organization of Petroleum Exporting Countries; international cartel that inflates price of oil by limiting supply; Venezuela, Saudi Arabia and UAE are prominent members

Question 334

Rent Control

Answer 334

The most prominent example of a gov’t price ceiling. Is a limit on the price that landlords can charge their tenants with a goal on helping the poor. A large majority of economists believe it should be done away with. Various seller biases dictate who they will allow to rent, and rented houses are more likely to fall into disrepair.

Question 335

Minimum Wage

Answer 335

The minimum price that an employer can pay a worker for an hour of labor, the most prominent example of a price floor. Can result in unemployment. Its impact of course depends on skill and experience of the workers. Has the greatest impact for teenage labor.

Question 336

Fair Labor Standards Act

Answer 336

1938 United States federal law that applies to employees engaged in and producing goods for interstate commerce. The FLSA established a national minimum wage, guaranteed time and a half for overtime in certain jobs, and prohibited most employment of minors in “oppressive child labor,” a term defined in the statute. The FLSA is administered by the Wage & Hour Division of the United States Department of Labor.

Question 337

Department of Labor

Answer 337

TR est. this dept armed with the Bureau of Corporations meant to probe businesses engaged in interstate commerce and clearing the road for trust-busting era

Question 338

Teenagers

Answer 338

Who are most binded(constrained and affected) by minimum wage laws and leads them to be unemployed in a significant amount.

Question 339

Rent subsidies

Answer 339

Program that helps pay rent for low-income families, provided that they select designated housing, probably better than rent control because they do not reduce the quantity of housing supplied and create shortages.

Question 340

Wage subsidies

Answer 340

A government financial incentive to private employers to hire more workers, as through tax deductions for new job creation, probably better than the minimum wage as it will create less unemployment.

Question 341

Taxes

Answer 341

Money collected by federal, local or state government from individuals or businesses for use in public spending. In general it discourages market activity by depressing the goods supplied in the new equilibrium.

Question 342

Tax incidence

Answer 342

The manner in which the burden of a tax is shared among participants in a market. In general both buyers and sellers will share the burden of the tax.

Question 343

Payroll tax

Answer 343

A tax collected from employees to pay for major social programs that is take from a worker’s and employer’s pay ; social insurance tax or social security tax

Question 344

Luxury tax

Answer 344

Governments increase their revenues by charging taxes on non-essential, often very expensive goods and services, such as high-end automobiles, rare collectibles, and jewelry; which is called the ______ _____.

Question 345

FICA

Answer 345

Short for Federal Insurance Contributions Act, the name given on the paycheck stub for Social Security and Medicare taxes. The employee pays some of the payroll tax , and and the employer pays some of this tax for each employee. Social Security pays benefits for older people, people with disabilities, and minor children and surviving spouses of deceased workers. Medicare pays for hospital insurance for those over 65.

Question 346

Elastic

Answer 346

The tax burden falls on the side of the market that is less __________. It all depends on the ability to use the alternatives for the buyers and sellers.

Question 347

Necessities

Answer 347

___________ will have almost perfectly inelastic demand. As long as you want to live, you have no choice but to buy these goods. (Think Food, Water, Shelter, Salt, Health)

Question 348

Elasticity

Answer 348

The measure of the responsiveness of quantity demanded OR quantity supplied to one of its determinants.

Question 349

Price elasticity of demand

Answer 349

A measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the % CHANGE in quantity demanded DIVIDED by the percentage change in price

Question 350

Elastic

Answer 350

Describes demand that is very sensitive to a change in price. Willing to change. Also refers to a curve that has a slope greater than 1

Question 351

Inelastic

Answer 351

Describes demand that is not that sensitive to a change in price, unwilling to change. Can also refer to a graph whose quantity demanded slope is less than 1.

Question 352

Close substitutes

Answer 352

Goods with ________ _________ tend to have more elastic demands because it is easier for customers to switch from that good to others. (Think Butter, and Margarine)

Question 353

Luxuries

Answer 353

_________ will have a very elastic demand, as peoples perceive them as not being worth it if the price of it goes up. Contrasts perfectly with Necessities. (Think Versailles, Yachts, Diamonds)

Question 354

Preference

Answer 354

Whether or not a good is a necessity or luxury actually depends on the consumers _______ , not the intrinsic value of a good.

Question 355

Absolute value

Answer 355

Usually ____ is used to calculate the price elasticity of demand.

Question 356

Midpoint Method

Answer 356

A technique for calculating the percent change.

Question 357

((Q2-Q1)/Q1+Q2)/(P2-P1)/P1+P2)), or simply change in quanity over change in price.

Answer 357

https://farm4.staticflickr.com/3179/2951846079_1c698b73d6_m.jpg

Question 358

Unit elastic

Answer 358

elasticity where a change in the independent variable (usually the price) generates a proportional change of the dependent variable (quantity demanded or supplied) =1

Question 359

Perfectly inelastic demand

Answer 359

The case where the quantity demanded is completely unresponsive to price, and the price elasticity of demand equals zero. Straight vertical line

Question 360

Perfect elastic demand

Answer 360

The demand for the product is perfectly responsive to a price change and suggests that the producer can sell whatever amount they wish at that price, at this point elasticty = infinity, horizontal line

Question 361

Total Revenue

Answer 361

The amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold, P x Q

Question 362

Income elasticity of demand

Answer 362

A measure of how much the quantity demanded of a good responds to a change in consumers’ income, computed as the percentage change in quantity demanded divided by the percentage change in income

Question 363

Normal goods

Answer 363

Most goods are _______ _____ . They have positive income elasticities because they move in the same direction as income. (Think what kind of good is cereal).

Question 364

Inferior goods

Answer 364

A good or service whose consumption declines as income rises (and conversely), price remaining constant. They have negative income elasticities because income and these types of goods move in the opposite direction.

Question 365

Cross-price elasticity of demand

Answer 365

The measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good (Sign depends on whether goods are complements or substitutes.

Question 366

Complements

Answer 366

______ have a negative cross price elasticity of demand. As the price of the other goods increase the change in the quantity demanded of the other good decreases. (Think of CARS AND Oil or driving and oil)

Question 367

Substitutes

Answer 367

__________ have a positive cross price elasticity of demand. As the price of the other goods increase the change in the quantity demanded of the other good also increases. (Think of Pencils and Pens)

Question 368

Price elasticity of Supply

Answer 368

A measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price

Question 369

Flexibility

Answer 369

The price elasticity of supply depends on the ability and _________ of sellers to change the products or services they are providing.

Question 370

Supply

Answer 370

_________ is usually more elastic in the long run than in the short run, as firms can adjust and change their factories or close old ones.

Question 371

Market

Answer 371

A group of buyers and sellers of a particular good or service

Question 372

Competitive Market

Answer 372

A Market in which there are many buyers and many sellers so that each has a small impact on the market price (no market power). Many economic models assume this.

Question 373

Perfectly Competitive

Answer 373

A competitive situation in which : Goods are (almost) exactly the same, Buyers and sellers are so numerous that no one can affect the market price, which results in all individuals being price takers. Example could be the Wheat market, and a lot of agricultural markets.

Question 374

Price takers

Answer 374

Buyers and sellers in a PERFECTLY competitive market(and sometimes competitive market) that must accept the price that the market determines

Question 375

Monopoly

Answer 375

Domination of an industry by a single company that fixes prices and discourages competition; also, the company that dominates the industry by these means.

Question 376

Quantity Demanded

Answer 376

The amount of a good or service that a consumer is willing and able to purchase at a given price.

Question 377

Law of Demand

Answer 377

The economic law that states, all other things being equal(ceteris paribus), the quantity demanded of a good falls when the price of the good rises and the quantity demanded increases when the price of a good goes down.

Question 378

Ceteris paribus

Answer 378

The Latin expression meaning that other variables are held fixed

Question 379

Demand Schedule

Answer 379

A table that shows the relationship between the price of a good and the quantity demanded, holding constant everything else(ceteris paribus)

Question 380

Demand Curve

Answer 380

A graph of the relationship between the price of a good and the quantity demanded, is a downward sloping line(indicating an inverse relationship between price and quantity demanded).

Question 381

Market Demand

Answer 381

The sum of all the quantities of a good or service demanded per period by all the households buying in the market for that good or service.

Question 382

Shift in Demand

Answer 382

The effect of a change in a nonprice factor on the demand curve, usually these factors include consumer expectations, income, and prices of related goods.

Question 383

Normal Good

Answer 383

a good for which, other things equal, an increase in income leads to an increase in demand. (Ice Cream, etc)

Question 384

Inferior Goods

Answer 384

a good or service whose consumption declines as income rises (and conversely), price remaining constant. Like Bus Rides

Question 385

Substitutes

Answer 385

Two goods for which an increase in the price of one leads to an increase in the demand for the other or vice versa. Hot dogs+ hamburgers, sweaters and sweatshirts, etc etc

Question 386

Complements

Answer 386

Two goods for which an increase in the price of one leads to a decrease in the demand for the other, gas and cars, computer and software.

Question 387

Expectations

Answer 387

the anticipations of consumers, firms and others about future economic conditions, effects your demand of goods or services at every price(Demand Shift). If you expect an increase in income you will be more willing to spend than save, or vice versa. Also effects Supply of firms.

Question 388

Number of Buyers

Answer 388

Demand for a good in a market is related to the amount of these in an area. A higher amount will lead to more demand at every price.

Question 389

Quantity Supplied

Answer 389

the amount of a good or service that a firm is willing and able to supply at a given price

Question 390

Law of Supply

Answer 390

The claim that, other things equal, the quantity supplied of a good rises when the price of the good rises.

Question 391

Supply Schedule

Answer 391

A table showing quantities supplied at different possible prices.

Question 392

Supply Curve

Answer 392

A curve that shows the relationship between the price of a product and the quantity of the product supplied.

Question 393

Number of sellers

Answer 393

What shift in supply curve is this?number of people selling the object( more sellers shifts right, less shifts left)

Question 394

Equilibrium quantity

Answer 394

The quantity demanded and supplied at the equilibrium price in a competitive market; or the profit-maximizing output of a firm.

Question 395

Surplus

Answer 395

Situation in which quantity supplied is greater than quantity demanded, Happens if the market price is above the equilibrium price. Will result in firms cutting prices to try and achieve equilibrium.

Question 396

Equilibrium price

Answer 396

The price in a competitive market at which the quantity demanded and the quantity supplied are equal, there is neither a shortage nor a surplus, and there is no tendency for price to rise or fall.

Question 397

Equilibrium

Answer 397

A situation in which the market price has reached the level at which the quantity supplied = quantity demanded. (Intersection on the graph)

Question 398

Shortage

Answer 398

A situation in which the quantity demanded is greater than the quantity supplied, happens when the market price is below the equilibrium price. Sellers would respond by increasing prices.

Question 399

Law of Supply and Demand

Answer 399

The claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

Question 400

WTO

Answer 400

The World Trade Organization - an international body that enforces agreements that reduce barriers to international trade; successor to the GATT, FOUNDED 1995.

Question 401

Comparative Advantage

Answer 401

The ability of an individual, firm, or country to produce a good or service at a lower OPPORTUNITY COST(not inputs like absolute advantage) than other producers. Is way there is gains from trade. Reflects the relative opportunity cost.

Question 402

International Trade

Answer 402

________________ __________ WILL make a country as a whole better off, but it can make some people or groups(special interests) worse off, which is why some people do not support it.

Question 403

Interdependence

Answer 403

The mutual dependence of countries on goods, resources, and knowledge from other parts of the world, the current trend is points to an increasing amount of this through trade.

Question 404

Absolute advantage

Answer 404

The ability of an individual, firm, or country to produce more of a good or service than competitors using the same amount of resources(inputs).

Question 405

Consumption

Answer 405

If countries or individuals choose not to trade, then the production possibilities frontier becomes a _____________ possibilities frontier.

Question 406

Specialization

Answer 406

When people, businesses, regions, and/or nations concentrate on goods and services that they can produce better than anyone else

Question 407

Inverse

Answer 407

It is impossible for a person or country to have a comparative advantage in two goods when compared on the PPF, because the opportunity cost of one good will be the ______ of the other goods opportunity cost.

Question 408

Trade

Answer 408

Benefits everyone in society because it allows people to specialize in activities in which they have a comparative advantage. However for both parties to benefit, the price at which they trade MUST lie between the two opportunity costs.

Question 409

David Ricardo

Answer 409

English economist who argued that the laws of supply and demand should operate in a free market (1772-1823), and thoroughly developed comparative advantage in his book “Principles of Political Economy and Taxation”.

Question 410

Corn Laws

Answer 410

Passed in 1815 in England by gentry/squires who controlled parliament. Raised the tariffs on imported grain (which flooded market after Napoleonic Wars) in order to protect their own interests. Provoked demonstrations, riots and even an attack on the Prince Regent. The government responded by suspending habeas corpus, dealing harshly with suspects and employing spies to infiltrate mob. Repealed in 1846,Economist David Ricardo voted against this in principle.

Question 411

Imports

Answer 411

Goods and services that are produced abroad and sold domestically

Question 412

Exports

Answer 412

Goods produced domestically and sold abroad

Question 413

NAFTA

Answer 413

A trade agreement between Canada, the United States and Mexico that encourages free trade between these North American countries.

Question 414

Treasury Department

Answer 414

Government department responsible for management of federal governments finances and currency and designing tax policy.

Question 415

Normative economics

Answer 415

An approach to economics that analyzes outcomes of economic behavior, evaluates them as good or bad(makes value judgement), and may prescribe courses of action. Also called policy economics.

Question 416

Factors of Production

Answer 416

Land, labor, and capital (LLC) ; the three groups of resources that are used to make all goods and services, are created by HOUSEHOLDS and used by FIRMS

Question 417

Circular Flow Diagram

Answer 417

A visual model of the economy that shows how dollars flow through markets among households and firms. Includes the market for goods and the market for factors of production.

Question 418

Households

Answer 418

The basic unit of analysis in many microeconomic and government models. The term refers to all individuals who live in the same dwelling, they own all the factors of production (LLC)

Question 419

Opportunity Cost

Answer 419

Cost of the next best alternative use of money, time, or resources when one choice is made rather than another.

Question 420

PPF

Answer 420

Abbreviation for the Production Possibilities Frontier, a economic model that shows the combination of outputs that the economy can possibly produce given available LLC, and Technology. The economy can only produce all the points on or within the line not beyond it. The line is usually bowed outwards.

Question 421

Firms

Answer 421

Economic entities which buy or employ factors of production(which they get from households) and organize them to create goods and services for sale

Question 422

Microeconomics

Answer 422

The study of the economic behavior and decision making of small units, such as individuals, families, and businesses

Question 423

Macroeconomics

Answer 423

The part of economics concerned with the economy as a whole; with such major aggregates as the household, business, and government sectors; and with measures of the total economy line employment, inflation ,etc.,.

Question 424

Positive economics

Answer 424

An approach to economics that seeks to understand behavior and the operation of systems without making judgments. It describes what exists and how it works.

Question 425

Council of Economic Advisers

Answer 425

A group of three professional economists who give the president expert advice on the economy. Created in 1946, it is responsible for forecasting economic trends, analyzing economic issues, and helping prepare the “Economic report of the President” submits each year to Congress. Abbreviate CEA.

Question 426

Economic Report of the President

Answer 426

What work does the Council of Economic Advisers (CEA) send to Congress, stating the president’s take on the economy?

Question 427

Department of Labor

Answer 427

The federal department responsible for promoting the working conditions of wage earners in the United States

Question 428

CBO

Answer 428

Congressional Budget Office. This assesses the economic implications and likely costs of proposed federal programs, such as the Bush administration rescue packages for the failing financial system in 2008 and Barack Obama’s Stimulus package in 2009. The answer is the abbreviation.

Question 429

Federal Reserve

Answer 429

The central bank of the U.S. Incorporates 12 Federal Reserve branch banks and all national banks and stated charted commercial banks as well as some trust companies. Sets the countries “Monetary Policy” (Controlling Money Supply, and interest rates)

Question 430

Monetary Policy

Answer 430

Government policy that attempts to manage the economy by controlling the money supply and thus interest rates. Controlled by a central bank, in the United States, this would be the Federal Reserve.

Question 431

Fiscal Policy

Answer 431

Government policy that attempts to manage the economy by controlling taxing and spending. DIFFERENT from Monetary Policy.

Question 432

Rent Control

Answer 432

A government set price ceiling on rent. Most economists believe that this adversely effects the availability and quantity of housing and is a very costly way to help needy members of society.

Question 433

Import Quotas

Answer 433

A limit imposed by a nation on the quantity (or total value) of a good that may be imported during some period of time. Most economists hate this because it restricts free trade between countries.

Question 434

Tariffs

Answer 434

Taxes on imports or exports, most economists hate this because it along with import quotas limits free trade between countries.

Question 435

Correlation

Answer 435

A statistical relation between two or more variables such that systematic changes in the value of one variable are accompanied by systematic changes in the other, does NOT imply causation(As shown in the graph).

Question 436

Reverse Causality

Answer 436

Coming to an erroneous conclusion about which is the dependent and which is the independent variable by reversing the true direction of causality between the two variables

Question 437

Market Economy

Answer 437

Describes an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services.

Question 438

Externality

Answer 438

The uncompensated impact of one person’s actions on the well-being of a bystander (example pollution), may cause market failure along with market power.

Question 439

Economy

Answer 439

Comes from the Greek word oikonomos, meaning one who manages a household. Is also a system by which goods and services are produced and distributed to meet people’s needs.

Question 440

Economics

Answer 440

The study of how society manages its scarce resources, and by consequence how people make decisions and interact with each other.

Question 441

Scarcity

Answer 441

The general lack of something. In economic terms the LIMITED nature of societies resources, which requires that the society allocate resources efficiently.

Question 442

Trade-offs

Answer 442

All people face __________. The classic example of this in society is the _________ between “guns and butter” and that between efficiency and equality.

Question 443

Efficiency

Answer 443

The property of a society getting the most that it can from its scarce resources. A trade off exists between this and equality.

Question 444

Equality

Answer 444

The property of distributing economic prosperity uniformly among the members of society. A trade off exists between this and efficiency.

Question 445

Pareto efficiency

Answer 445

Describes an allocation in which the only way to make any individual or group of individuals better off would require making at least one other person WORSE off(not good), also known as Pareto optimality.

Question 446

Vilfredo Pareto

Answer 446

Italian engineer, sociologist, economist, political scientists, and philosopher. He introduced a concept of efficiency(Pareto efficiency) that is named for him. He also has a principle named after him that is built on observations about the ownership of land in Italy.

Question 447

Opportunity Cost

Answer 447

The highest-valued alternative that must be given up to engage in an activity. (What you give up in order to gain something.)

Question 448

Rational People

Answer 448

People who systematically and purposefully do the best they can do to achieve their objectives. (May or may not exist in real life). Only take action if marginal benefit(MB) exceeds (MC)

Question 449

Marginal changes

Answer 449

The economic term for small incremental changes to a plan of action that rational people utilize.

Question 450

Marginal Benefit

Answer 450

The ADDITIONAL satisfaction or benefit received when one more unit is produced

Question 451

Marginal Cost

Answer 451

The additional increase in costs as a result of consuming an additional input.

Question 452

Incentive

Answer 452

General economic term for something that induces a person to act. Can be anything (money, punishments, rewards etc. etc. )

Question 453

Unsafe at Any Speed

Answer 453

Ralph Nader’s book on the auto industries bad safety regulations. Catalyzed the “Consumer Movement”. Led directly to the passage of the 1966 National Traffic and Motor Vehicle Safety Act. These laws lead to less automobile deaths, but more accidents and injuries, as people responded to the incentive of feeling safer while wearing seat-belts.

Question 454

Peltzman effect

Answer 454

The name of the effect that arises when people adjust their behavior to a regulation in ways that counteract the intended effect of the regulation. So, for example, when the government passes a seatbelt law, some drivers may respond by driving less safely. Redistributes the risk to innocent bystanders

Question 455

Trade

Answer 455

________ between people and countries make both parties better off. Allows individuals to specialize in the activities he or she does best. Alos it allows for the buying of goods and services at a much lower cost.

Question 456

Adam Smith

Answer 456

Scottish political economist and philosopher. His Wealth of Nations (1776) laid the foundations of classical free-market economic theory, government should not interfere with economics. Advocates Laissez Faire and founder of “invisible hand”

Question 457

Property Rights

Answer 457

The rights of an individual to own and exercise control over scarce resources, including the rights of an individual to own, use, rent, invest in, buy, and sell property. What the gov’t must insure to all citizens.

Question 458

Invisible hand

Answer 458

A term coined by Adam Smith to describe the self-regulating nature of the marketplace or the market economy.

Question 459

Wealth of Nations

Answer 459

This is the1776 book written by Scottish economist Adam Smith in which he spells out the first modern account of free market economies.Criticized mercantilism by saying that it meant a combination of stifling government regulations and unfair privileges for state-approved monopolies and government favorites

Question 460

Market Failure

Answer 460

A situation in which the market left on its own fails to allocate resources efficiently. May be caused by externailities or market power

Question 461

Market Power

Answer 461

The ability of a single economic actor (or small group of actors) to have a substantial influence on market prices. This along with externalities may cause market failure..

Question 462

Productivity

Answer 462

Almost all variation in living standards is attributable to _____________ , which is the quantity of goods produced from EACH unit of labor input. The growth rate of this also determines the growth rate of income.

Question 463

Income

Answer 463

The amount of funds collected between any two points in time.

Question 464

Inflation

Answer 464

An increase in the overall level of prices in the economy. (Haha - Zimbabwe 100 trillion dollars)

Question 465

Short run

Answer 465

In the _______ _____ , increasing the amount of money in the economy stimulates the overall spending and the demands for goods and services. In other words “There is a _____ ______ trade off between inflation and unemployment.

Question 466

Long Run

Answer 466

In the ______ ______, increasing the amount of money in the economy(money supply) will lead to widespread inflation.

Question 467

Business Cycle

Answer 467

Fluctuations in economic activity, as measured by employment and production, growth etc.