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ECON 202 Principles Of Microeconomics > Chapter 7, 8, 9, & 10 > Flashcards

Chapter 7, 8, 9, & 10 Flashcards

1
Q

Externalities

A

costs or benefits of a market activity that affect a third party
-exists: private cost (benefit) diverges from a social cost (benefit)

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2
Q

market failure

A

occurs when there is an inefficient allocation of resources in a market

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3
Q

internal costs

A

costs of a market activity paid only by an individual participant

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4
Q

external costs

A

costs of a market activity imposed on people who are not participants in that market

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5
Q

social costs

A

costs of a market activity imposed on people who are not participants in that market

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6
Q

social costs

A

sum of internal costs and external costs of a market activity

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7
Q

third-party problem

A

occurs when those not directly involved in a market activity experiences negative or positive externalities

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8
Q

social optimum

A

price and quantity combination that would exist if there were no externalities

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9
Q

internalize

A

firms take into account external costs (or benefits) to society that occur as a result of its actions

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10
Q

social demand curve

A

sum of internal and social benefits of getting the vaccination

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11
Q

Negative externalities

A

costs borne by third parties

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12
Q

Positive Externalities

A

benefits received by third parties

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13
Q

Negative Externalities Examples:

A
  • oil refining creates air pollution
  • traffic congestion causes all motorists to spend more time on the road waiting
  • airports create noise pollution
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14
Q

Positive Externalities examples

A
  • education creates a more productive workforce and enables citizens to make more informed decisions for the betterment of society
  • restored historic buildings enable people to enjoy beautiful architectural details
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15
Q

Property Rights

A

give the owner the ability to exercise control over a resource

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16
Q

Private Property

A

provides an exclusive right of ownership that allows for use, and especially exchange, off property

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17
Q

Coase Theorem

A

states that if there are no barriers to negotiations, and if property rights are fully specified, interested parties will bargain to correct externalities

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18
Q

excludable good

A

possible to prevent consumers who have not paid for it from having access to it

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19
Q

rival good

A

a good that cannot be enjoyed by more than one person at a time

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20
Q

Private good

A

both excludable and rival in consumption

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21
Q

public good

A

can be jointly consumed by more than one person, and nonpayers are difficult to exclude
(ex: street performances, fireworks, national defense, lighthouses, streetlights, clean air, open source software)

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22
Q

free-rider problem

A

Whenever someone receives a benefit without having to pay for it

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23
Q

club good

A
  1. nonrival in consumption
  2. excludable
    (ex: satellite TV - must pay to receive signal - nonrival: more than one consumer can receive signal at same time)
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24
Q

common-resource good

A
  1. rival in consumption

2. nonexcludable

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25
Q

Four Types of Goods

A
  • Private
  • Club
  • Common-resource
  • Public
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26
Q

Cost-benefit analysis

A

process that economists use to determine whether the benefits of providing a public good outweigh the costs

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27
Q

Tragedy of the commons

A

occurs when a good that is rival in consumption but nonexcludable becomes depleted

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28
Q

Cap and Trade

A

an approach used to curb pollution by creating a system of emissions permits that are traded in an open market

  • government sets cap (limit) on amount of CO2 can be emitted
  • permits owners may trade permits
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29
Q

profit

A

total revenue is higher than the total cost

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30
Q

loss

A

total revenue is less than the total cost

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31
Q

total revenue

A

amount firm receives from the sale of goods and services

32
Q

total revenue - total cost =

A

profit / loss

33
Q

explicit costs

A

tangible out-of-pocket expenses

  • add every expense incurred to run business
    ex: $1 million costs of McDonald’s Franchise
34
Q

Implicit costs

A

costs of resources already owned; no out of pocket payment is made

  • opportunity costs - next-best alternative use is forgone
  • alternative is gone
  • hard to calculate and easy to miss
35
Q

Explicit costs examples of a Firm:

A
  • electricity bill
  • advertising in a local newspaper
  • employee wages
36
Q

Implicit Costs examples of a Firm:

A
  • labor of owner who works for the company but does not draw a salary
  • the opportunity cost of capital invested in business
  • use of owner’s car, computer, or other personal equipment to conduct company business
37
Q

explicit costs + implicit costs

A

Total Costs

38
Q

Accounting Profit

A

subtracting explicit costs from total revenue

accounting profit = total revenues - explicit costs

39
Q

Economic Profit

A

calculated by subtracting both explicit costs and implicit costs of business from total revenue
economic profit = total revenues - (explicit costs + implicit costs)

40
Q

= total revenues - (explicit costs + implicit costs)

= accounting profit - implicit costs

A

Economic Profit

41
Q

output

A

product firm creates

42
Q

factors of production

A

inputs (land, labor, capital) used in producing goods and services

43
Q

production function

A

relationship between inputs a firm uses and output it creates

44
Q

marginal product

A

change in output associated with one additional unit of an input

45
Q

diminishing marginal product

A

occurs when successive increases in inputs are associated with a slower rise in outputs

46
Q

variable costs

A

change with rate of output

47
Q

fixed costs

A

unavoidable; not vary with output in short run

aka: overhead
- ex: rent, insurance, and property taxes

48
Q

Average variable cost (AVC)

A

determined by dividing total variable cost by output

AVC = TVC / Q

49
Q

Average fixed cost (AFC)

A

dividing total fixed cost by output

AFC = TFC / Q

50
Q

TVC + TFC

A

= TC

-Total Variable Cost+Total Fixed Cost = Total Cost

51
Q

TVC / Q =

A

=AVC

Total Variable Cost / Quanity = Average Variable Cost

52
Q

TFC / Q

A

=AFC

Total Fixed Cost/ Quantity = Averaged Fixed Cost

53
Q

TC / Q

AVC + AFC

A

=ATC

Average Total Cost

54
Q

Change TVC / Change Q

Change TC / Change Q

A

=MC

Marginal Cost

55
Q

Average total cost (ATC)

A

sum of average variable cost and average fixed cost

56
Q

Marginal cost (MC)

A

increase in cost that occurs from producing one additional unit of output
-helps decide if making one more unit of output will increase profits or not

57
Q

Scale

A

size of production process

58
Q

efficient scale

A

output level that minimizes average total cost in long run

59
Q

economies of scale

A

occur when long-run average total costs decline as output expands

60
Q

diseconomies of scale

A

occur when long-run average total costs rise as output expands

61
Q

constant returns to scale

A

occurs when long-run average total costs remain constant as output expands

62
Q

signals

A

of profits and losses convey information about the profitability of various markets

63
Q

sunk costs

A

unrecoverable costs that have been incurred as a result of past decisions

64
Q

profit-maximizing rule-

A

states that profit maximization occurs when a firm chooses the quantity of output that equates marginal revenue and marginal costs
MR=MC

65
Q

Marginal Revenue

A

change in total revenue a firm receives when it produces one additional unit of output

66
Q

price taker

A

has no control over price set by market

-takes (accepts) price determined from overall supply and demand conditions that regulate the market

67
Q

monopoly power

A

a measure of a monopolist’s ability to set the price of a good or service

68
Q

Barriers to entry

A

restrictions that make it difficult for new firms to enter a market

69
Q

natural monopoly

A

occurs when single large firm has lower costs than any potential smaller ccompetitor

70
Q

Licensing

A
  • licensing requirements to give single firm exclusive right to sell good or service
  • limits opportunities for business to enter
  • creates corruption
71
Q

Licenses and Patents

A

government-created barriers that limit the scope of competition by creating barriers to entry

72
Q

price maker

A

some control over the price it charges

73
Q

Determine Monopolist’s profit

A
  1. locate point firm will maximize profits: MR=MC

2. Set Price: from point MR=MC, determine profit-maximizing output, Q; from Q - move up along dashed line

74
Q

Market Failure

A

occurs when there is an inefficient allocation of resources in market

75
Q

Rent Seeking

A

occurs when resources are used to secure monopoly rights through the political process

76
Q

Antitrust Legislation

A
  • laws designed to prevent monopoly practices and promote competition
  • way government can limit monopoly outcomes and restore competitive balance
77
Q

tariffs

A

taxes on imported goods

-trade barrier to prevent competition and protect domestic business

ECON 202 Principles Of Microeconomics (7 decks)

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