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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
Four Types of Goods
- Private - Club - Common-resource - Public
26
Cost-benefit analysis
process that economists use to determine whether the benefits of providing a public good outweigh the costs
27
Tragedy of the commons
occurs when a good that is rival in consumption but nonexcludable becomes depleted
28
Cap and Trade
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
29
profit
total revenue is higher than the total cost
30
loss
total revenue is less than the total cost
31
total revenue
amount firm receives from the sale of goods and services
32
total revenue - total cost =
profit / loss
33
explicit costs
tangible out-of-pocket expenses - add every expense incurred to run business ex: $1 million costs of McDonald's Franchise
34
Implicit costs
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
Explicit costs examples of a Firm:
- electricity bill - advertising in a local newspaper - employee wages
36
Implicit Costs examples of a Firm:
- 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
explicit costs + implicit costs
Total Costs
38
Accounting Profit
subtracting explicit costs from total revenue | accounting profit = total revenues - explicit costs
39
Economic Profit
calculated by subtracting both explicit costs and implicit costs of business from total revenue economic profit = total revenues - (explicit costs + implicit costs)
40
= total revenues - (explicit costs + implicit costs) | = accounting profit - implicit costs
Economic Profit
41
output
product firm creates
42
factors of production
inputs (land, labor, capital) used in producing goods and services
43
production function
relationship between inputs a firm uses and output it creates
44
marginal product
change in output associated with one additional unit of an input
45
diminishing marginal product
occurs when successive increases in inputs are associated with a slower rise in outputs
46
variable costs
change with rate of output
47
fixed costs
unavoidable; not vary with output in short run aka: overhead - ex: rent, insurance, and property taxes
48
Average variable cost (AVC)
determined by dividing total variable cost by output | AVC = TVC / Q
49
Average fixed cost (AFC)
dividing total fixed cost by output | AFC = TFC / Q
50
TVC + TFC
= TC | -Total Variable Cost+Total Fixed Cost = Total Cost
51
TVC / Q =
=AVC | Total Variable Cost / Quanity = Average Variable Cost
52
TFC / Q
=AFC | Total Fixed Cost/ Quantity = Averaged Fixed Cost
53
TC / Q | AVC + AFC
=ATC | Average Total Cost
54
Change TVC / Change Q | Change TC / Change Q
=MC | Marginal Cost
55
Average total cost (ATC)
sum of average variable cost and average fixed cost
56
Marginal cost (MC)
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
Scale
size of production process
58
efficient scale
output level that minimizes average total cost in long run
59
economies of scale
occur when long-run average total costs decline as output expands
60
diseconomies of scale
occur when long-run average total costs rise as output expands
61
constant returns to scale
occurs when long-run average total costs remain constant as output expands
62
signals
of profits and losses convey information about the profitability of various markets
63
sunk costs
unrecoverable costs that have been incurred as a result of past decisions
64
profit-maximizing rule-
states that profit maximization occurs when a firm chooses the quantity of output that equates marginal revenue and marginal costs MR=MC
65
Marginal Revenue
change in total revenue a firm receives when it produces one additional unit of output
66
price taker
has no control over price set by market | -takes (accepts) price determined from overall supply and demand conditions that regulate the market
67
monopoly power
a measure of a monopolist's ability to set the price of a good or service
68
Barriers to entry
restrictions that make it difficult for new firms to enter a market
69
natural monopoly
occurs when single large firm has lower costs than any potential smaller ccompetitor
70
Licensing
- licensing requirements to give single firm exclusive right to sell good or service - limits opportunities for business to enter - creates corruption
71
Licenses and Patents
government-created barriers that limit the scope of competition by creating barriers to entry
72
price maker
some control over the price it charges
73
Determine Monopolist's profit
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
Market Failure
occurs when there is an inefficient allocation of resources in market
75
Rent Seeking
occurs when resources are used to secure monopoly rights through the political process
76
Antitrust Legislation
- laws designed to prevent monopoly practices and promote competition - way government can limit monopoly outcomes and restore competitive balance
77
tariffs
taxes on imported goods | -trade barrier to prevent competition and protect domestic business

ECON 202 Principles Of Microeconomics (7 decks)

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