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Fall 2016 > Econ 101 Test 2 > Flashcards

Econ 101 Test 2 Flashcards

1
Q

price ceiling

A

a legal maximum on the price of a good or service

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2
Q

price floor

A

a legal minimum on the price of a good or service

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3
Q

taxes

A

the government can make buyers or sellers pay a specific amount on each unit

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4
Q

A binding price ceiling creates a (shortage/surplus)

A

shortage

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5
Q

A binding price floor creates a (shortage/surplus)

A

surplus

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6
Q

tax incidence

A

how the burden of a tax is shared among market participants (how much the buyer/seller pays)

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7
Q

a tax drives a wedge between

A

the price buyers pay and the price sellers receive

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8
Q

if supply is more elastic than demand, the tax burden will fall more heavily on the

A

buyers because it is easier for the sellers to leave the market

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9
Q

if demand is more elastic than supply, the tax burden will fall more heavily on the

A

sellers because it is easier for the buyers to leave the market

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10
Q

welfare economics

A

studies how the allocation of resources affects economic well-being

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11
Q

the allocation of resources refers to

A

how much of each good is produced, which producers produce it, and which consumers consume it

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12
Q

a buyer’s willingness to pay for a good is

A

the maximum amount the buyer will pay for that good (how much the buyer values the good)

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13
Q

the marginal buyer is the buyer who

A

would leave the market if the price were any higher

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14
Q

consumer surplus

A

the amount a buyer is willing to pay minus the amount the buyer actually pays (CS = WTP - P)

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15
Q

cost

A

the value of everything a seller must give up to produce a good (i.e. opportunity cost)

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16
Q

the marginal seller is the seller who

A

would leave the market if the price were any lower

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17
Q

producer surplus

A

the amount a seller is paid for a good minus the seller’s cost (PS = P - cost)

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18
Q

total surplus

A

CS + PS; total gains from trade in a market; value to buyers - cost to sellers

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19
Q

an allocation of resources is efficient if it maximizes

A

total surplus

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20
Q

the market equilibrium quantity (maximizes/minimizes) total surplus; at any other quantity, you can increase total surplus by moving (toward/away from) the market equilibrium quantity

A

maximizes; toward

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21
Q

invisible hand

A

Adam Smith; guides the economy

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22
Q

laissez faire

A

“allow them to do”; the government should not interfere with the market

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23
Q

deadweight loss

A

the fall in total surplus that results from a market distortion, such as tax

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24
Q

when supply or demand is inelastic, it is (harder/easier) to leave the market when the tax reduces Ps so the DWL is (small/large) since the Q reduces a (little/lot)

A

harder; small; little

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25
Q

when supply or demand is elastic, it is (harder/easier) to leave the market when the tax reduces Ps so the greater Q falls below the surplus-maximizing quantity, the (greater/lesser) the DWL

A

easier; greater

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26
Q

doubling the tax causes the DWL to ? and tripling it causes the DWL to ?; so, when a tax increases, DWL ?

A

more than double/triple; rises even more (right half of a parabola)

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27
Q

the Laffer curve

A

shows the relationship between the size of the tax and tax revenue (-x^2)

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28
Q

the world price of a good is the

A

price that prevails in world markets

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29
Q

if Pd < Pw

A

country has comparative advantage in the good; exports

30
Q

if Pd > Pw

A

country does not have comparative advantage; imports

31
Q

tariff

A

a tax on imports

32
Q

arguments for restricting trade

A
  1. jobs
  2. national security
  3. infant-industry
  4. unfair-competition
  5. protection-as-bargaining-chip
33
Q

the jobs argument

A

Trade destroys jobs in industries that compete

with imports.

34
Q

the national security argument

A

An industry vital to national security should be
protected from foreign competition, to prevent
dependence on imports that could be disrupted
during wartime.

35
Q

the infant-industry argument

A

A new industry argues for temporary protection
until it is mature and can compete with foreign
firms.

36
Q

the unfair-competition argument

A

Producers argue their competitors in another
country have an unfair advantage,

e.g. due to govt subsidies.

37
Q

the protection-as-a-bargaining-chip argument

A

Example: The U.S. can threaten to limit imports of French wine unless France lifts their quotas on American beef.

38
Q

trade agreements

A

a country can liberalize trade with unilateral reductions in trade restrictions and multilateral agreements with other nations (ex: NAFTA, GATT, WTO)

39
Q

a tariff benefits ? and generates revenue for the government, but the losses to consumers (does not exceed/exceeds) these gains

A

producers; exceeds

40
Q

if a country exports, trade

A

raises producer surplus, reduces consumer surplus, and raises total surplus

41
Q

if a country imports, trade

A

reduces producer surplus, raises consumer surplus and total surplus

42
Q

externality

A

one type of market failure; the uncompensated impact of one person’s actions on the well-being of a bystander; can be negative or positive

43
Q

examples of negative externalities:

A

air pollution from a factory, neighbor’s barking dog, health risk to others from second-hand smoke, etc.

44
Q

private cost

A

the cost directly incurred by sellers

45
Q

private value

A

the value to buyers (WTP)

46
Q

social cost

A

private + external cost

47
Q

external cost

A

value of the negative impact on bystanders

48
Q

internalizing the externality

A

altering incentives so that people take account of the external effects of their actions (ex: introduce a tax)

49
Q

examples of positive externalities:

A

vaccination, going to college

50
Q

in the presence of a positive externality, social value includes

A

private value (direct value to buyers) and external benefit (the value of the positive impact on bystanders)

51
Q

two approaches to public policies toward externalities

A
  1. command-and-control (regulate behavior directly: ex - limits on quantity of pollution emitted)
  2. market-based policies (provide incentives so that private decision-makers will choose to solve the problem on their own: ex - corrective taxes/subsidies and tradable pollution permits)
52
Q

corrective tax

A

a tax designed to induce private decision-makers to take account of the social costs that arise from a negative externality (AKA Pigouvian taxes)

53
Q

the ideal corrective tax is the ? or (for activities with positive externalities) ?

A

external cost, external benefit

54
Q

are corrective taxes or regulations better?

A

corrective taxes

55
Q

with tradable pollution permits, firms with a low cost of reducing pollution ? and firms with high cost of reducing pollution ?

A

do so and sell their unused permits, buy permits

56
Q

the Coase theorem

A

if private parties can costlessly bargain over the allocation of resources, they can solve the externalities problem on their own

57
Q

why do private solutions not always work?

A
  1. transaction costs (the costs parties incur in the process of agreeing to and following thru on a bargain - may make it impossible to reach a mutually beneficial agreement)
  2. stubbornness (even if a beneficial agreement is possible, each party may hold out for a better deal)
  3. coordination problems (if the number of parties is very large, coordinating them may be costly, difficult, or impossible)
58
Q

a good is excludable if

A

a person can be prevented from using it (ex: fish tacos, wireless Internet access)

59
Q

a good is NOT excludable if

A

a person cannot be prevented from using it (ex: AM/FM radio signals, national defense)

60
Q

a good is rival in consumption if

A

one person’s use of it diminishes others’ use (ex: fish tacos)

61
Q

a good is NOT rival in consumption if

A

one person’s use of it does not diminish others’ use (ex: an MP3 file of Lady Gaga’s latest single)

62
Q

What are the four different kinds of goods?

A
  1. private goods
  2. public goods
  3. common resources
  4. club goods
63
Q

private goods + ex

A

excludable, rival in consumption (ex: food)

64
Q

public goods + ex

A

not excludable, not rival (ex: national defense)

65
Q

common resources + ex

A

rival but not excludable (ex: fish in the ocean)

66
Q

club goods + ex

A

excludable but not rival (ex: cable TV)

67
Q

public goods are difficult for private markets to provide because of the ? problem

A

free-rider (a person who receives the benefit of a good but avoids paying for it)

68
Q

if the benefit of a public good exceeds the cost of providing it, gov’t should (not provide/provide) the good and pay for it with a tax on people who benefit

A

provide

69
Q

cost-benefit analysis

A

a study that compares the costs and benefits of providing a public good (imprecise)

70
Q

the tragedy of the commons

A

when common resources get used more than is socially desirable

Fall 2016 (5 decks)

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