Econ

Question 1

What do Pigovian taxes do?

Answer 1

Correct negative externalities by making firms pay for the damage they cause.

Question 2

Social optimal quantity

Answer 2

Marginal social benefit= marginal social cost

Question 3

Marginal social cost

Answer 3

Marginal external cost+marginal private cost (if negative externalities)

Question 4

Marginal social benefit

Answer 4

Marginal external benefit + marginal private benefit (if positive externalities)

Question 5

Economic surplus

Answer 5

sum of consumer and producer surplus

Question 6

private cost borne by who

Answer 6

Producer

Question 7

Private cost and social cost equal unless

Answer 7

theres an externality

Question 8

private externalities cause

Answer 8

shortages

Question 9

coase theorem

Answer 9

if low transaction costs- priv bargaining will result in efficient solution to problem of externalities.

Question 10

rivalry

Answer 10

one persons consumption of a unit of a good means no one else can consume it.

Question 11

excludability

Answer 11

anyone who doesn’t pay for a good can’t consume it.

Question 12

private good

Answer 12

high excludability, high rivalry (big mac)

Question 13

public good

Answer 13

low excludability, low rivalry (national defense)

Question 14

common resources

Answer 14

low excludability, high rivalry (forestlands w no property rights)

Question 15

club good

Answer 15

high excludability, low rivalry (gym membership)

Question 16

price elasticity of demand

Answer 16

% change in Qd / % change in price

Question 17

elastic if

Answer 17

PED > absolute value of one

Question 18

Inelastic if

Answer 18

PED < absolute value of one

Question 19

Vertical elasticity curve

Answer 19

Perfectly inelastic

Question 20

as time passes

Answer 20

more elastic it becomes

Question 21

cross price elasticity

Answer 21

% change in Qd of one good / % change in price of another

Question 22

cross price elasticity positive

Answer 22

Substitutes

Question 23

cross price elasticity negative

Answer 23

complements (decrease in Qd)

Question 24

Income elasticity of demand

Answer 24

% change in Qd / % change in income

Question 25

Price elasticity of supply

Answer 25

% change in Qs / % change in price

Question 26

who bears burden of tax if demand curve vertical

Answer 26

consumers

Question 27

income elasticity of demand positive and greater than one

Answer 27

normal and luxury

Question 28

income elasticity of demand positive and less than one

Answer 28

normal and necessity

Question 29

income elasticity of demand is negative

Answer 29

inferior good

Question 30

price controls can

Answer 30

redistribute income, affect quality, cause queuing, cause discrimination

Question 31

price floor

Answer 31

above equilibrium

Question 32

more substitutes

Answer 32

more elastic

Question 33

negative externality

Answer 33

marginal social cost > marginal private cost

Question 34

positive externality

Answer 34

marginal social benefit > private benefit

Question 35

social cost

Answer 35

private cost and external cost

Question 36

monopsony

Answer 36

one buyer of good/service

Question 37

natural monopoly

Answer 37

cost structure of industry makes it more efficient for single firm to produce entire market output

Question 38

Adverse selection (asymmetric info)

Answer 38

before transaction. people with driving dangers more likely to get insurance.

Question 39

moral hazard (asymmetric info)

Answer 39

after transaction. Knowing they have insurance makes them take more risks.

Question 40

principal agent problem (asymmetric info)

Answer 40

workers interests and actions may not align with the rules.

Question 41

monopoly as a market failure

Answer 41

charges too much and produces too little output

Question 42

solutions to principal agent problem

Answer 42

tipping (makes workers want to perform better), wages and salaries, cameras

Question 43

Why gov imposes taxes

Answer 43

impose or discourage production, increase money, income redistribution

Question 44

excess burden

Answer 44

deadweight loss

Question 45

limitations to coase theorem

Answer 45

coordination issues, bargaining breaks down, high transaction costs

Question 46

command control approach

Answer 46

govn sets standard and enforces it with a penalty

Question 47

pig tax

Answer 47

mpb-msb at socially optimal cost

Question 48

socially optimal

Answer 48

social benefit hits supply line

Question 49

consumer surplus measures

Answer 49

net benefit from participating in market

Question 50

NOT result of imposing rent ceiling

Answer 50

some consumer surplus to producer surplus