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Economics > Economics Test #2 > Flashcards

Economics Test #2 Flashcards

1
Q

Externality

A

A benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service.

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2
Q

Negative Externality

Define and does the market produce less or greater than the efficient amount.

A

A cost that affects someone who is not directly involved in the production or consumption of a good or service.

The market produces a quantity of the good that is greater than the efficient amount

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3
Q

Positive Externality

Define and does the market produce less or greater than the efficient amount.

A

A benefit that affects someone who is not directly involved in the production or consumption of a good or service.

The market produces a quantity of the good that is less than the efficient amount

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4
Q

Private cost

A

the cost borne by the producer of a good or service

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5
Q

social cost

A

the total cost of producing a good or service, including both the private cost and any external cost

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6
Q

Private benefit

A

The benefit received by the consumer of a good or service

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7
Q

social benefit

A

The total benefit from consuming a good or service, including both the private benefit and any external benefit

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8
Q

Market failure

A

A situation in which the market fails to produce the efficient level of output

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9
Q

Property rihts

A

the rights individuals or businesses have to the exclusive use of their property, including the right to buy or sell it.

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10
Q

Transaction costs

A

The costs in time and other resources that parties incur in the prcess of agreeing to and carrying out an exchange of goods or services

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11
Q

Coase theorem

A

The argument of economist Ronald Coase that if transaction costs are low, private bargaining will result in an efficient solution to the problem of externalities
2 REQUIREMENTS:
Well defined property rights and 0 transaction. This works well for individuals, not worldly.

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12
Q

Pigovian taxes and subsidies

A

Government taxes and subsidies intended to bring about an efficient level of output on the presences of externalities. (tax companies/people to make up the DWL.

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13
Q

Command-and-control approach

A

An approach that involves the government imposing quantitative limits on the amount of pollution firms are allowed to emit or requiring firms to install specific pollution control devices

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14
Q

Rivalry

A

The situation that occurs when one person’s consuming a unit of a good means no one else can consume it.

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15
Q

Excludability

A

The situation in which anyone who does not pay for a good cannot consume it.

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16
Q

Private good

A

A good that is both rival and excludable

i.e. Big Macs and Running Shoes

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17
Q

Public Good

A

A good that is both nonrival and nonexcludable.

i.e. National defense and Court system

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18
Q

Free riding

A

Benefiting from a good without paying for it.

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19
Q

Common resource

A

A good that is rival but not excludable.

i.e. Tuna in the ocean and trees in the woods

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20
Q

Quasi-public good (or Natural monopolies)

A

Goods that are excludable but not rival.

i.e. Cable TV

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21
Q

Tragedy of the commons

A

The tendency for a common resource to be overused.

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22
Q

Elasticity

A

A measure of how much one economic variable responds to changes in another economic variable.
measure the sensitivity of how one variable changes another.

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23
Q

Price elasticity of demand

A

The responsiveness of the quantity demanded to a change in the price, measured by dividing the percentage change in the quantity demanded of a product bu the percentage change in the product’s price

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24
Q

Elastic demand

A

Demand is elastic when the percentage change in quantity demanded is GREATER than the percentage change in price, so the price elasticity is GREATER than 1 in absolute value

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25
Q

Inelastic demand

A

Demand is inelastic when the percentage change in quantity demanded is LESS than the percentage change in price, so the price elasticity is LESS than 1 in absolute value

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26
Q

Unit-elastic demand

A

Demand is unit elastic when the percentage change in quantity demanded is EQUAL to the percentage change in price, so the price elasticity is EQUAL to 1 in absolute value

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27
Q

Perfectly inelastic demand

A

If a demand curve is a vertical line. The case where the quantity demanded is completely unresponsive to price and the price elasticity of demand equals 0.

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28
Q

Perfectly elastic demand

A

If a demand curve is a horizontal line.The case where the quantity demanded is infinitely responsive to price, and the price elasticity of demand equals infinity.

29
Q

Determinants of the Price Elasticity Demand

Availability of close substitutes

A

If a product has more substitutes available, it will have more elastic demand.

30
Q

Determinants of the Price Elasticity Demand

Passage of time

A

The more time passes, the more elastic the demand for a product becomes

31
Q

Determinants of the Price Elasticity Demand

Luxuries versus necessities

A

The demand curve for a luxury is more elastic than the demand curve for a necessity

32
Q

Determinants of the Price Elasticity Demand

Definition of the market

A

The more narrowly we define a market, the more elastic demand will be.

33
Q

Determinants of the Price Elasticity Demand

Share of the good in the consumer’s budget

A

The demand for a good will be more elastic the larger the share of the good in average consumer’s budget

34
Q

Determinants of the Price Elasticity Demand

A 
Availability of close substitutes
Passage of time
Luxuries versus necessities
Definition of the market
Share of the good in the consumer's budget
35
Q

Total revenue

A

the total amount of fund received bu a seller of a good or service, calculated by multiplying price per unit by the number of units sold.

36
Q

Cross-price elasticity of demand

A

The percentage change in quantity demanded of one good divided by the percentage change in the price of ANOTHER good.

37
Q

Income elasticity

A

A measure of the responsiveness of quantity demanded to changes in income, measured by the percentage change in quantity demanded divided by the percentage change in income.
Results:
Positive but less than 1= normal/necessity
positive and greater than 1= normal/luxury
negative= inferior

38
Q

price elasticity of supply

A

the responsiveness of the quantity supplied to a change in price, measured by dividing the percentage change in the quantity supplied of a product bu the percentage change in the product’s price

39
Q

Health care

A

the goods and services, such as prescription drugs and consultations with a doctor, that are intended to maintain or improve a person’s health

40
Q

health insurance

A

a contract under which a buyer agrees to make payments or premiums in exchange for the provider’s agreeing to pay some or all of the buyer’s medical bills.

41
Q

fee-for-service

A

a system under which doctors and hospitals receive a separate payment for each service that they provide

42
Q

Single-payer health care system

A

a system, such as the one in canada in which the government provides health insurance to all of the country’s residence.

43
Q

Socialized medicine

A

In the UK.

A health care system under which the government owns most of the hospitals and employs most of the doctors.

44
Q

asymmetric information

A

a situation in which one partyy to an economic transaction has less information than the other party

45
Q

adverse selection

A

the situation in which one party to a transaction takes advantage of knowing more than the other part to the transaction
i.e. buying used cars

46
Q

moral hazard

A

the actions people take after they have entered into a transaction that make the other party to the transaction worse.
(not installing a sprinkler system when buying fire insurance)

47
Q

Principal-agent problem

A

A problem caused by agents (doctors) pursuing their own interests rather than the interests of the principals who hire them.

48
Q

market-based reforms

A

changes in the market for health care that would make it more like the markets for other goods and services

49
Q

Tariff

A

A tax imposed by a government on imports

50
Q

imports

A

goods and services bought domestically but produced in other countries

51
Q

exports

A

goods and services produced domestically and sold in other countries

52
Q

comparative advantage

A

the ability of an individual, a firm, or a country to produce a food or service at a lower opportunity cost than competitors

53
Q

opportunity cost

A

the highest valued alternative that must be given up to engage in an activity.

54
Q

absolute advantage

A

the ability to produce more of a good or service than competitors when using the same amount of resources.

55
Q

autarky

A

a situation in which a country does not trade with other countries.

56
Q

Terms of trade

A

the ratio at which a country can trade its exports for imports from other countries

57
Q

external economies

A

reductions in a firm’s cost that result from an increase in the size of the industry.

58
Q

free trade

A

trade between countries that is without government restrictions.

59
Q

quota

A

a numerical limit a government imposes on the quantity of a good that can be imported into the country.

60
Q

protectionism

A

the use of trade barriers to shield domestic firms from foreign competition.

61
Q

Utility

A

The enjoyment or satisfaction people receive from consuming goods and services.

62
Q

Marginal Utility (MU)

A

The change in total utility a person receives from consuming one additional unit of a good or service.

63
Q

Law of diminishing marginal untility

A

the principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time.

64
Q

budget constraint

A

the limited amount of income available to consumers to spend on goods and services.

65
Q

income effect

A

the change in the Q demanded of a good that results from the effect of a change in the price on consumer purchasing power, holding all other factors cosntant.

66
Q

substitution effect

A

The change in the Q demanded of a good that results from a change in price making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.

67
Q

behavioral economics

A

the study of situations in which people have choices that do not appear to be economically rational

68
Q

endowment effet

A

the tendency of people to be unwilling to sell a good they already own, even if they are offered a price that is greater than the price they are willing to pay to buy the good if they didn’t already own it.

Economics (1 decks)

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