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Econ 110 > exam III > Flashcards

exam III Flashcards

1
Q

what is the economy compared to

A

a perpetually spinning object

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2
Q

what will slow the economy down

A

friction

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3
Q

define externality

A

prices serve as dynamically efficient signals and incentives which maximize societal welfare, where there are no confounding factors

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4
Q

what do spillover effects influence

A

the well-being of third parties

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5
Q

social costs=

A

private costs+external costs

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6
Q

social benefits=

A

private benefits+external benefits

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7
Q

what do market supply and demand represent

A

private costs and benefits

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8
Q

define negative externalities

A

the social cost of a transaction are greater than the private costs

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9
Q

where are costs from negative externalities from

A

those outside the market

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10
Q

what is an example of negative externalities

A

pollution, smoking, deforestation

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11
Q

define positive externalities

A

social benefits of a transaction are greater than private benefits

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12
Q

are positive externalities under or over produced

A

underproduced

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13
Q

who can enjoy the benefits of positive externalities

A

people outside of the market

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14
Q

what are examples of positive externalities

A

internet usage, vaccines

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15
Q

what makes an externality positive or negative

A

the quality of the good

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16
Q

what will a free market oversupply? what will it undersupply?

A

negative externalities
positive externalities

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17
Q

what are external costs represented by

A

S2, or PC+EC

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18
Q

define Pigouvian subsidy

A

a positive externality-producing good set to equal the external benefit

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19
Q

define Pigouvian tax

A

a negative externality-producing good set equal to the external cost

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20
Q

what do externalities do

A

push the market to ideal consumption and production points

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21
Q

what does taxing do

A

causes a gap between what buyers pay and what price producers chose and depletes DWL

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22
Q

what is rivalry in consumption

A

if I consume a good, you can’t consume the same good

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23
Q

what does buying something first indicate

A

a higher willingness to pay

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24
Q

what does increased price signal

A

the good is more highly valued by society

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25
Q

what is the key distinction of externality

A

aggregated consumption, not production

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26
Q

define pecuniary

A

relating to/consisting of money

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27
Q

define pecuniary externality

A

actions by trading members affect the price paid/received by the third party

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28
Q

profits _________ firms to innovate

A

incentivize

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29
Q

what will markets fail to do

A

provide the supply demanded

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30
Q

competition can ______________ innovation

A

discourage

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31
Q

what is an alternate method to patrons and and copyrights

A

extending the intellectual property rights

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32
Q

what do intellectual property rights do

A

give inventors the exclusive legal right to make/use/sell the innovation for a limited time

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33
Q

what are property rights

A

well-defined, protected, and enforced

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34
Q

define public goods

A

non-excludable and non-rival

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35
Q

define excludable

A

those who do not pay are excluded

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36
Q

define rival

A

one persons use prevents another persons use

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37
Q

give some examples of club goods

A

security, wifi, concerts

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38
Q

give some examples of public goods

A

gravity, national defense, disease control

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39
Q

give some examples of common goods

A

roads, stocked fish, parks

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40
Q

give some examples of private goods

A

phones, groceries, shoes

41
Q
A
  1. private goods
  2. common goods
  3. club goods
  4. public goods
42
Q

what is the first rule of econ

A

there is never enough of anything to fully satisfy everyone

43
Q

what is the first rule of politics

A

disregard the first rule of econ

44
Q

define government failure

A

gov involvement in the economy leads to less favorable outcomes than what would’ve occurred otherwise

45
Q

what are three things that may cause a government to be inefficient

A

bais for reasoning affects voter preference for policy
shared visions cause voters to have flawed perceptions
involvement makes asking for political favors more cost-effective than competing

46
Q

define rationality

A

individuals choose options that best advance their personal desires at the least possible cost

47
Q

what do people do when faced with uncertainty

A

weight the expected benefits vs expected costs

48
Q

define expected

A

perceived possibility

49
Q

what is a public good problem?

A

non-excludability which leads to free-riding

50
Q

define tragedy of the commons

A

tendency of any non-excludable good to be overused and under-maintained

51
Q

give an example of command and control

A

governments imposing shorter seasons due to over hunting/fishing

52
Q

what is a con of command and control

A

black markets

53
Q

who are cultural norms associated with

A

Elinor Ostrom

54
Q

what does the enforcement of norms do

A

prevent tragedy of the commons

55
Q

where are cultural norms effective

A

small, self-serving communities

56
Q

what are cultural norms associated with

A

coarse theorem

57
Q

define coarse theorem

A

transaction costs are low
property rights are clearly defined

58
Q

what do many governments institute

A

individually transferable quotas

59
Q

define cap and trade

A

the creation of private resources

60
Q

expected benefit _ expected cost

A

≥

61
Q

describe the anti-market basis

A

people do not understand the invisible hand
people perceive profit as a transfer from people to business while economists recognize it as a matter of progress

62
Q

what do profits incentive

A

a reduction in production costs and move resources from less-valued industries

63
Q

describe anti-foreign policy

A

people underestimate the benefits of interactions with foreigners
denies free movement, people, and goods

64
Q

define human welfare

A

specialization and gains from trade

65
Q

define economic growth

A

supply and demand

66
Q

what do immigrants increase

A

supply and demand for local goods and services

67
Q

what does a large increase in labor demand lead to

A

more jobs and higher wages

68
Q

describe make-work bias

A

people equate prosperity with employment, not production
underestimate benefits of conserving labor
individual prosperity is associated with work

69
Q

what is social prosperity

A

doing a job/helping others

70
Q

what are shared vision problems

A

people see a perfect situation rather that the best solution

71
Q

define rent-seeking

A

extraction of uncompensated value from others via the political process without making any contribution to productivity

72
Q

define rent

A

unjust profit from mercy holding sacred assets rather than by its improvement

73
Q

define protectionist

A

raising barriers to enter for firms that want to compete with each other

74
Q

define kick-back

A

increases the odds of getting reelected much more than taxpayers

75
Q

define GPD

A

market value of all final goods/service produced within a political region within a year

76
Q

which country has the largest GDP? how much does it make

A

US, 20 trillion

77
Q

what do richer countries usually have

A

education
life expectations
racial conflict
inequality
well-functioning legal systems

78
Q

what are used to determine GDP? why?

A

final goods to avoid double counting

79
Q

what is the expenditure equation

A

Y=C+I+G+NX

80
Q

what does each letter represent in Y=C+I+G+NX

A

Y- GDP
C- consumption
I- investment
G- government spending
NX- net export-import

81
Q

the US has a trade ________-

A

deficit

82
Q

define trade deficit

A

goods are imported at a higher rate than they are exported

83
Q

define per capita

A

per person
do

84
Q

which countries have a higher GDP

A

countries with more people

85
Q

what are GDP shortcomings? describe them

A
  1. governments are in charge of calculating GDP
    a high GDP looks good for politicians
  2. trade deficits
    seen in most advanced economies
  3. skewed menas
    averages can be skewed with income inequality
86
Q

define real GDP

A

measures the value of a good to a customer that has been adjusted for inflation

87
Q

define nominal GDP

A

expressed in current $ value

88
Q

define consumer price index

A

measures the cost of purchasing a bundle of goods at one point in time relative to the cost of purchasing identical goods years later

89
Q

what is the base year normally set at

A

100

90
Q

inflation rate=

A

%ΔCPI

91
Q

what are problems that can be run into with CPI

A

can not account for the changes in the goods people purchase or product quality

92
Q

what are CPI solutions

A

chained CPI and GDP deflators

93
Q

define chained CPI

A

the changes of goods used in the time period prior
typically reduced yearly inflation estimated by .2-.4 percent

94
Q

define GDP deflator

A

accounts for changes in a range price of all goods included in GDP
includes capital goods purchased by the government

95
Q

RGDP=

A

NGDP x (100/πindex)

96
Q

πindex=

A

cost of bundle/ (base year cost x 100)

97
Q

%ΔRGDP

A

%ΔNGDP-%π

98
Q

%Δ=

A

Xt-Xt-1/Xt-1

Econ 110 (4 decks)

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