Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

econ 201 > final > Flashcards

final Flashcards

1
Q

externality

A

side effect on third party whose interest aren’t fully taken into account

  • lead to market failure
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

negative externality

A

side effects that harms bystanders

  • ex: car exhaust harm bystander who breathe it in
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

positive externality

A

side effect that benefit bystanders

  • ex: you decide to get covid vaccine
    (that decisions protect you and your classmate
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

private interest

A

cost n benefits you personally incur

  • if ur choices dont affect others, private interest correspond w society
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

society interest

A

all cost n benefits, where they accrue to you or others

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

marginal private cost

A

seller extra cost to produce 1 more

(supply curve)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

marginal external cost

A

extra cost imposed on bystanders from producing 1 more

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

external cost

A

cost seller impose on bystanders

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

marginal social cost

A

all marginal cost

marginal social cost = marginal private cost + marginal external cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

marginal private benefits

A

Buyer extra benefit from buying 1 more

(demand curve)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

marginal external benefits

A

extra benefits enjoyed by bystanders from 1 more

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

marginal social benefits

A

all marginal benefits

marginal social benefits = marginal private benefits + marginal external benefits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

socially optimal quantity

A

quantity that’s most efficient for society as a whole

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

rational rule for society

A

produce 1 more as long as marginal social benefit > marginal social cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

steps to analyze externalities

A
  1. predict equilibrium quantity to forecast what you think will happen
  2. asses what externalities are involves
  3. find socially optimal quantity
  4. compare equilibrium w socially optimal quantity
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

SOLUTION 1

solve externality problems

A

private bargaining & coase theorem

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

coase theorem

A

if bargain is costless & property rights are established, then external problems is solved by private bargain

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

SOLUTION 2

solve externality problems

A

corrective taxes & subsidies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

corrective taxes

A

design to induce ppl to take account of negative externalities they cause

  • set corrective taxes = to marginal external cost

-fix negative externalities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

corrective subsidy

A

design to induce people to take account of positive externalities

  • set subsidy = to marginal external benefit
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

SOLUTION 3

solve externality problems

A

cap & trade

  • CAP (quota) negative externalities using quantity regulation
  • increase efficiency by allowing TRADES
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

cap and trade proposal

A

Company have a cap on pollution permit (how much pollution they can produce). If they use little pollution permit, they can trade the extra permit to other company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

SOLUTION 4

solve externality problems

A

laws, rules, and regulations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

SOLUTION 5

solve externality problems

A

government support public goods

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

SOLUTION 6

solve externality problems

A

assign ownership rights for common resources problem

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

common resources

A

goods that are rival but nonexcludable

  • lead to tragedy of the commons
  • ex: fish, water, air
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

tragedy of the commons

A

tendency to overconsume a common resources

  • assigning ownership rights SOLVE it
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

nonexcludable

A

goods that cant exclude a person from using it

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

non rival

A

can be enjoyed or used by many people at the same time

  • free-rider problem
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

free-ride problem

A

enjoy benefits of a good w/out bearing cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

rival good

A

can only be used by 1 person

  • no free rider problem
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

public good

A

nonrival good that is nonexcludable

  • free rider problem
  • market underproduce public goods
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

club goods

A

excludable, but nonrival good

  • goods that u have to pay for
    You can be prevented from using it but you using it does not reduce the availability for another person

Ex: Spotify, toll road, etc

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

labor demand (employers)

A

wage ↓ demand for labor ↑

(owner want to hire more worker when its low wage)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

marginal product of labor

A

extra production occur from hiring 1 extra worker

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

marginal cost

(Marginal product of labor)

A

↑ from hiring 1 more

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

marginal benefit
(Marginal product of labor)

A

extra revenue from the addition of 1 more

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

marginal revenue product

A

measure marginal revenue from hiring 1 more

marginal revenue product = marginal product of labor x price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

rational rule for employers

A

hire 1 more if marginal revenue product > wage

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

labor demand shift 1

A

changes in demand for your product

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

derived demand

A

Demand for a good increase because demand for a related good increase

Ex: demand for wood and steel increase (input) because of the increase demand for house

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

labor demand shift 2

A

changes in price of physical capital

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

scale effect

A

Price of capital good↓ which mean business can produce more quantity which↑ demand for workers bcuz they require more workers

  • scale effect dominate = labor n capital are compliments

( increase quantity require more workers to sells those)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

substitution effect
(Labor demand)

A

machine price ↓ demand for worker ↓

  • substitute effect dominate = labor n capital are substitute

(machine price ↓ they want less worker cuz machine take over)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

labor demand shift 3

A

better management & productivity gains

  • improve management & technology ↑ productivity
    (meaning worker produce more)
  • labor demand
    ↑ worker marginal product = ↑
    labor demand
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

labor demand shift 4

A

nonwage benefit, subsidies, & taxes
- these r extra cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

labor supply

A

wage increase, more ppl want to work

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

rational rules for workers

A

work 1 more hr if wage > marginal benefit of another hr of leisure

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

Substitution effect
( sub vs income effect)

A

describe how people respond to relative price change

↑ wage ↑ incentive to work

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

individual labor supply

A

allocating ur time between labor n leisure

  • opportunity cost of working is the things you can do when ur not workings
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

income effect

A

↑ wage (raise income) ↓ work hours

52
Q

income & substitution effect offset

A

at high wage,

substitution effect ↑ work hours

income effect ↓ work hours

53
Q

backward-bending labor supply curve

A

low wage = substitution effect dominates ‘

high wage = income effect dominate

54
Q

price elasticity of labor supply

A

measures worker’s responsiveness to wage

55
Q

market labor supply curve

A

high wage = more willing to work

Reason why it’s upward slopping
1. new people enter workforce
↑ wage convince ppl to work

  1. existing workers, work more hours
    ↑ wage ↑ work hrs
  2. ppl switch jobs
    ↑ job A wage ↑ demand for job A (leave job B)
56
Q

Labor supply shift 1

A

change wage in other occupations

ex: hair and skin care
↑ skin care wage ↓ worker supplied for hair

57
Q

Labor supply shift 2

A

change in # of potential workers

↑ population ↑ worker supplied

58
Q

Labor supply shift 3

A

change benefits of not working

↑ marginal benefit of not working ↓ worker supplied

59
Q

Labor supply shift 4

A

nonwage benefits, subsidies, and income tax

60
Q

physical capital

A

machines, tools, structures

61
Q

market power

A

ability to raise price w out losing sales to competitor

62
Q

perfect competition

A

multiple business sells identical goods

LEAST MARKET POWER
- many competitor
- same products

↑ price = lose revenue
↓ price = gain revenue

63
Q

imperfect competition

A

market w few competitors and limited competition

64
Q

monopoly

A

only seller in the market

MOST MARKET POWER
- no competitor
- unique product

↑ ↓ price = no change

65
Q

oligopoly

A

market dominate by large seller w little competitor

MIDDLE MARKET POWER
- few competitors

↑ price = small Q ↓
↓ price = small Q ↑

66
Q

monopolistic competition

A

market w many business competing, each selling different products

MIDDLE MARKET POWER
- different products

  • ex: jeans, many competitor but different products cuz mom jeans crop jeans rip jeans…..

↑ price = small Q ↓
↓ price = small Q ↑

67
Q

Imperfect competition insight 2

A

market power allow seller to pursue individual pricing

68
Q

Imperfect competition insight 1

A

more competitor = less market power

69
Q

Imperfect competition insight 3

A

successful product differentiation = more market power

70
Q

Imperfect competition insight 4

A

imperfect competition gives buyers bargaining power

71
Q

Imperfect competition insight 5

A

best choice depends on actions other business make

72
Q

firm’s demand curve

A

show how buyers demand quantity varies as price change

73
Q

marginal revenue

A

addition to total revenue from selling 1 more

MR = output effect - discount effect

74
Q

output effect

A

price of extra item you sold

75
Q

discount effect

A

price cut you’ll have to offer
△P x Q

76
Q

rational rule for sellers

A

sells 1 more if MR > MC

77
Q

Market power problem (MP) 1

A

market power lead to worse outcome
- seller exploit MP

MP lead to higher price
- MP price > competitive price

MP lead to inefficiently smaller quantity
- MP Q < competitive quantity

MP yield larger economic profit
- firm w MP earn large profit margin
- profit margin = MP price - average per unit cost

78
Q

Market power problem 2

A

↑ competition = better outcome

  • competition lead to lower price
79
Q

Public Policy to Restrain MP 1

A

policies to ensure competition thrives

  • being a monopoly = legal
  • monopolizing = illegal
    (Prevent competition and new competition)
80
Q

competition policy

(antitrust policy)

A

law n regulation designed to ensure market remain in competition

81
Q

collusion

A

agreement by rivals to limit competition w each other

82
Q

anti-collusion

A

prevent business from agreeing to not compete

83
Q

Public Policy to Restrain MP 2

A

minimize MP harm

  • price ceiling limit MP abuse
84
Q

natural monopoly

A

single business can service the whole market at lower cost than multiple business

85
Q

accounting profit

A

= total revenue - explicit financial cost

  • explicit financial cost: money that leave the business
  • rent
  • wage
  • raw material
86
Q

forgone wages

(accounting profit opportunity cost)

A

if you dont launch this business, how much will you earn pursuing a different path?

87
Q

forgone interest

(accounting profit opportunity cost)

A

if you dont invest, how much annual interest will you earn investing elsewhere

88
Q

economic profit

A

determine if its worth to start a business

= total revenue - explicit financial cost - implicit OP cost

89
Q

implicit OP cost

A

= forgone wage + interest

ex: 60000 + (5% x 1000)

90
Q

average revenue

A

revenue per unit
total revenue
——————–
quantity

  • firms demand curve = average revenue curve
91
Q

average cost

A

cost per unit

quantity

quantity =
fixed variable
cost cost
——— + ———-
Q Q

92
Q

spreading fixed cost

A

↑ production from low level ↓ average cost

  • # produce small quantity ——> gradually produce large Q↓fixed cost ↓average cost
    cuz fixed cost is “spread” over more units meaning smaller cost per unit
93
Q

rising variable cost

A

↑ variable cost due to emerging inefficiencies = ↑ average cost

94
Q

profit margin

A

measure profit per unit sold

= price - avg cost
(average rev)

95
Q

short run

A

productivity capacity & number or type of competitor face is fixed

96
Q

long run

A

new supplier may enter or expand into ur market n existing supplier can shrink market

97
Q

rational rule for entry

A

enter a market if you expect to earn a positive economic profit

positive economic profit = price > avg cost

98
Q

what does ENTRY do to demand and profit?

A

entry ↓ demand n profit

  • new competitor will enter profitable markets
  • # new competitors make market less profitablemake u lose MP
99
Q

what does EXIT do to demand and profit?

A

exit ↑ demand n profit

  • rival leaves = more MP
100
Q

rational rule for exist

A

exit if you expect to earn a negative economic profit

negative economic profit = price < avg cost

101
Q

free entry

A

when there are no factors making it particularly difficult or costly for business to enter or exist

  • push price down to avg cost
102
Q

free exit

A

ensures ur market won’t remain unprofitable in long-run

  • push price up to avg cost
103
Q

barriers to entry

A

obstacle making difficult for new firm to enter market

104
Q

Barrier 1

A

demand side strategic
( customer lock in to prevent them from leaving)

105
Q

switch cost
(Barrier 1)

A

impediment that makes it costly for customers to switch to another sellers

106
Q

network effect
(Barrier 1)

A

develop network make more people buy the product

product becomes more useful

107
Q

Barrier 2

A

supply-side strategies
(prevent rival entry by gaining cost advantage that newcomers cant replicate)

108
Q

learning by doing
(Barrier 2)

A

increase production → lower cost → gain market share

109
Q

Barrier 3

A

regulatory strategies
(gov policies to prevent entry

ex: patents, regulation, license…

110
Q

Barrier 4

A

deterrence strategies
(scare off rivals)

111
Q

overcome barriers to entry

A
  1. demand-side strategies -combat customer lock in
  2. supply-side strategies overcome cost disadvantages
  3. regulatory strategies secure gov help
  4. overcome deterrence strategies to fight big guys
112
Q

price discrimination

A

selling same product at different prices
- set price close/below MB
- goals: reservation price

113
Q

reservation price

A

max price customer will pay for a product

114
Q

perfect price discrimination

A

charging each customer their reservation price

115
Q

2 profit boosting objective

A
  1. charge highest price for each sale
  2. make every possible sale where customers MB > ur MC
116
Q

efficiency of price discrimination

A

solve underproduction problem

  • price discrimination ↑ quantity sold
117
Q

selective discount

A
  • no price discrimination: charge everyone the same price so discount applies to ALL
  • price discrimination: select you want to give discount to
118
Q

price discrimination feasible (easy)

A
  1. ur business have MP
  2. u can prevent resale
  3. u can target right prices to right customers
119
Q

group pricing

A

price discrimination by charging different prices to different groups

120
Q

setting group price

A
  1. set price separately for each group
    a. what quantity should you produce
    - produce quantity where MR=MC
    b. what price to charge
    - look up to demand curve
  2. set different prices for different groups
121
Q

segment market

A

Dividing the market into group
CRITERIA
1. segment market into groups who demand differs
2. target group discount based on verifiable characteristics
3. base group discount on difficult-to-change characteristic

122
Q

hurdle method

A

offer lower price only to customers who are willing to overcome some hurdle

ex:
- alternative versions
- fluctuating price
- haggle (bargain)
- coupons
- worse service
- imperfect goods
- quantity discount
- bundling

123
Q

quantity discount

A

per-unit price is lower when buying larger Q

124
Q

bundling

A

selling different goods together as a package

125
Q
A

econ 201 (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions