Final Exam Flashcards
The extra benefit associated with producing or consuming the next unit is called the
Marginal Benefit
When a producer had a comparative advantage at producing a good, it means the producer
has the ability to produce a good or service at a lower opportunity cost than others
The concepts of comparative advantage, specialization, and trade form a compelling argument in favor of:
Free trade
The law of demand can be stated as:
all else equal, quantity demanded rises as price falls
Some non-price determinants of demand are:
consumer preferences, expectations of future prices, and the number of buyers in the market.
reaching a Nash equilibrium means that
the players have reached a stable outcome where neither true would wish to change your strategy once your find out what the other play is doing.
The tendency for people to behave in a risker way to renege on contracts when they do not face the full consequences of their actions is called:
Moral Hazard
Screening is when someone takes action to:
reveal private information about someone else
Returns that occur in the long run when average total cost does not depend on the quantity of output are
constant returns to scale
In the long run, firms in a perfectly competitive market:
1) Produce a quantity that maximizes profit
2) earns zero economic profit
3) choose the level of output the that minimizes their total costs
In reality the long-run supply curve for a perfectly competitive market is upward sloping because:
1) Of changing costs of production that firms may face
2) Not all from have identical cost structures
3) experienced firms will have different information and costs than new firms
The monopolistic outcome happens at:
A higher price than perfectly completive one.
Oligoply describes a market with:
only a few sellers
Whether a cross-price elasticity of demand is positiver or negative:
tells us whether the goods are substitutes or complements
A determinant of the price elasticity of supply is also a determinant of the price elasticity of demand is:
adjustment time
An effective price floor
must be set above the equilibrium price and will likely cause a surplus
Tax incidence:
Depends on the relative elasticity of the supply and demand curves in the market
Utility measures are:
a relative ranking of the values a person places on alternative combination of things
In general, general substation effect of an increase in the price of a normal good:
will cause the individual to buy less of that good and more of others because it is relatively more expensive
In an effort to lose weight, Sam posts flyers all over town that offer a reward of $50 to anyone who catches him eating unhealthy food. Sam’s flyers are an example of
a commitment device
Game Theory
the study of how people behave strategically under different circumstances
In the short run, monopolistically competitive firms behave like ________, but in the long run, the outcome is similar to that of the_______
Monopolies; perfectly competitive firms
The demand curve facing the monopolistically competitive firm is:
flatter the that of a monopolist
If a monopolistically competitive firm’s demand curve shifts left, it will stop shifting
when the price is equal to the average total cost
In the long run, a profit-maximizing monopolistically competitive firm sells at a price that is:
equal to average total cost, but higher than marginal cost
Collusion is:
the act of firms working together to make decision about price and quantity.
In the graph of supply and demand in the market for labor
firms provide the demand
The competitive firm’s profit-maximizing quantity of labor is the quantity where
the value of the marginal product of labor is equal to the market wage
The labor-supply curve would be downward slopping if:
the income effect outweighs the price effect.
In a competitive labor market, if the demand for labor decreases, labor demand will shift
to the left and wages will decrease
The quantity of labor supplied is determined by the
opportunity cost of providing the labor
Human capital is defined as
the set of skills, knowledge, experience, and talent that determine the productivity of workers
In the market for labor, the monopolist:
is the sole buyer and can push wages down, below the competitive wage
A country that would be a net-importer of wine if it moved from autarky to free trade would cause what reaction
Domestic wine producers would be opposed
Laws limiting trade are often referred to as
Trade protection
A benefit that accrues without compensation to someone other than than the person who caused it is called:
an external benefit
When a negative externalities are present, it means that:
1) Individuals don’t take into account all the costs associated with their market choice
2) Society bears part of the cost borne of private transactions
3) Production and consumption is above the social optimal level
Knowing that the presence of externalities reduce surplus, it implies that
there are mutually beneficial trades waiting to be exploited so private parties have any incentive to solve the externality problem themselves
When a good ends up undersupplied, we can assume it is
a public good
Excludability matters because it
allows owners to set an enforceable price on a good
A common resource is
rival In consumption, but to excludable
Free rider enjoy:
positive externalities from others’ choices to pay for a good
In market where the tragedy of the commons arises, the equilibrium quantity Is both individually ______ and collectively ________
rational ; inefficient
Bans are applied to
1) Common-resource problems
2) reduce the inefficiency created by overuse
3) situation where the optimal quantity of consumption is zero
One of the primary aims of taxation is:
1) to increase government taxation
2 to reduce the equilibrium quantity
3) to alter the incentives of market participants
How much deadweight loss a tax causes depends on:
How responsive buyers and sellers are to a price change
The logistical costs associated with implementing a tax are called the:
Administrative burden
A public expenditure that has to be approved each year is called
discretionary spending
An example of entitlement spending is:
Social Security
When a market consists of a few large firms, it:
is likely an oligopoly
Monopolistic competition describes a market with:
Many forms that sell good and services that are similar, but slightly different
Long-run economic profits are possible in:
Oligopoly
The demand curve facing the monopolistically competitive firm is:
Flatter than that of a monopolist
Discretionary spending involved public expenditures that
have to be approved each year
The Laffer curve demonstrates that:
raising tax rates increase ten decrease tax revenues
A $0.50 tax on lemons currently generates $200 in revenues per day. If the tax were increased to $2, the revenues generated would drop to $70. This tells you that in this range of tax rates:
The quantity effect outweighs the price effect
When a tax is imposed, the surplus that is lost to buyers and sellers but converted into tax revenue is:
transferred to others through public programs
The total amount of surplus for customer and producers lost due to taxation is:
greater than the amount of revenue generated
The depletion of a common resource due to individually rational but collectively inefficient overconsumption is called:
the tragedy of the commons
One way to solve the free-rider problem is
make the good or service more excludable
A public good is:
not rival in consumption and not excludable
An example of a good that is not excludable:
fish in the ocean
Goods that are rival in consumption, but not excludable are
a common resource
When a good is rival in consumption:
one person’s consumption prevents or decease others ability to consume it.
If Pigovian tax is not large enough, the resulting:
1) outcome will not maximize surplus
2) Quantity will be too high
3) Outcome will be inefficient
The Coast theorem is the idea that:
individuals can reach an effect equilibrium through private trades, even in the presence of an externality
One way to make consumers take a positive externality into account in their demand is to
subsidize the purchase of the item
When positive externalities are present in a market, it means that
private benefits are less than social benefits
As a general rule, free trade
increases the demand for factors of production that are domestically abundant
An import quota is
a limit on the amount of a particular good that can be imported
Who is likely to be in favor of free trade in a country that would be a net-exporter if it moved from autarky to free trade?
Domestic producers
The in crease in welfare in both countries that results from specialization and trade is called:
gains form trade
the facts of production called “capital” refers to:
manufactures good that are used to procure new goods
The values of the marginal product is:
the marginal product generated by an additional unit of input ties the price of output
Human capital is defined as:
the set of skills, knowledge, experience and talent that determine the productivity of workers
In the case of borrowing in capital markets, the rental price of capital is:
the interest paid on loans
a monopsony is an example of:
buyers holding market power
a government-owned monopoly is more likely to:
1) Provide a great quantity of output than a private one
2) provide output at a lower price than a private one
3) sever public interest than maximize profit
For a monopolist, at the profit-maximizing competitive market is:
goods are standardized
Holds ture at the chosen level of output in the long runoff the firms in a perfectly competitive markey?
P=MC
P= minimum ATC
MR = MC
The increase in output that is generated by an additional unit input is called the
marginal product
When a firm can achieve economies of scale by expanding, it’s long ru ATC curve:
Slopes down
The marginal utility Gaines from the consumption of successive units of a normal good
tends to decrease
In general, the income effect of an increase in the price of a normal good
will cause the individual to buy less of the good because they have relatively less income
If the demand curve is less elastic than the supply curve, then:
the buyers will bear a greater tax incidence
An interested consequence of price ceiling is:
non-price rationing must occur, and can lead to bribes
If Bill’s reservation price on a snowboard is $250, how many snowboards world he buy if the market price of snowboards is $500?
0
Assume a market that has an equilibrium price of $7. If the price Is set at $3. what is true?
Some surplus is transferred from producers to consumers. but total surplus falls
Income elasticity will be positive for:
all normal goods
If the cross-price elasticity of two goods is 0.25, then we know that:
those goos are substitutes because their elasticity is greater than zero
John just won Megamillion Jackpot. We can assume that
His demand for all normal goods will increase
The law of supply can be states as:
All else equal, quantity supplied rises as prices rises
If society were to experience an increase in its available resource
its production possibilities frontier would shift out
When a producers has the ability to produce a good or service at a lower opportunity cost than others, economists say the producer:
Has a competitive advantage of producing that good
The assumption of rational behavior:
Helps economists explain a lot about the real world by assuming that people behave in the way that will best achieve their goals
What is an example of a positive incentive:
Discover credit cards after 0 percent balance transfer rates for someone to open an accountant.