Final exam part 1

Question 1

Closed system

Answer 1

a system where there are no inputs and no outputs of energy and matter from outside the system

Question 2

open system

Answer 2

a system which imports or exports energy or matter from outside

Question 3

positive economics

Answer 3

describing what is, what was, and what will be

Question 4

normative economics

Answer 4

attempting to answer what ought to be

Question 5

willingness to pay

Answer 5

reflects the “value”–> what an indiv. is willing to sacrifice

Question 6

Willingness to pay or demand price for an additional unit is a measure of the…

Answer 6

marginal benefit from the unit

Question 7

How can we allocate resources efficiently

Answer 7

by maximizing social welfare: maximized economic surplus= sum of consumer surplus and producers surplus

Question 8

consumer surplus

Answer 8

measure of the net benefits accrued by buyres over all units purchased

Question 9

producer surplus

Answer 9

measure of the net gains received by sellers over all units sold

Question 10

social welfare equation

Answer 10

SW=CS + PS

Question 11

in a competitive equilibrium, social welfare is…

Answer 11

maximized

Question 12

Pareto optimal

Answer 12

allocations are pareto optimal if no other feasible allocation could benefit at least one more person without any deleterious effects on some other person

Question 13

efficient and welfare maximizing outcomes occur even though C and P behave in self interest=

Answer 13

invisible hand

Question 14

market failure

Answer 14

violation of any underlying assumptions and an inefficient allocation of resources
- indiv. incentives no longer lead to the efficient outcome

Question 15

conditions for markets to produce efficient allocations (8)

Answer 15

• markets exist for all goods and services P + C
• perfectly competitive markets
• transactions have perfect info.
• private property rights fully assinged in all resources and commodities
• no extenalities
• goods and serivces are private goods
• all utility and production functions are well-behaved
• all agents and maximizers

Question 16

Market failures

Answer 16

• externalities
• public goods
• imperfect comp.
• imperfect info.
• inappropriate govt intervention

Question 17

property rights and environmental problems

Answer 17

for env. goods it is often unclear who owns the rights

Question 18

efficient property right structures (3)

Answer 18

exclusivity, transferability, enforceability

Question 19

exclusivity

Answer 19

all benefits and costs should only accrue to the owner

Question 20

transferability

Answer 20

property rights should be transferred to others

Question 21

enforceability

Answer 21

property rights should be secure from seizure or encorachment

Question 22

if price fails to capture all benefits and costs=

Answer 22

market failure

Question 23

negative externalities create a divergence between…

Answer 23

private and social costs equal to the external cost

Question 24

Market equilibrium=

Answer 24

when MC=MB

Question 25

as long as costs are external,

Answer 25

no incentive for firms to produce less pollution per unit of output

Question 26

public goods

Answer 26

consumptively indivisible, non rival and nonexcludable

Question 27

private goods question

Answer 27

what Q would you consume at each P? then sum up all Qs for each P

Question 28

public good question

Answer 28

what price would you be willing to pay for each quantity of the public good? and then sum up all WTP values for each Q