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Econ 111 > Final Review > Flashcards

Final Review Flashcards

1
Q

What will a price ceiling that is not binding do:

A

It will have no effect on the market price

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2
Q

Because it is difficult for economists to use experiments to generate data, what must they generally do?

A

To use whatever data the world gives them

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3
Q

When would demand for a good tend to be more inelastic?

A

When there are fewer available substitutes

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4
Q

When evaluating differences between similarities between increase in supply and increase of quantity supplied, what do we know?

A

The former is a shift of the curve, and the ladder is a movement along the curve.

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5
Q

What can good assumptions do?

A

They can simplify the complex world and make it easier to understand.

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6
Q

What concept does economics primarily deal with?

A

Scarcity

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6
Q

What does efficiency mean?

A

Society is gaining the most it can from it’s scarce resources.

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7
Q

How do economists compute the price elasticity of demand?

A

The percentage change in the quantity demanded divided by the percentage change in price.

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7
Q

Why do both households and societies face many decisions.

A

Resources are scarce

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8
Q

Why do economists make assumptions?

A

To make the world easier to understand

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9
Q

What does the price elasticity of demand measure?

A

How responsive buyers are to a change in price

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10
Q

There are very few if any good substitutes for motor oil, what does this imply.

A

The demand for motor oil is price inelastic

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11
Q

When is demand said to be inelastic?

A

If the quantity demanded changes only slightly when the price of good changes.

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12
Q

What is the unique point of where the supply and demand curves intersect?

A

Equilibrium

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13
Q

Which of the following is one difficulty economists face that some other scientists do not?

A

Experiments are often difficult to conduct

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14
Q

Why is the use of theory and observation more difficult in economics than in other sciences?

A

Difficult to perform experiments in a economic system

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15
Q

What is a government imposed maximum price at which a good can be sold?

A

Price ceiling

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16
Q

What is another term for equilibrium price?

A

Market clearing price

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17
Q

Recent forest fires in the western provinces are expected to cause the price of lumber to rise in the next six months. As a result, what can we expect to happen to the supply of lumber?

A

It will fall now

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18
Q

What is one definition of equity?

A

Fairness

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19
Q

When is a good not scarce?

A

If all members of society can have all they want of that good

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20
Q

Which word comes from the greek word for “one who manages the household”?

A

Economy

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21
Q

What is the role of price controls in the market economy?

A

Used by governments to reallocate resources more equitably.

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22
Q

Monopolistic competition differs from monopoly because in monopolistic competition

A

Firms are free to enter and exit

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23
Q

What is an example of a good best described as being sold in a monopolistically competitive market?

A

e.g. Fast food

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24
Q

Which of the following does not occur in perfect competition?
a) there are many buyers
b) there are significant restrictions on entry into the market
c) sellers and buyers are well informed about prices

A

b) there are significant restrictions on entry into the market

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25
Q

The automobile industry is an example of ________

A

Oligopoly

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26
Q

According to the kinked demand curve theory of oligopoly, each firm believes that if it raises its price:

A

other firms will no raise theirs

27
Q

If a perfectly competitive firm in the short run is able to pay its variable costs and part, but not all, of its fixed costs, then it is operating in the range on its marginal cost curve that is anywhere between the _________ and __________ points.

A

Shutdown; Break-even

28
Q

The maximum loss a firm will experience in the short run equals:

A

its total fixed cost

29
Q

Toronto has a large number of retail stores that sell clothes. Each store has its own characteristics which differ from the other stores. The clothing business in Toronto is an example of:

A

A Monopolistically competitive market

30
Q

The market structure in which natural or legal barriers prevent the entry of new firms and a small number of firms compete is:

A

Oligopoly

31
Q

Complete the following sentence: Marginal revenue is:

A

The change in total revenue that results from a one-unit increase in the quantity sold.

32
Q

In monopolistic competition, firms compete on the basis of:

A

Price, quality and marketing

33
Q

One factor that distinguishes a monopoly from monopolistic competition is that:

A

Close substitutes are available in monopolistic competition

34
Q

“Every time Sparrow’s Donuts has a donut sale, so does Tim Horton’s”. This phrase best describes the _____________ model of oligopoly.

A

Kinked demand curve

35
Q

A monopolistically competitive firm is able to influence the price of what it sells because of

A

product differentiation

36
Q

If a profit-maximizing monopoly is producing an output at which marginal cost exceeds marginal revenue, it should:

A

should raise price and decrease output

37
Q

Why might only a few firms dominate an oligopolistic industry?

A

A natural or legal barrier to entry exists.

38
Q

True or False: In monopolistic competition, firms practice product differentiation

A

TRUE

39
Q

If a firm faces a perfectly elastic demand for its product, then its ____________ curve is horizontal at the market price.

A

marginal revenue

40
Q

In a perfect competitive market, the market demand curve is illustrated by a ______________ curve

A

Downward-sloping

41
Q

A cartel is:

A

An arrangement among firms to reduce output and raise prices

42
Q

A monopolist under rate of return regulation has an incentive to:

A

pad costs

43
Q

TRUE OR FALSE: If a perfectly competitive firm is producing in the short run at an output where price is less than average total cost, the firm is incurring an economic loss, but will continue to operate as long as price is above minimum average fixed cost.

A

False; would be true if minimum average variable cost

44
Q

What would be an optimal tax on pollution (a negative externality)

A

One for which producers internalize the cost of pollution

45
Q

What is the effect of a negative externality?

A

It is an adverse impact on a bystander

46
Q

What results when a good is not excludable?

A

The free rider problem prevents the private market from supplying the good.

47
Q

Fish in the ocean are considered as what type of good.

A

Common resource good

48
Q

What is an example of a negative externality?

A

e.g. College student, listening to his music at 2 am bothering people

49
Q

What characteristic do public goods and common resources have in common

A

Both Non-excludable

50
Q

Why does excessive fishing occur?

A

Each individual fisherman has little incentive to maintain the species for next year.

51
Q

What will arise when negative externalities are present in a market

A

Social costs will be greater than private costs

52
Q

When are externalities present in a market?

A

Whenever private costs differ from social costs.

53
Q

If the use of a common resource is not regulated?

A

Overused

54
Q

What is the greatest difficulty with cost benefit analysis of a public project.

A

Determining the value or benefit of the project.

55
Q

A fertilizer plant omits a very foul odor during the production process. If the government forces the plant to internalize this negative externality what would result.

A

Supply curve for fertilizer would shift to the left (up)

56
Q

Under what condition does a negative production externality occur?

A

The equilibrium quantity of output is greater than the socially optimal quantity.

57
Q

In which of the following goods does the free-rider problem exist?
a) fire protection
b) knowledge
c) cable TV
d) congested toll roads

A

b) Knowledge

58
Q

How can the government internalize a positive externality

A

By subsidizing production which would increase supply

59
Q

When does an externality exist

A

When a person engages in a activity that influences the wellbeing of a by stander, and yet neither receives or pays for that effect

60
Q

Why do elephants face the threat of extinction while cows do not?

A

Cattle are owned by ranchers, elephants are owned by no one

61
Q

What goods would be considered both excludable and rival in consumption

A

Private goods

62
Q

What will a positive externality cause a private market to produce.

A

Less than is socially desirable

63
Q

Under what conditions is a market effected by a positive externality.

A

The optimum level of output is greater than the free market level of output and the optimum price is less than the free market price.

64
Q

As with many public goods, determining the appropriate level of government support for the production of general knowledge is difficult. Why?

A

Benefits are hard to measure.

65
Q

In recognition of the overfishing that resulted from unregulated access to the Atlantic cod fishery, what did Canada implement to initiate a quota system?

A

Implementing total allowable catch limits based on the concept of maximum sustainable yield

66
Q

When does the Tragedy of the Commons result?

A

When a good is rival in consumption and not excludable.

Econ 111 (2 decks)

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