II.D and IV. A Exam

Question 1

externality

Answer 1

a cost or a benefit that arises from

1. production that falls on someone other than the producer
2. consumption that falls on someone other than the consumer

Question 2

negative externality

Answer 2

a production or consumption activity that creates an external cost

Question 3

positive externality

Answer 3

a production or consumption activity that creates an external benefit

Question 4

what are the four types of externalities

Answer 4

1. negative production externalities
2. positive production externalities
3. negative consumption externalities
4. positive consumption externalities

Question 5

marginal private cost

Answer 5

the cost of producing an additional unit of a good or service that is borne by the producer of that good or service

Question 6

marginal external cost

Answer 6

the cost of producing an additional unit of a good or service that falls on people other than the producer

Question 7

marginal social cost

Answer 7

marginal cost incurred by the entire society- by the producer and by everyone else on whom the cost falls

Question 8

what is the equation for marginal social cost

Answer 8

MSC = MC + marginal external cost

Question 9

coase theorem

Answer 9

the proposition that if property rights exist, only a small number of parties are involved, and transactions costs are low, then private transactions are efficient and the outcome is not affected by who is assigned the property right

Question 10

marginal private benefit

Answer 10

the benefit of an additional unit of a good or service that the consumer of that good or service recieves

Question 11

marginal external benefit

Answer 11

the benefit of an additional unit of a good or service that people other than the consumer of the good or service enjoy

Question 12

marginal social benefit

Answer 12

the marginal benefit enjoyed by society-by the consumers of a good or service and by everyone else who benefits from it.

Question 13

what is the equation of marginal social benefit?

Answer 13

MSB = MB + marginal external benefit

Question 14

deadweight loss

Answer 14

losses associated with quantities of output that are greater than or less than the efficient level, as can result from market intervention such as taxes, or from externalities such as pollution

Question 15

what are the 5 characteristics of an oligopoly?

Answer 15

1. few large producers
2. homogeneous or differentiated products
3. control over price (mutual interdependence, strategic behavior)
4. entry barriers
5. mergers

Question 16

dominant strategy

Answer 16

the best move to make regardless of what your opponent does

Question 17

4 characteristics of monopolistic competition

Answer 17

1. large number of sellers (no collusion, independent action, small market shares)
2. differentiated products
3. easy entry and exit
4. need for advertising (nonprice competition)

Question 18

the demand curve of monopolistic competition is what?

Answer 18

highly elastic

Question 19

is monopolistic competition efficient?

Answer 19

no it is inefficient

Question 20

what does a game theory consist of?

Answer 20

1. 2 competitors
2. 2 price strategies
3. each strategy has a payoff matrix
4. greatest combined profit
5. independent actions stimulate response

Question 21

what is collusion

Answer 21

collusion takes place within an industry when rival companies cooperate for their mutual benefit.

Question 22

why is collusion not legal?

Answer 22

because it creates an incentive to cheat