micro exam 3

Question 1

private goods

Answer 1

excludable and rival

car, ice cream cones, clothing, congested toll roads

Question 2

public goods

Answer 2

not excludable and not rival

tornado siren, national defense, non-toll uncongested roads, park

Question 3

common resources

Answer 3

not excludable and rival

fish in ocean, fountain, environment

Question 4

club goods

Answer 4

excludable and not rival

satellite TV, Netflix, fire protection, uncongested toll roads

Question 5

externality

Answer 5

impact of one person’s actions on the well being of a bystander

negative: pollution, barking dogs, ugly houses
positive: restored buildings, vaccines, research

Question 6

optimum

Answer 6

maximize the total welfare, smaller than market equilibrium quantity

Question 7

how does the government correct market failure

Answer 7

internalizing the externality

incentives to people so they take account of external effects of their actions

Question 8

patent law

Answer 8

protects rights of inventors from exclusive use of their inventions for a period of time

Question 9

command and control policies

market-based policies

Answer 9

• regulate behavior directly

- uses an incentive to solve the problem on their own

Question 10

free rider

Answer 10

person receives benefit from a good but avoids paying for it

Question 11

excludability

rivalry

Answer 11

• property of a good, person can be prevented from using it

- property of a good, one person’s use diminishes other’s use

Question 12

marginal tax rate

Answer 12

tax applied to each additional dollar of income

Question 13

excise taxes

Answer 13

taxes on specific goods

Question 14

deadweight loss

Answer 14

government taxes a good, people buy less of it

people respond to incentives

Question 15

lump sum taxes

Answer 15

same amount to each person, most efficient, no equity

Question 16

industrial organization

Answer 16

study how firm’s decision about prices and quantities depend on market conditions they face

Question 17

assumption

Answer 17

goal of firm is max profit

Question 18

explicit costs

implicit costs

Answer 18

• get a receipt, require an outlay of money by firms, a transaction
• opportunity cost, no outlay of money, ignored by accountants
  total costs = explicit + implicit

Question 19

production function

Answer 19

relationship between quantity of inputs used and quantity of output of that good, flatter as production rises

Question 20

marginal product

Answer 20

increase in output that arises from additional units of inputs, slope of production function

Question 21

diminishing marginal product

Answer 21

• marginal product of input declines as quantity of input increases
• production function gets flatter as more inputs are being used

Question 22

fixed cost
variable cost
total cost

Answer 22

• costs do not vary with quantity of output produced, can change overtime, but not with output. ex: rent, salaries, cost of supplies
• cost vary with quantity output produced. ex: ingredients, salary by the hour, nights at a hotel
• fixed + variable

Question 23

average fixed cost

average variable cost

Answer 23

• fixed divided by the quantity of output

- variable divided by the quantity of output

Question 24

marginal cost

Answer 24

cost to make one more unit

change of total cost over change of output

Question 25

average total cost

Answer 25

total divided by output

Question 26

decisions in short and long run

Answer 26

fixed in the short run | variable in the long run

Question 27

economies of scale constant returns to scale diseconomies

Answer 27

- long run average total cost falls as quantity of output increases, specialization - long run average total costs stays the same as quantity output changes - long run average total cost rises as quantity output increases, coordination problems

Question 28

when does an external cost occur

Answer 28

the production or consumption of some good or service inflicts cost on a third party without compensation

Question 29

the federal healthcare spending program that specifically targets the poor

Answer 29

medicaid

Question 30

what do externalities consists of

Answer 30

both external costs and external benefits

Question 31

when does an external benefit occur

Answer 31

some of the benefits derived from the production or consumption of some good or service are enjoyed by a third party

Question 32

the tragedy of the commons happens when a growing number of sheep on the town leads to a destruction of the grazing resource. how to correct this problem

Answer 32

auction off a limited number of sheep grazing permits

Question 33

why do some policymakers support a consumption tax rather than in income tax

Answer 33

a consumption tax encourages people to save earned income

Question 34

as output rises the difference between ATC and AVC

Answer 34

falls

Question 35

when the production function is at its peak, marginal output is

Answer 35

zero

Question 36

when AVC is rising, ATC

Answer 36

may be rising

Question 37

when output rises AFC

Answer 37

must fall

Question 38

ATC is 100, MC is 90, and AVC is 80

Answer 38

ATC is falling and AVC is rising

Question 39

ATC is 100, MC is 80, and AVC is 90

Answer 39

ATC is falling and AVC is falling

Question 40

in the short run when output is zero

Answer 40

total cost is equal to fixed cost

Question 41

when MC is rising but still below AVC

Answer 41

AVC is declining