Midterm

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

Static Efficiency

Answer 3

An allocation of resources is said to satisfy the static efficiency criterion if the economic surplus derived from those resources is maximized by that allocation

Question 4

Consumer Surplus

Answer 4

The value that consumers receive from an allocation minus what it costs them to obtain it. Consumer surplus is measured as the area under the demand curve minus the consumer’s cost

Question 5

Producer Surplus

Answer 5

The difference between the amount that a seller receives minus that the seller would be willing to accept for the good; the area under the price line that lies over the marginal cost curve

Question 6

Externalities

Answer 6

Exist whenever the welfare of some agent depends not only on his or her activities, but also on activities under the control of some other agent

Question 7

External cost

Answer 7

External diseconomy; it imposes costs on a third party

Question 8

External benefit

Answer 8

External economy; it imposes benefits on a third party

Question 9

Property Rights

Answer 9

A bundle of entitlements defining the owner’s rights, privileges, and limitations for use of the resource

Question 10

State-Property Regimes

Answer 10

Governments own and control property

Question 11

Common-Property Regimes

Answer 11

Property is jointly owned and managed by a specific group

Question 12

Res Nullius/ Open Access Regimes

Answer 12

No one owns or exercises control over the resources

Question 13

Common-Pool Resources

Answer 13

Shared resources characterized by nonexclusively and divisibility (nonexclusively = resources can be exploited by anyone) (divisibility = the capture of part of the resource by one group subtracts it from the amount available to other groups)

Question 14

Public Goods

Answer 14

Both consumptively indivisible and nonexcludable (nonexcludability = a circumstance where, once a resource is provided, even those who fail to pay for it cannot be excluded from enjoying the benefits it confers) (Consumption is said to be indivisible when one person’s consumption of a good does not diminish the amount available for others)

Question 15

Monopoly

Answer 15

When product is sold by a single seller; will supply too little of a good at too high a price; marginal benefits > marginal costs, so net benefits are not maximized and there is a deadweight loss

Question 16

Cartel

Answer 16

A group of producers who form a collusive agreement to gain monopoly power

Question 17

Free Rider

Answer 17

Someone who derives benefits from a commodity without contributing to its supply

Question 18

Asymmetric Information

Answer 18

When one or more parties have much more information that the others. Creates problems for the market when it results in a decision-maker knowing too little to make an efficient choice

Question 19

The Coase Theorem

Answer 19

When negotiation costs are negligible and affected parties can freely negotiate, the entitlement can be allocated by the courts to either party and an efficient allocation will result. Only the distribution of costs and benefits among the effective parties is changed

Question 20

The Efficiency Equimarginal Principle

Answer 20

Net benefits are maximized when the marginal benefits from an allocation equal the marginal costs

Question 21

Dynamic Efficiency

Answer 21

An allocation of resources across n time periods satisfies the dynamic efficiency criterion if it maximizes the present value of the net benefits that could be received from all the possible ways of allocating those resources over the n time periods

Question 22

Depletable Resource

Answer 22

Not naturally replenished or is replenished at such a low rate that it can be exhausted

Question 23

Recyclable Resource

Answer 23

Has some mass that can be recovered after use; ie copper

Question 24

Renewable Resource

Answer 24

One that is naturally replenished; ie water, fish, forests, solar energy

Question 25

Switch Point

Answer 25

The transition point to the renewable substitute; at this point, the total marginal cost of the depletable resource equals the marginal cost of the substitute