modul 8 Flashcards
Economists assume that people act as if they have __ in their heads with which to draw marginal benefit and marginal cost curves.
numerical scales
The additional benefit and the additional cost of another unit of the activity are considered at the _
margin
Models in economic analysis are different from the ______ world.
real
How can the marginal decision rule be used to determine the quantity of an activity that maximizes net benefit?
By finding the point where marginal benefit equals marginal cost, the quantity of an activity that maximizes net benefit can be determined.
What is net benefit and how is it calculated?
Net benefit is the difference between total benefit and total cost. It is calculated by subtracting the total cost from the total benefit.
How do consumers and firms maximize net benefit?
By evaluating each activity at the margin and considering the additional benefit and cost of another unit
What is the concept used to determine the quantity of an activity that maximizes net benefit?
Marginal benefit
What is the relationship between marginal benefit and marginal cost?
They can be equal or marginal benefit can be greater than marginal cost.
What is the maximization assumption made by economists in explaining consumer and firm behavior?
Consumers and firms always maximize their profits
What are the concepts of marginal benefit and marginal cost?
Marginal benefit is the additional benefit gained from consuming or producing one more unit of a good or service, while marginal cost is the additional cost incurred from consuming or producing one more unit of a good or service.
How can the concepts of marginal benefit and marginal cost be applied to understand the marginal decision rule?
The marginal decision rule states that individuals should continue consuming or producing a good or service as long as the marginal benefit exceeds the marginal cost.
What is the net benefit of an activity?
The total benefit of the activity minus its opportunity cost
Models in economic analysis are simplified representations of the __ world.
real
What assumption do economists make when explaining consumer and firm behavior?
People act as if they have numerical scales in their heads to draw marginal benefit and marginal cost curves.
How is net benefit calculated?
Net benefit is calculated by subtracting the total cost of an activity from its total benefit.
What assumption do economists make about consumer and firm behavior?
Consumers seek to maximize utility and firms seek to maximize economic profit
The marginal cost curve for an activity rises as the ______ marginal benefits are likely to be.
forgone
What is the relationship between total benefit and marginal benefit?
Total benefit is always greater than marginal benefit
The free rider problem occurs with _ goods, where individuals can benefit from the good without contributing to its production.
public
What are the conditions that may lead to market failure?
External costs and benefits
What is the concept of market failure?
The inability of the market to allocate resources efficiently
The conditions that may lead to market failure can _
vary
What is the role of government intervention when external costs and benefits are present?
Government intervention is necessary to address external costs and benefits by implementing regulations, taxes, subsidies, or other policies to internalize the externalities and ensure efficient allocation of resources.
What is a free rider?
A person or firm that consumes a public good
What is an external cost?
A cost imposed on others outside of any market exchange
What conditions may lead to market failure?
Market failure may occur if markets are not competitive or if property rights are not well defined and fully transferable.
Why is a common property resource unlikely to be allocated efficiently in the marketplace?
Because the cost of an extra household is zero
What is an external benefit?
A benefit imposed on others outside of any market exchange
What are external costs and benefits?
External costs are costs imposed on third parties as a result of an economic activity, while external benefits are benefits received by third parties as a result of an economic activity.
What are free riders?
People or firms that consume a public good without paying for it
What is the difference between private goods and public goods?
Private goods are excludable and rivalrous, meaning they can be owned and consumed exclusively by individuals. Public goods are non-excludable and non-rivalrous, meaning they are available to everyone and consumption by one individual does not reduce availability to others.
External costs occur when firms generate costs that are not reflected in their _ costs.
private
What is market failure?
A situation where the market is unable to allocate resources efficiently
What is a public good?
A good for which the cost of exclusion is prohibitive and for which the marginal cost of an additional user is zero
What are examples of public goods?
Examples of public goods include national defense, law enforcement, fire protection, and efforts to preserve endangered species.
______ goods are rivalrous and excludable
private
A government agency may impose limits on the killing of an animal or destruction of its habitat to prevent the excessive ______ of a common property resource.
private use
What is utility in economics?
The satisfaction or happiness that a consumer derives from consuming a good or service
What is the difference between total utility and marginal utility?
Total utility measures the total satisfaction from consuming all units of a good, while marginal utility measures the satisfaction from consuming one additional unit of a good
What is total utility?
The number of units of utility gained from consuming a given quantity of a good
Utility is defined as the __ derived from consuming a good or service
satisfaction
What is the definition of utility in economics?
Utility in economics refers to the satisfaction or happiness that a consumer derives from consuming a good or service.
What is the utility-maximizing condition?
The utility-maximizing condition is when a consumer allocates their income in a way that the marginal utility per dollar spent is equal for all goods and services.
What is the relationship between total utility and quantity consumed?
Total utility increases at a decreasing rate as quantity consumed increases
Goods must be ______ in order to apply the marginal decision rule to utility maximization.
divisible
What are the limitations of measuring utility?
Measuring utility is subjective and varies from person to person. It is also difficult to quantify utility numerically.
Utility is maximized when total outlays equal the ______ available.
budget
What is the relationship between marginal utility and quantity consumed?
Marginal utility decreases as quantity consumed increases
The marginal decision rule states that an activity should be expanded if its marginal benefit exceeds its ______.
marginal cost
______ is the amount by which total utility rises with consumption of an additional unit of a good, service, or activity.
Marginal utility
What is the law of diminishing marginal utility?
The law of diminishing marginal utility states that as a consumer consumes more units of a good, the additional satisfaction or utility derived from each additional unit decreases.
According to the reading, what is utility in economics?
The measure of how much a consumer enjoys consuming a good or service
