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Economics- sem2 > Textbook keywords > Flashcards

Textbook keywords Flashcards

1
Q

Price ceiling

A

A legal maximum on the price at which a good can be sold

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2
Q

Price floor

A

A legal minimum on the price at which a good can be sold

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3
Q

tax incidence

A

The manner in which the burden of tax is shared among the participants in a market

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4
Q

Welfare economics

A

The study of how the allocation of resources affects economic well being

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5
Q

Willingness to pay

A

The max amount the buyer will pay for that good and measures how much that buyer values the good

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6
Q

Consumer surplus

A

measures the benefits participating in the market
the amount a buyer is willing to pay minus the amount the buyer pays for it

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7
Q

The consumer surplus represents

A

The area below the demand curve and above the price level

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8
Q

Producer surplus

A

measures the benefits sellers receive from participating in a market
amount a seller is paid minus the cost of production

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9
Q

total surplus

A

consumer surplus plus producer surplus, a measure of society’s economic well being

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10
Q

cost

A

value of everything a seller must give up to produce a good

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11
Q

efficiency

A

maximising the total surplus/ getting the max amt of benefits from the scarce resources

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12
Q

equality

A

shows how the resources are divided among the members of a society

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13
Q

Internalizing the externality

A

altering incentives so that people take into account the external effects of their actions

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14
Q

Market based policy:

A

Corrective taxes and subsidies
Tradable pollution permits

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15
Q

Corrective taxes

A

taxes enacted to deal with the effects of externalities (an ideal one = external benefit/ cost)

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16
Q

Corrective tax is better than regulations due to ____________

A

a lower cost to the society

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17
Q

How are corrective taxes diff from other taxes?

A

They do not distort incentives and move the allocation of resources away from the social optimum. In fact, they move the allocation of resources closer to the social optimum, raising revenue for the govt, enhance economic efficiency

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18
Q

Why is gasoline taxed so heavily ?

A

Congestion/ accidents and pollution

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19
Q

Using corrective tax, the supply curve

A

is perfectly elastic as firms can pollute as much as they want by paying tax

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20
Q

Using pollution permits, the supply curve is

A

perfectly inelastic as the quantity of pollution is fixed by the number of permits

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21
Q

The types of private solutions to solve externalities

A
  1. moral codes and social sanctions
  2. charities
  3. involve in multiple types of business
  4. get the interested parties to enter into a contract
  5. merge businesses together
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22
Q

Transaction costs

A

costs that parties incur in the process of agreeing to and following thru on a bargain

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23
Q

Why private solutions don’t work?

A
  1. Bargaining simply breaks down
  2. the num of interested parties is too large, and coordinating becomes costly
  3. transaction costs occur
24
Q

Common resources

A

are rival in consumption but not excludable (e.g. fish in ocean)

25
Q

Club goods

A

are excludable but not rival in consumption (e.g. satellite TV)

26
Q

Free rider

A

a person who receives the benefit of a good without paying for it

27
Q

some important public goods

A

national defense, basic research, fighting poverty

28
Q

Cost-benefit analysis

A

an estimation to measure the total costs and benefits of the project to society as a whole

29
Q

some important common resources

A

clean air and water
congested roads
fish, whales and other wildlife

30
Q

toll

A

a corrective tax on the externality of congestion

31
Q

Markets work best for which type of goods

A

Private goods

32
Q

How to limit the use of common resources ?

A

use regulations and corrective tax

33
Q

Total revenue

A

The amount that the firm receives for the sale of its output

34
Q

Total cost

A

The amount that firm pays to buy inputs

35
Q

Profit

A

total revenue- total cost

36
Q

explicit cost

A

costs that require firm to pay out some money

37
Q

implicit cost

A

costs that do not require a cash outlay

38
Q

Economic profit

A

total revenue - (implicit and explicit cost)

39
Q

Accounting profit

A

total revenue- explicit cost

40
Q

Economic profit is always __________ than accounting profit

A

smaller

41
Q

As the number of workers increases, the marginal product ___________

A

declines

42
Q

Diminishing marginal product

A

The marginal product of an input declines as the quantity of that input increases

The production function getting flatter, total cost curve getting steeper

43
Q

Fixed costs

A

do not vary with the quantity of output produced

44
Q

Variable costs

A

changes as the firms alters the quantity of output produced

45
Q

Marginal cost

A

The increase in total cost that arises from an extra unit of production

46
Q

Many costs are _________ in the short run but ___________ in the long run.

A

fixed, variable

47
Q

Economies of scale

A

long run average total cost rises as output increases

48
Q

Diseconomies of scale

A

long run average total cost declines as output increases

49
Q

Constant returns to scale

A

Long run average total cost does not vary with the level of output

50
Q

Efficient scale

A

The quantity of output that minimizes average total cost

51
Q

Asymmetric information

A

some people are better informed than others

52
Q

moral hazard

A

tendency of a person who is imperfectly monitored to engage in dishonest/ undesirable behavior

53
Q

adverse selection

A

problem arising when sellers know more compared to buyers. Thus buyers run a risk of being sold a good of low qty

54
Q

Ways used to tackle asymmetric information

A

signalling and screening

55
Q

How are people not rational at times?

A

overconfidence, give too much weight to a small num of vivid observations, reluctance to change minds (confirmation bias)

55
Q

How are people not rational at times?

A

overconfidence, give too much weight to a small num of vivid observations, reluctance to change minds (confirmation bias)

56
Q

Are economic models meant to replicate reality ?

A

False, instead showing the essence of the problem at hand

Economics- sem2 (4 decks)

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