Unit 3: Supply, Demand, Market Failures: Ch.4

Question 1

What is Total Product

Answer 1

Total quantity of good or service produced with given quantity of inputs

Question 2

Constant returns to Scale

Answer 2

Proportional increase/decrease in input = same in output

Question 3

What is Diminishing Returns

Answer 3

Increase/decrease in 1 or more inputs = Smaller proportional output

Question 4

What is Absolutely Diminishing Returns

Answer 4

increase in 1 or more input = DECREASE in output

Question 5

What is Total Revenue

Answer 5

Price per unit x Quantity Sold

Question 6

What is Marginal Cost

Answer 6

Cost of producing/consuming 1 more unit

Question 7

What is Profit

Answer 7

Total Revenue - Total Cost

Question 8

What is Opportunity Cost

Answer 8

Best alternative that is forgone when one makes a choice-what you have to give up to do something

Question 9

What is Economic Profit

Answer 9

Profit above one’s next best alternative

Question 10

What is Open Access Equilibrium

Answer 10

Point at which no further incentive to enter or exit market
NOT economically efficient
NOT ecologically sustainable

Question 11

What is Normal Profit

Answer 11

Profits are 0
Suppliers are indifferent to their current supply or next best alternative as it is the same money they would make

Question 12

What is the Economic Logic of Common Property Resources

Answer 12

-suppliers have free access to valuable resource
-underpriced resource will be overused
-resource priced at 0 will be squandered

Question 13

What is Tragedy of the Commons

Answer 13

Common Property resources are overexploited
-no desire to conserve resource
-financial incentives promote expanded exploitation

Question 14

What is Marginal Analysis

Answer 14

Compares marginal benefits to marginal costs

Question 15

When does it make sense to increase production

Answer 15

Marginal Benefit > Marginal Cost

Question 16

What is Marginal Revenue

Answer 16

Additional revenue obtained by selling 1 more unit
Change in Total Revenue/Change in Quantity

Question 17

When is Economic Efficiency reached

Answer 17

When Marginal Revenue = Marginal Cost

Question 18

Economic Efficient Outcome

Answer 18

Marginal Revenue = Marginal Cost

Question 19

What policies are used to achieve efficient outcome

Answer 19

Government Intervention
-License Fee: makes any extra production beyond efficient production unprofitable (GVT profits)
-Quota: system of limiting access to a resource through restrictions on permissible harvest (Revenues remain with producers)

Question 20

What are Individual Transferable Quotas

Answer 20

Tradeable rights to harvest a resource

Question 21

What are some solutions to managing common property

Answer 21

-Privatization
-Users collectively devise own agreement

Question 22

What are public goods

Answer 22

Available to all and not reduced by people’s use
Nonexcludable & Nonrival
-can suffer from free riders
-requires gvt involvement

Question 23

Willingness to pay for Public Good

Answer 23

Not equal to Marginal Benefit
Generally will pay LESS

Question 24

Economics of Public Goods

Answer 24

-market does not reflect preferences (rely on votes)
-taxes needed to pay for public goods

Question 25

What is the Global Commons

Answer 25

Global common property such as oceans and atmosphere