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unit 5 + everything Flashcards

1
Q

short run has

A

at least one fixed input

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2
Q

what is happening to the short runs returns to labor

A

increasing or diminishing

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3
Q

what happens to MC when short run returns are increasing

A

MC is falling

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4
Q

what happens to MC when short run returns are diminishing

A

MC is rising

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5
Q

are returns to scale relevant in the short run

A

no

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6
Q

what happens to LRATC curve in the long run if there is increasing return to scale

A

LRATC falling

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7
Q

what happens to LRATC curve in the long run if there is decreasing return to scale

A

LRATC rising

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8
Q

characteristics for monopolistic competition

A
  • price makers
  • Demand does not equal MR
  • low barriers
  • zero economic profit in long run
  • differentiated products.
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9
Q

if in perfect comp and monopolistically competitive, of the firm is making profit they are in the

A

short run because in the long run they have zero profits

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10
Q

what happens when firms enter the market in long run

A
  • profits become zero
  • does not shift ATC but shifts Demand down because more firms entering means more substitutes
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11
Q

positive externality

A

generates benefits for others not involved
- good but still lead to market failure

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12
Q

negative externality

A

impose costs on others not involved

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13
Q

what are externality’s

A

a side effect on a bystander whose interests aren’t fully taken into account
- lead to market failure, producing inefficient outcomes that aren’t in society’s best interest

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14
Q

marginal private cost

A

the cost to a firm of producing one extra unit

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15
Q

Marginal social cost

A

the cost that society pays as a result of the production of additional units or utilization of a good or service

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16
Q

Marginal private benefit

A

refers to the extra gains that buyers enjoy from each unit they purchase

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17
Q

marginal social benefit

A

the change in benefits associated with the consumption of an additional unit of a good or service to society

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18
Q

what is the socially optimal quantity

A

the quantity that’s most efficient for society as a whole, taking account of all the costs and all the benefits, whether they accrue to buyers, sellers, or bystanders

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19
Q

profit maximizing point in externalities is where

A

MSC = MSB

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20
Q

how does the government solve negative externalities

A

by taxation, regulation, and stronger environmental policies

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21
Q

how does the government solve positive externalities

A

by subsidizing goods

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22
Q

characteristics of a public good

A
  1. non-excludable
  2. shared consumption (non-rival)
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23
Q

why is there no profit in public goods for firms

A

the free rider problem

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24
Q

what is the free rider problem

A

when someone enjoys the benefits of something without contributing to its production

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25
what is a rival good and an example
a good that gets used up as it is consumed, example is cookie
26
what is a non rival good and an example
A good that can be consumed or possessed by multiple users - basically countless consumers can consume the product at the same time - music streaming
27
what is the MC of production for non rival goods and why
0 because you can have countless people enjoying the good at the same time
28
what is an excludable good and example
when its possible to prevent people from enjoying a good if they haven't paid for it -concerts
29
what are non excludable goods and example
goods that can be enjoyed without paying for them -fireworks
30
why is free rider a problem
- causes goods to be underproduced, demand would be very low because people don't have the incentive to purchase the good if they can enjoy it without paying for it
31
characteristics of a private good + examples
1. rival 2. excludable - phone
32
what is true in a positive externality
MSB>MPB
33
if the cost of the private is greater then the benefit of the social is
also greater
34
taxes designed to reduce external costs are called
Pigouvian taxes
35
what external benefit occurs when knowledge is spread among firms and individuals
technology spillover
36
private benefits are
benefits that directly affect those who purchase and use a good
37
external benefits are
the benefits that another person who isn't the buyer or seller gets
38
what is a payment designed to encourage purchases and activities that yield external benefits
pigouvian subsidies
39
MSB=
MPB + MEB
40
an efficient pigouvian subsidy is equal to the goods
marginal external benefit
41
if MSB>MPB the government should tax or subsidize
subsidize
42
if MSC > MPC the gov should tax or subsidize
a per unit tax
43
what does eliminating deadweight loss mean
when you have to alter the incentives of producers to produce a good
44
why do lump sum taxes not eliminate DWL
they have no effect on MC, only on ATC so they have no effect on a firms decision to produce
45
common resources are
rival and non excludable
46
free riding can occur if a good is
non excludable and non rival
47
what is the coase theorem in the presence of external costs in production
under certain conditions, private parties can arrive at the efficient solution without government involvement.
48
in a positive externality what are the market equillirbium and socially optimal quantity like
market equilibrium < socially optimal thus subsidize to fix it
49
in a negative externality, what are the market equilibrium and socially optimal quantity like
market equilibrium > socially optimal thus taxation or regulate to fix it
50
what happens in a per unit tax for externalities
MC shifts left
51
what happens in a lump sum tax
ATC shifts upward
52
what happens in a per unit subsidy
MC shifts right
53
what happens in a lump sum subsidy
ATC shifts down
54
What type of regulations can the government do to fix externalities
quotas, price ceilings and price floors, and restrictions on production
55
what is tragedy of commons
When a good is non excludable and occurs when individuals overuse a shared resource for personal gain, leading to depletion ex. no one can be excluded from fishing for tuna, but they are rival — for every tuna caught, there is one less for everyone else
56
what are the identification steps for an externality
1. Production of consumption 2. negative or positive 3. DWL always pointed towards socially optimal
57
a production externality shifts what curve
S=MSC=MPC
58
a consumption externality shifts what curve
D=MPB=MSB
59
how do you find the wage a factor market would pay at
where MRC/MFC=MRP DOWN to the supply curve
60
what does it mean if the Lorenz curve to bow outward
the distribution of the country's income has become more unequal
61
sales tax are an example of what type of tax
regressive tax because they tax a larger income percentage from the poor than the rich
62
what does a lower gini coefficient mean
more equal income distribution
63
what does a higher gini coefficient mean
larger tax gap between the rich and poor
64
what does a progressive tax do
decreases the gap between rich and poor and decreases the country's gini coefficient, making income distribution more equal taxes are higher % on people earning a higher income (reduces income inequality) lower tax rate on low-income earners and a higher tax rate on those with a higher income.
65
what does rational ignorance mean
intentionally choosing to remain uninformed on a topic because the cost of acquiring the information is greater than the estimated potential benefits
66
where is the profit maximizing quantity for an unregulated monopolist
67
what does a per unit tax look like on a monopolist graph
MC shifts up
68
what shifts a ppc graph outward
Increases in the quantity or quality of resources
69
what is the effect of an outward PPC shift
makes it possible to produce greater quantities of both goods.
70
what shifts the PPC inward
Decreases in the quantity or quality of resources
71
what is the effect of an inward PPC shift
decreases the possible production of both goods.
72
when stating how you know what type of externality it is what should you say
Positive: MSB>MPB Negative: MSC>MPC
73
where do you put a price ceiling on a monopolistic competition
where D = MC, horizontal lines that passes through that point the ceiling become the MR curve
74
what effect does a price ceiling on monopolistic competition have on price and quantity
price and qunaityt decrease
75
what effect does a price floor have on a monopsony
wages and workers go up
76
what does a regressive tax do
 taxes are lower % on people earning a higher income (increases income inequality)
77
what effect does world price have on total economic surplus
increases
78
what does a quota do
places a limit on the amount of good that can be imported supply shifts right
79
what effect does a quota have on total economic surplus
quotas limit trade, decrease economic surplus, and create deadweight loss
80
what does a tariff do
a tax on imports
81
what effect does a tariff have on total economic surplus
tariffs decrease trade, decrease economic surplus, and create deadweight loss

AP Micro (6 decks)

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