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AP Micro > unit 5 + everything > Flashcards

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
Q

what is a rival good and an example

A

a good that gets used up as it is consumed, example is cookie

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26
Q

what is a non rival good and an example

A

A good that can be consumed or possessed by multiple users
- basically countless consumers can consume the product at the same time
- music streaming

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27
Q

what is the MC of production for non rival goods and why

A

0 because you can have countless people enjoying the good at the same time

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28
Q

what is an excludable good and example

A

when its possible to prevent people from enjoying a good if they haven’t paid for it
-concerts

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29
Q

what are non excludable goods and example

A

goods that can be enjoyed without paying for them
-fireworks

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30
Q

why is free rider a problem

A
  • 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
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31
Q

characteristics of a private good + examples

A
  1. rival
  2. excludable
    - phone
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32
Q

what is true in a positive externality

A

MSB>MPB

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33
Q

if the cost of the private is greater then the benefit of the social is

A

also greater

34
Q

taxes designed to reduce external costs are called

A

Pigouvian taxes

35
Q

what external benefit occurs when knowledge is spread among firms and individuals

A

technology spillover

36
Q

private benefits are

A

benefits that directly affect those who purchase and use a good

37
Q

external benefits are

A

the benefits that another person who isn’t the buyer or seller gets

38
Q

what is a payment designed to encourage purchases and activities that yield external benefits

A

pigouvian subsidies

39
Q

MSB=

A

MPB + MEB

40
Q

an efficient pigouvian subsidy is equal to the goods

A

marginal external benefit

41
Q

if MSB>MPB the government should tax or subsidize

A

subsidize

42
Q

if MSC > MPC the gov should tax or subsidize

A

a per unit tax

43
Q

what does eliminating deadweight loss mean

A

when you have to alter the incentives of producers to produce a good

44
Q

why do lump sum taxes not eliminate DWL

A

they have no effect on MC, only on ATC
so they have no effect on a firms decision to produce

45
Q

common resources are

A

rival and non excludable

46
Q

free riding can occur if a good is

A

non excludable and non rival

47
Q

what is the coase theorem in the presence of external costs in production

A

under certain conditions, private parties can arrive at the efficient solution without government involvement.

48
Q

in a positive externality what are the market equillirbium and socially optimal quantity like

A

market equilibrium < socially optimal
thus subsidize to fix it

49
Q

in a negative externality, what are the market equilibrium and socially optimal quantity like

A

market equilibrium > socially optimal
thus taxation or regulate to fix it

50
Q

what happens in a per unit tax for externalities

A

MC shifts left

51
Q

what happens in a lump sum tax

A

ATC shifts upward

52
Q

what happens in a per unit subsidy

A

MC shifts right

53
Q

what happens in a lump sum subsidy

A

ATC shifts down

54
Q

What type of regulations can the government do to fix externalities

A

quotas, price ceilings and price floors, and restrictions on production

55
Q

what is tragedy of commons

A

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
Q

what are the identification steps for an externality

A
  1. Production of consumption
  2. negative or positive
  3. DWL always pointed towards socially optimal
57
Q

a production externality shifts what curve

A

S=MSC=MPC

58
Q

a consumption externality shifts what curve

A

D=MPB=MSB

59
Q

how do you find the wage a factor market would pay at

A

where MRC/MFC=MRP DOWN to the supply curve

60
Q

what does it mean if the Lorenz curve to bow outward

A

the distribution of the country’s income has become more unequal

61
Q

sales tax are an example of what type of tax

A

regressive tax because they tax a larger income percentage from the poor than the rich

62
Q

what does a lower gini coefficient mean

A

more equal income distribution

63
Q

what does a higher gini coefficient mean

A

larger tax gap between the rich and poor

64
Q

what does a progressive tax do

A

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
Q

what does rational ignorance mean

A

intentionally choosing to remain uninformed on a topic because the cost of acquiring the information is greater than the estimated potential benefits

66
Q

where is the profit maximizing quantity for an unregulated monopolist

A
67
Q

what does a per unit tax look like on a monopolist graph

A

MC shifts up

68
Q

what shifts a ppc graph outward

A

Increases in the quantity or quality of resources

69
Q

what is the effect of an outward PPC shift

A

makes it possible to produce greater quantities of both goods.

70
Q

what shifts the PPC inward

A

Decreases in the quantity or quality of resources

71
Q

what is the effect of an inward PPC shift

A

decreases the possible production of both goods.

72
Q

when stating how you know what type of externality it is what should you say

A

Positive: MSB>MPB
Negative: MSC>MPC

73
Q

where do you put a price ceiling on a monopolistic competition

A

where D = MC, horizontal lines that passes through that point

the ceiling become the MR curve

74
Q

what effect does a price ceiling on monopolistic competition have on price and quantity

A

price and qunaityt decrease

75
Q

what effect does a price floor have on a monopsony

A

wages and workers go up

76
Q

what does a regressive tax do

A

taxes are lower % on people earning a higher income (increases income inequality)

77
Q

what effect does world price have on total economic surplus

A

increases

78
Q

what does a quota do

A

places a limit on the amount of good that can be imported
supply shifts right

79
Q

what effect does a quota have on total economic surplus

A

quotas limit trade, decrease economic surplus, and create deadweight loss

80
Q

what does a tariff do

A

a tax on imports

81
Q

what effect does a tariff have on total economic surplus

A

tariffs decrease trade, decrease economic surplus, and create deadweight loss

AP Micro (6 decks)

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