ECON FINAL
consumers in a competitive market are considered to be price takers because each tends to buy ______ of the total amount of a produced good
only a tiny fraction
an individual or a firm can internalize an externality by
paying the cost of the externality
paternalism is the view that
people do not always know what best for them, and government should encourage them to make the right choices
define optimization
people weigh costs and benefits when making a decision
to allocate the goods produced to the people who value them the most, we use the ______
price mechanism
all firms in a perfectly competitive market are said to be
price takers
health insurance is an example of a ______good
private
the Coase Theorem states that
private bargaining will result in an efficient allocation of resources
what types of goods are likely to be in a black market
prostitution and drugs
an indifference curve is the set of bundles that
provide an equal level of satisfaction for the consumer
a mosquito control program in a city is an example of a
public good
a video on youtube is an example of a
public good
how do public goods differ from common pool resources?
public goods are non rival and common pool are rival goods`
optimization in levels examines:
total net benefits of alternatives
in a competitive labor market, the profit-maximizing number of workers that a firm will hire occurs where the
value of marginal product of labor is equal to the market wage
define opportunity cost
value of the best alternative use of a resource
would a profit-maximizing firm continue to operate if the price in the market fell below its average cost of production in the short run?
yes, but only if the price stayed above the AVC
does the principle of optimization imply that people always make the best choices?
yes, it is a good approximation for the decisions people make
a black market is
a nonlegal market for regulated goods and services
the equilibrium price is the
long-run average total cost of the last entrant into the market
examples of direct regulation
-antismoking laws -zoning restrictions -price ceilings
how does a command-and-control policy differ from a market-based policy?
-command and control: the government directly regulates the allocation of resources -market-based: the government provides incentives for private organizations to internalize the externality
firms estimate the demand for labor by
-computing the marginal product of labor and multiplying it by the price of the product being produced -determining the value of marginal product of labor
what is likely to be a subject to the tragedy of the commons?
-donuts brought to the office -a public area for grazing cattle -coral reefs NOT: national defense
name the common arguments against free trade
-fear of the effects of globalization on a nation's culture -the desire to maintain diversification to preserve integrity in times of war -countries with lac environmental policies allow for more pollution.... -a company is too weak to withstand competition from other firms
properties of a monopoly
-high barriers to entry -price-maker -only one seller
examples of scarce resources
-machinery -high-skill labor -land
the coase theorem will breakdown when
-there are s large number of agents -when property rights are not clearly defined -transaction costs become high
name characteristics of a market
-voluntary exchanges between economic agents -flexible prices -there are rules and arrangements for trading
what's the difference between a budget set and a budget constraint?
a budget set refers to all of the possible bundles of goods and services a consumer can purchase, while a budget constraint is limited to the bundles he can purchase using all of his income
define comparative statistics
a change in an outcome, such as work, that results from a change in a factor, such as the wage
describe a monopolist's demand curve
a y-intercept of $8 and a downward-sloping with a slope of -1
given that there are costs involved with government intervention in an economy, governments still choose to intervene in markets to
address externalities
what is meant by holding all else equal and how is this concept used when discussing movements along the demand curve?
all variables that can affect the demand for the good are held constant
when determining which firms enter the market first, we look at:
average total cost
which is a cost associated with government intervention in an economic system?
bureaucracies
externalities are called market failures because they
cause markets to produce suboptimal social outcomes
a library's collection of e-books is an example of a
club good
radio spectrum is an example of a
common pool resource
economists mostly use optimization in differences because
comparing different features of alternatives is intuitive
a linear PPC would show ________ and a PPC that is curved away from the origin would show _______
constant opportunity costs; increasing opportunity costs
define causation
describes how one event can bring about change in another
direct regulation is
direct actions by the government ti=o control the amount of an activity
the concept of diminishing marginal benefits means that ______
each additional unit consumed is worth less to you than the previous one
if demand shifts to the left (decreases), the last firm that entered:
earns negative economic profits and so exits the market
define empiricism
economists use data to analyze what is happening in the world
how would an increase in supply affect the equilibrium price in a market?
equilibrium price decreases
consumer sovereignty suggests that
government should not interfere with consumer choices
which is a problem that black markets pose in an economy?
governments use resources to enforce the law
to construct the supply curve in a market with many firms with different cost structures, the:
individual supply curves for each firm are added together
how would you depict the trade-off between equity and efficiency on a graph?
inequality on one axis and social surplus on the other with a positively-sloped function
how would the equilibrium price in a market be affected if there were a small decrease in supply and a large decrease in demand?
it decreases
consider a market with many firms that have different cost structures. unless shutdown or exit is optimal, every firm expands production until ____
marginal revenue, marginal cost, and price are all equal
define budget constraint
maximum amount of spending the government is allowed to do by law
______is subject to the free-rider problem
neighborhood watch
define equilibrium
no one would benefit from changing his or her behavior
there is a proverb "anything worth doing is worth doing well." Do you think an economist would agree with this proverb?
no, because the marginal cost of extra effort may be greater than the marginal benefit
can two indifference curves intersect?
no, that would imply that a consumer is indifferent between bundles that yield different total benefits
example of negative correlation
number of winter coats sold and the temperature outside
example of causation
oil prices go up and gas prices go up
the law of supply states that, in most cases, the quantity supplied of a good _________ when the price of the good rises. This means we would expect a typical supply curve to be _______
rises; upward-sloping
europe's population fell by 30 to 60 percent following an outbreak of bubonic plague in the 14th century. as a result, europe's production possibilities curve would
shift inward
a production possibilities curve (PPC)
shows the relationship between the maximum production of one good for a given level of production of another good
why does a demand curve with a constant slope not have a constant elasticity?
slope is based on absolute change and elasticity is based on percentage
all else being equal, the flatter the demand OR supply curve, the _____ the social surplus in a market
smaller
what is the problem with the argument that infant industries need to be protected from foreign competition?
starting a company in isolation may deprive it of "technological spillovers" that its competitors, all located near one another, may enjoy.
the government runs a budget surplus when
tax revenue exceeds its spending
optimization in differences examines:
the change in net benefits
optimization is the process that describes
the choices that households make
how would the equilibrium price in a market be affected if there were a small increase in supply and a large increase in demand?
the equilibrium price increases
the short run supply curve for a perfectly competitive firm is represented by _______
the portion of the marginal cost curve above AVC
in the long run, the supply curve for a perfectly competitive firm is represented by _______
the portion of the marginal cost curve above the average total cost
producer surplus is the difference between
the price consumers pay and the supply curve
consumer surplus is _____
the value or total benefits one receives from a good in excess of the price paid for it
are all efficient outcomes also equitable?
there is really no definitive answer to this question
what does it mean when economists are using the scientific method?
they are using an ongoing process to develop models of the world and then test and evaluate those models
a local bar sells half-price drinks to women on tuesdays this is an example of
third degree price discrimination
a local restaurant offers a discount on meals to seniors this is an example of a
third-degree price discrimination
what is the intent of a Pigouvian tax?
to induce producers of a negative externality to reduce production to the socially optimal level
the last firm to enter earns:
zero economic profits