Market Efficiency, Market Failure, International Trade

D. all of the above.

10. Differences in production efficiencies among nations in producing a particular good result from: A. different amounts of skilled labour. B. different climatic conditions. C. different levels of technological knowledge. D. all of the above.

D. beer in West Lothian is 1/2 a pizza.

11. Refer to the above diagrams. The solid lines are production possibilities curves; the dashed lines are trading possibilities curves. The opportunity cost of producing a: A. pizza is 2 beers in both countries. B. beer is 1/2 a pizza in both countries. C. pizza in East Lothian is 1 beer. D. beer in West Lothian is 1/2 a pizza.

A. is 1/2 a fish.

12. The following information is about the cost ratios for two products—fish (F) and chicken (C)—in Singsong and Harmony. Assume that production occurs under conditions of constant costs and these are the only two nations in the world. If in Singsong: 1F = 2C and, in Harmony: 1F = 4C then, in Singsong the domestic real cost of each chicken: A. is 1/2 a fish. B. is 2 fish. C. increases with the level of fish caught. D. decreases with the level of fish caught.

B. producing a ton of chips in Beta is 6 tons of fish.

14. Refer to the above data. The domestic opportunity cost of: A. producing a ton of chips in Alpha is 1/5 of a ton of fish. B. producing a ton of chips in Beta is 6 tons of fish. C. catching a ton of fish in Alpha is 5 tons of chips. D. catching a ton of fish in Beta is 6 tons of chips.

A. domestic opportunity costs are lowest.

15. According to the principle of comparative advantage, worldwide output and consumption levels will be highest when goods are produced in nations where: A. domestic opportunity costs are lowest. B. inflation rates are low. C. the balance of trade is in a surplus position. D. the exchange rate is falling.

B. its cost is least in terms of alternative goods which might otherwise be produced.

16. In the theory of comparative advantage, a good should be produced in that nation where: A. the production possibilities line lies further to the right than the trading possibilities line. B. its cost is least in terms of alternative goods which might otherwise be produced. C. its absolute cost in terms of real resources used is least. D. its absolute money cost of production is least.

A. country B has a comparative advantage in chemicals.

17. From the diagram below it can be seen that: A. country B has a comparative advantage in chemicals. B. country B can produce more of both goods than A. C. country A has a comparative advantage in both commodities. D. it is more costly in terms of resources to produce steel in country A.

C. Harmony will produce chicken and Singsong will catch fish.

18. The following information is about the cost ratios for two products—fish (F) and chicken (C)—in Singsong and Harmony. Assume that production occurs under conditions of constant costs and these are the only two nations in the world. If in Singsong: 1F = 2C and, in Harmony: 1F = 4C: A. Singsong will both produce chicken and catch fish. B. Harmony will both produce chicken and catch fish. C. Harmony will produce chicken and Singsong will catch fish. D. Singsong will produce chicken and Harmony will catch fish.

D. 1 tea = 1 pot to 1 tea = 3 pots

22. Refer to the above data. What are the limits of the terms of trade between Gamma and Sigma? A. 1 tea = 2 pots to 1 tea = 6 pots B. 1 tea = 3 pots to 1 tea = 6 pots C. 1 tea = 2 pots to 1 tea = 3.5 pots D. 1 tea = 1 pot to 1 tea = 3 pots

B. ratio at which nations will exchange two goods.

23. The terms of trade reflects the: A. rate at which gold exchanges internationally for any domestic currency. B. ratio at which nations will exchange two goods. C. fact that the gains from trade will be equally divided. D. cost conditions embodied in a single country's production possibilities curve.

D. 4 tons of beans for 1 ton of pork

24. Refer to the tables below. Which of the following would be feasible terms for trade between Latalia and Trombonia? Production possibilities tables for two countries, Latalia and Trombonia: Latalia's production possibilities: Trombonia's production possibilities: A. 1 ton of beans for 1 ton of pork B. 2 tons of beans for 1 ton of pork C. 6 tons of beans for 1 ton of pork D. 4 tons of beans for 1 ton of pork

When the production of a good generates external costs a firms private supply curve will be

Below the social supply curve

Give an example of a merit good

Education

Define merit goods

A good that brings unanticipated benefits to consumers, leading to underconsumption in the free market (greater social benefits than private benefits)

Explain what is meant by a quasi public good

A good that has some characteristics of a public good and private good. At certain times it can become rivalrous (e.g. beaches or roads)

Explain what is meant by a public good

A good that is non-exclusive and non rivalrous. Consumers cannot be excluded from consuming the good, and consumption by one person does not affect the amount of the good available for others to consumer

Explain what is meant by a private good

A good that, once consumed by one person, cannot be consumed by somebody else. It is rivalrous and non excludable

Define subsidy

A grant given by the government to producers to encourage production of a good or service

Define government failure

A misallocation of resources arising from government intervention

What is a tradable pollution permit?

A pollution permit acts as a cap on the level of pollution a firm can produce in a given time period. These can be sold to other firms

Define cost-benefit analysis

A process of evaluating the worth of a project by comparing its costs and benefits, including both direct and social costs and benefits (including externality effects)

What is discouting?

A process whereby the future valuation of a cost of estimate benefit is reduced in order to provide an estimate of its present value

Define moral hazard

A situation in which a person who has taken out insurance is prone to taking more risk

Define asymmetric information

A situation in which some participants in a market have better information about market conditions than others

Define market failure

A situation in which the free market mechanism does not lead to an optimal allocation of resources (e.g. divergence between MSB and MSC)

Define direct taxation

A tax charged directly to an individual based on income

Define indirect taxation

A tax levied on expenditure on goods and services

Give an example of a demerit good

Alcohol or fast food chains

What is an ITQ?

An individual transferable quota, imposed on individuals or firms by a governing body, that limits the production of a good or service. These can be traded if a firm has excess

Draw and explain the Environmental Kuznets curve

Environmental Kuznets curve shows the relationship between environmental damage and wealth in a country.

In the graph, line S is the current supply of this product while line S1 is the optimal supply from the society's perspective. This figure suggest that there is

External cost in the production of this product

Specialization and international trade between individuals or between nations leads to

Higher total output

Assume the number of people affected by these external costs is large. Without gov interference this market will reach an

Overallocation of resources to this product

When producers do not have to pay the full cost of producing a product they tend to

Overproduce the product because of supply side market failure

England has a relatively cool and cloudy climate that is ill suited for grape growing. It can produce 200 units of wine for every 400 units of cloth. Portugal, in contrast, has a relatively warm and sunny climate that is good for growing grapes. It can produce 200 units of wine for every 100 units of cloth. Which country has the higher opportunity cost of producing cloth?

Portugal: 2 units of wine for every unit of cloth

IF a good that generates negative externalities were priced to take these negative externalities into account its

Price would increase and output would decrease

the market system does not produce public goods because

Private firms cannot stop consumers who are unwilling to pay for such goods form benefitting from them

C. Gamma should export tea to Sigma and Sigma should export pots to Gamma.

Production possibilities data for Gamma and Sigma. All data are in tons. Gamma production possibilities: Sigma production possibilities: 21. On the basis of the above information: A. Gamma should export both tea and pots to Sigma. B. Sigma should export tea to Gamma and Gamma should export pots to Sigma. C. Gamma should export tea to Sigma and Sigma should export pots to Gamma. D. Gamma should export tea to Sigma, but it will not be profitable for the two nations to exchange pots.

A. should specialize in catching fish and trade with Alpha for chips

Production possibilities data for two countries, Alpha and Beta, which have populations of equal size. 20. Refer to the above data. Beta: A. should specialize in catching fish and trade with Alpha for chips. B. should specialize in producing chips and trade with Alpha for fish. C. will not realize gains from specialization and trade. D. will export both fish and chips to Alpha.

A maximum limit set on the amount of a specific good that may be imported into a country over a given period of time if called a

Quota

What other economic process needs to accompany international trade, for nations to benefit from such trade?

Specialization in production

Draw a graph showing taxation correcting market failure

Specific tax (tax of fixed amount) is parallel Ad valorem (a percentage of price of good) is not parallel

If some activity creates external benefits as well as private benefits then economic theory suggest that the activity ought to be

Subsidized

Graph, S1 (where you should be) above S (current market) Assume that the number of people affected by these external costs is large if the government wishes to establish an optimal allocation of resources in this market it should

Tax producers so the the market supply curve shifts leftwards

What is an example of a tradable pollution permit scheme?

The EU emissions trading system (ETS) provides emissions allowances to member governments, who provide these to firms

Define marginal social benefit (MSB)

The additional benefit that society gains from consuming an extra unit of a good

A positive externality or spillover benefit occurs when

The benefits associated with a product exceed those accruing to people who consume it

Define marginal social cost (MSC)

The cost to society of producing an extra unit of a good

B. rice is 1/3 unit of corn and should not specialize in production of it if the two nations decide to trade with each other.

The data given is for two hypothetical nations, Wat and Xat. The nations have the Production Possibilities Curves (PPC) for units of rice and corn as given below. 19. Refer to the above data, in country Wat, the comparative cost of 1 unit of: A. rice is 3 units of corn. B. rice is 1/3 unit of corn and should not specialize in production of it if the two nations decide to trade with each other. C. corn is 5 units of rice. D. corn is 1/5 unit of rice.

Which of the following statements about trade barriers is true?

The economic costs of trade barriers exceed their economic benefits, creating an efficiency loss for society.

What is the net present value?

The estimated value in the current time period of the discounted future net benefit of a project

What is income inequality?

The extent to which income is distributed in an uneven manner among a population

What is partial market failure?

When the market supplies a good or service at either the wrong quantity or wrong price

What is complete market failure?

When, under the free market mechanism, the market doesn't supply a good at all

...efficiency means producing the level of output at which the marginal benefit of the last unit is equal to the marginal cost of that unit.

allocative

producing the goods and services that consumers most want in such a way that the marginal benefit equals the marginal cost is:

allocative efficiency

which of the following is true?

allocative efficiency means there is no deadweight loss.

when the marginal benefit of the last unit equals the marginal cost of the last unit, production is...efficient.

allocatively

in terms of the production possibilities curve, allocative efficiency means that at any point in time:

an ideal combination of production is based on consumer preferences.

when calculating producer surplus for the market:

calculate the area above the supply curve and below the equilibrium price, from zero to the quantity traded.

when calculating consumer surplus for an entire market:

calculate the area below the demand curve and above the equilibrium price, from zero to quantity traded.

consumer surplus:

can increase or decrease as a result of a price ceiling

a maximum legal price at which a good, a service, or a resource can be sold is a price...

ceiling

...surplus will always be less with a binding price floor than without.

consumer

the difference between the maximum price consumers are willing and able to pay for a good or a service and the price they actually pay is the...surplus.

consumer

the...is the area below the demand curve and above the equilibrium price, from zero to the quantity traded

consumer surplus

...losses occur when too much or too little output gets produced.

deadweight

producers may gain a little, but society as a whole will be worse off with a price floor because of the...losses.

deadweight

the difference between economic surplus when the market is at its competitive equilibrium and economic surplus when the market is not in equilibrium is the:

deadweight loss

the difference between the economic surplus when the market is at its competitive equilibrium and the economic surplus when the market is not in equilibrium is the:

deadweight loss

equilibrium in a market occurs where:

demand and supply intersect.

producer surplus is the:

difference between the price producers receive for a good or a service and the minimum price they are willing and able to accept.

Quotas on an imported product benefit

domestic producers and hurt domestic consumers of the product.

graphically, total...surplus is the entire area between the supply and demand curves, from a quantity of zero to the quantity traded.

economic

allocative...refers to producing the goods people want most

efficiency

a minimum legal price at which a good, a service, or a resource can be sold is a price...

floor.

if an economy is producing on the production possibilities frontier, the economy is:

getting as much output as possible from its resources

a price ceiling means that?

government is posing a legal price that is typically below the equilibrium price

A country is said to have a comparative advantage in producing a good over another country if that first country

has a lower opportunity cost of producing the good.

Draw a graph for a negative production externality

http://11leeco.files.wordpress.com/2010/04/slide3.jpg

Draw a graph for a positive production externality

http://12serata.files.wordpress.com/2011/02/slide1.jpg

Draw a graph for a negative consumption externality

https://shakurpoliticalparty.files.wordpress.com/2014/07/negative-externalities-of-consumption.jpg

producer surplus can increase or decrease as a result of a price floor, depending on how much the price is force to:

increase and how much the quantity supplied rises.

National specialize in production and engage in international trade in order to

increase consumption and income

A public good

is available to all and cannot be denied to anyone

The primary gain from international trade is

more goods than would be attainable through domestic production alone.

if production exceeds the equilibrium quantity:

more output is being produced than the amounts that consumers want at the equilibrium price.

The domestic opportunity cost of producing television in the US is 20 bushels of wheat. In Korea, he domestic opportunity cost of producing a television is 10 bushels of wheat. In this case

mutual gains from trade can be obtained if the United States imports televisions from Korea and Korea imports wheat from the United States.

External benefits in consumption refer to benefits accruing to those

other than the ones who consumed the product

a person will purchase a good or service so long as the person's willingness to pay is greater than the...

price

allocative and productive efficiency occur when the equilibrium...is such that the quantity demanded equals the quantity supplied.

price

if a good that generates negative externalities were priced to take these negative externalities into account, then its:

price would increase and its output would decrease

when calculating...surplus for an individual firm, subtract the firm's willingness to accept from the market place.

producer

with a binding price ceiling,...always lose.

producers

producing output at the lowest possible total cost of production per unit is...efficiency.

productive

producing output at the lowest possible total cost per unit of production is:

productive efficiency

if production exceeds equilibrium quantity:

resources are being wasted

What are the two characteristics that differentiate private goods form public

rivalry and excludability

...welfare is not maximized if the amount of output produced is greater than the equilibrium quantity.

social

In effect, tariffs on imports are

subsidies for domestic producers

If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be:

subsidized

a tax on suppliers shifts the:

supply curve up vertically

What would happen if government taxed the producers of this product bc it has negative eternatlites

supply would decrease

graphically, producer surplus is the area above the...curve and below the equilibrium price, from...to the quantity traded.

supply, zero

the difference between the maximum price consumers are willing and able to pay for a good or a service and the price they actually pay is the consumer...

surplus

the difference between the price producers receive for a good or a service and the minimum price they are willing and able to accept is producer...

surplus

when a market is not allowed to adjust to the equilibrium price and quantity traded, some economic...will be lost.

surplus

when marginal benefit equals marginal cost, the market is allocatively efficient and is therefore maximizing economic...in that market.

surplus

An excise tax on imported items is known as a(n)

tariff.

Where there are spill over benefits form having a particular product in a society, the gov can make the quantity of the product approach the socially optimal level by going the following except

taxing the seller

gains from trade in the market are maximized when:

the equilibrium price is such that the quantity demanded equals the quantity supplied.

the quantity traded times the tax equals:

the tax revenue from a tax

external benefits in consumption refer to benefits accruing to?

those other than the ones who consumed the product

...surplus is maximized when markets are in equilibrium.

total

If the US government were to impose a quota on wristwatches imported from Switzerland, then the

total quantity of wristwatches (domestic and imported) consumed would decline as prices rise.

in a free-market economy, a product which entails a positive externality will be?

underproduced

Use the following graph, where Sd and Dd are the domestic supply and demand for a product and Pc is the world price of that product, to answer the next question. (IMAGE) With free trade, that is, assuming no tariff, the outputs produced by domestic and foreign producers respectively would be

v and z−v.

deadweight loss is the:

value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium

deadweight loss is the:

value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium.

a branch of economics that focuses on measuring the welfare of market participants and how changes in the market change their well-being is known as:

welfare economics

a person will purchase a good or service so long as the person's:

willingness to pay (marginal benefit) is greater than the marginal cost.

Use the following graph, where Sd and Dd are the domestic supply and demand for a product and Pc is the world price of that product, to answer the next question. (IMAGE) With a Pt−Pc per-unit tariff, the quantities sold by foreign and domestic producers respectively will be

y−w and w.

graphically, consumer surplus is the area below the demand curve and above the equilibrium price, from...to the quantity traded.

zero

graphically, producer surplus is the area above the supply curve and below the equilibrium price, from...to the quantity traded.

zero

you received $250 for a stationary bike and had a producer surplus of $50. you were willing to accept $...

$200 producer surplus is the difference between the price at which a firm sells its good or service, and the minimum price it would have been willing to accept. $50 = $250 - $X

you paid $25 for a concert ticket and received a consumer surplus of $10. you were willing to pay $...

$35

What are the disadvantages of regulation?

- Can be costly/time consuming to implement - May encourage illegal activities (prohibition creates black markets) - Taxes raise government revenue better - May not always correct the market failure - Prohibition may not be socially efficient - Risk of market failure

Draw a graph showing the minimum price for a good. What are some disadvantages of this?

- Consumers pay higher prices - They encourage over supply and are inefficient

What are the advantages of taxation as a solution to market failure?

- Corrects market failure - Raises revenue for the government (could fund hypothecation and subsidies) - Dependent on PED (elastic = effective) - Can change consumer preference long term - Internalises the externality

What are the disadvantages of a subsidy?

- Costs have to be met through government revenue (direct taxes lower incentive to work) - Government failure may occur, with externalities being difficult to measure - May encourage firms to be inefficient - Depends on PED (Elastic supply = effective) - Consumers may end up paying (with little benefit) - Firms may become inefficient and rely on subsidies - There is an opportunity cost

Draw a graph showing the maximum price for a good. What are the disadvantages of this?

- Emergence of black market due to lack of supply - Demand will be greater than supply, leading to waiting lists

What are the advantages of a tradable pollution permit?

- Encourage more efficient production - Firms can sell permits, making more efficient production profitable - Governments will earn revenue from the initial auction of these permits - They internalise the externality of pollution

How can a government encourage competition. What may be the benefits of this?

- Governments may provide tax incentives or subsidies to small firms - Reduced regulation (barriers to entry) for potential firms - Increased competition can lead to greater choice and lower prices for consumers - Through the blocking of mergers which would significantly increase market share

What are the advantages of a subsidy?

- Greater social efficiency - Can change consumer preference long term - Costs can be met through hypothecation - Can increase long run productive capacity - Can slow down industry decline - Keep price low/control inflation - Can support a domestic industry until it can benefit from EoS

What are some examples of regulation?

- Legal age for smoking - Drug prohibition - Clean air acts - Competition policy

What are the disadvantages of taxation to correct market failure?

- Many are regressive (as poor people have a higher MPC) - Can cause cost push inflation - PED is inelastic = very ineffective - Creates incentive to avoid/eevade - Difficult externalities to measure causes government failure - Permits may be more effective - Administrating tax can cost a lot

What can causes imperfect information?

- Misunderstanding of true costs and benefits - Complex information - Uncertainty about the costs and benefits - Addiction - Lack of awareness

What are the disadvantages of a tradable pollution permit?

- Optimal pollution level is difficult to set (high risk of government failure) - There may be market failure within the market for pollution permits - High levels of pollution can still exist (doesn't immediately correct the market failure) - There are administrative costs involved with regulation

What are the three functions of the environment?

- Provider of resources - Provider of amenities - Absorber of waste

What are some arguments against CBA?

- Shadow prices can be difficult to measure - Political bias or influence (low cost:benefit ratio if there is more immediate gain) - Unreliable long term

What are some arguments for CBA?

- Takes into account direct + indirect costs (and opportunity costs) - Discounting to provide net present value

What are the advantages of regulation?

- Taxes can be cumbersome/difficult to impose - It is equal (applies to rich and poor) - Simple and easy to understand - Fines can provide incentive and increase tax revenue - Imperfect competition can be prevented from colluding

all else held constant, at lower prices consumer surplus increases for two reasons:

- everyone who was already going to buy the product gets a break on the price, so they get more consumer surplus than before. - lower prices may now make it possible for more people to buy the product.

if low prices are the result of government intervention:

- overall consumer surplus can increase or decrease - some consumers will be worse off because they cannot purchase or a service - some consumers will be better off because they can buy a good or a service at a lower price

if high prices are the result of government intervention:

- some producers will be better off because they can sell a good or a service at a higher price - some producers will be worse off because they cannot sell a good or service - overall producer surplus can increase or decrease

all else held constant, at higher prices producer surplus increases for two reasons:

- the higher price may now make it possible for more firms to sell the product - everyone who was already going to sell the product gets a higher price, so they get more producer surplus than before.

In the graph, line S is the current supply of the product, while one S1 is the optimal from society. IF gov corrects this externality problem and shifts production to the socially optimal level then the product price will be equal to

0

What is the process of CBA?

1) Identify relevant costs + benefits (including opportunity costs) 2) Valuation - take shadow prices (an estimate of the monetary value of an item that does not carry a market price) 3) Discounting the future

D. 1 chicken for 1/3 of a fish

25. The following information is about the cost ratios for two products—fish (F) and chicken (C)—in Singsong and Harmony. Assume that production occurs under conditions of constant costs and these are the only two nations in the world. If in Singsong: 1F = 2C and, in Harmony: 1F = 4C, which one of the following would not be feasible terms for trade between Singsong and Harmony? A. 1 fish for 2 1/2 chicken B. 1 fish for 3 chicken C. 1 chicken for 1/5 of a fish D. 1 chicken for 1/3 of a fish

D. increasing costs.

26. Consider two countries which trade with each other. As these countries expand their production according to their comparative advantage, most probably they will experience: A. constant costs. B. high tariffs. C. decreasing costs. D. increasing costs.

D. Specialization is less than complete among nations when opportunity costs rise as any given nation produces more of a particular product.

27. Which statement is true? A. Comparative advantage means that total world output will be greatest when each good is produced by the nation that has the highest domestic opportunity cost. B. Comparative advantage means that total world output will decline when each good is produced by the nation with the lowest domestic opportunity cost. C. Specialization is complete among nations when opportunity costs rise as any given nation produces more of a particular product. D. Specialization is less than complete among nations when opportunity costs rise as any given nation produces more of a particular product.

C. both Germany and the U.S. are subject to constant domestic opportunity costs.

28. The data in the tables below, show that production in: A. Germany is subject to increasing domestic opportunity costs and the U.S. to constant domestic opportunity costs. B. the U.S. is subject to increasing domestic opportunity costs and Germany to constant domestic opportunity costs. C. both Germany and the U.S. are subject to constant domestic opportunity costs. D. both Germany and the U.S. are subject to increasing domestic opportunity costs.

C. import copper.

29. Suppose the domestic price of copper is $1.20 per kilogram in Canada, while the world price is $1.00 per kilogram. Assuming no transportation costs, Canada will: A. have a domestic surplus of copper. B. export copper. C. import copper. D. neither export nor import copper.

C. surplus of 160 units, which it will export.

30. Refer to the above diagram showing the domestic demand and supply curves for a specific standardized product in a particular nation. If the world price for this product is $1.60, this nation will experience a domestic: A. shortage of 160 units, which it will meet with 160 units of imports. B. shortage of 160 units, which will increase the domestic price to $1.60. C. surplus of 160 units, which it will export. D. surplus of 160 units, which will reduce the world price to $1.00.

B. China, Singapore, South Korea, and Taiwan.

4. Several new players have significantly expanded their share of world trade. These nations are: A. China, Taiwan, Malaysia, and Indonesia. B. China, Singapore, South Korea, and Taiwan. C. North Korea, China, Hong Kong, and Cambodia. D. Japan, China, South Korea, and Taiwan.

C. meat.

5. The best example of a land-intensive commodity is: A. cameras. B. radios. C. meat. D. chemicals.

A. clothing

6. Which of the following is an example of a labour-intensive commodity? A. clothing B. beer C. Aspirin tablets D. gasoline

B. Sally has absolute advantage over Tom in both painting and gardening

7. When Sally can paint a house and plant a tree more efficiently than Tom, we can conclude that: A. Tom has absolute advantage over Sally in both painting and gardening . B. Sally has absolute advantage over Tom in both painting and gardening. C. Sally has absolute advantage over Tom in gardening and not painting. D. Tom has absolute advantage over Sally in painting and not gardening.

C. a product at a lower domestic opportunity cost than the other nation.

8. In a two-nation world, comparative advantage means that one nation can produce: A. a product with fewer inputs than the other nation. B. a product at lower average cost than the other nation. C. a product at a lower domestic opportunity cost than the other nation. D. more of a product than the other nation.

A. constant costs.

9. Consider two countries which trade with each other. The degree of specialization according to their respective comparative advantages will be greater if the countries face: A. constant costs. B. high tariffs. C. low unemployment rates. D. increasing costs.

Define externality

A cost or a benefit incurred by a third party that is external to a market transaction, and is therefore not reflected in market prices

Define demerit goods

A good that brings less benefit to consumers than they expect, leading to overconsumption in the free market (greater social costs than private costs)

If one persons consumption of a good does not preclude another consumption the good is said to be

Non-rivial in consumption

What is meant by non-rejectability in reference to a public good?

If a public good in non-rejectable, it can't be rejected by people. For example, a coastal defence or nuclear defence system. Note a public good also has zero marginal cost (marginal cost of supplying a public good to an extra person is zero)

Give some statistics about income inequality

In 2014, globally, the poorest two thirds of people earned 13% of incomes, whilst the richest 1% take 15% of income

What is the difference between income and wealth?

Income is the flow of money going to factors of production whereas wealth is the current value of a stock of assets

The productivity table given below shows how many bushels of either wheat or rice can be produced in India and Canada with 1 unit of input. Wheat Rice India 10 10 Canada 40 20 To achieve gains from specialization and trade

India should export rice to Canada and import Canadian wheat.

Explain what is meant by information failure

Information failure is a form of market failure, occurring when economic agents do not have perfect knowledge or when there is asymmetric information

Give some examples of public goods

Museums, flood defences, street lights

Assume that Nation X can produce either 40 notepads or 80 pens, and that Nation Y can produce either 10 notepads or 40 pens. This implies that

Nation X has a comparative advantage in producing notepads.

D. Beta is more efficient than Alpha.

The following is the Production possibilities data for two countries, Alpha and Beta, which have populations of equal size. 13. The above data show that: A. Beta has a comparative advantage in producing chips. B. Alpha has a comparative advantage in catching fish. C. Alpha is subject to constant costs and Beta is subject to increasing costs. D. Beta is more efficient than Alpha.

A negative externality or spillover costs occurs when

Total cost of producing a good exceeds the cost borne by the producer

Which of the following statements about tariffs is true?

U.S. consumers lose more from tariffs than U.S. producers gain.

In a free market economy, product that entails a positive externality will be

Underproduced

Which of the following is false?

WTO allows dumping.

What is wealth inequality?

Wealth inequality is the uneven distribution of wealth throughout a country

Explain how public goods cause the free rider problem

When an individual cannot be excluded from consuming a good, and therefore has no incentive to pay for its provision

In a situation where an externality occurs, the "third party" refers to those who

are not directly involved in the transaction

in a situation where an external occurs, the "third party" refers to those who?

are not directly involved in the transaction

A public good can't

be provided to one person without making it available to others as well

when the production of a good generates external costs, the firms supply curve will be?

below the true-cost supply curve