MICRO

When a ___ externality exists, the socially optimal level of output will be greater than that resulting from a ___ market.

positive/private

The development of a new technology that changes a good from being nonexcludable to excludable would ________ the effect of the _______ problem.

reduce; free-rider

In economics, utility refers to the:

satisfaction or happiness received from the consumption of goods and services.

In general, high-income countries

spend more on pollution prevention than low-income countries.

In economics, a util refers to the:

subjective measure of the utility associated with consuming goods and services

The sum of marginal utilities equals ___ utility.

total

Private supply is the supply of a good or service that reflects only the private ___ of its production.

cost

When people can be prevented or excluded from consuming a good or service, that good or service is said to be

excludable

Markets characterized by either positive or negative ____ may result in an inefficient outcome.

externalities

Not every decision consumers make will turn out to be perfect because consumers can never have all the ___ they might need to make the perfect decision.

information

When we discuss consumer behavior, we assume that consumers do their best with the ____ they have available.

information

When a firm lacks the ability to prevent people from consuming a good or service the good is called

non-excludable

When some people cannot be prevented or excluded from consuming a good or service, that good or service is said to be:

nonexcludable.

The total satisfaction or happiness received from the consumption of a good service or combination of goods and services refers to the ___ utility; whereas the additional satisfaction or happiness received from the consumption of an additional unit of a good or service refers to the ___ utility.

total;marginal

A good can be a public good and not be provided by the government.

true

Not all goods provided by the government are public goods.

true

Sometimes private markets can successfully provide public goods.

true

By always selecting the best option after considering all benefits and costs, you will increase your total ___

utility

The process of obtaining the greatest level of overall satisfaction or happiness from consuming goods and services subject to consumers' preferences incomes and prices is known as

utility maximization

Below is a list of assumptions about decision making. 1.) Consumers are rational. 2.)Consumers are selfish. 3.)Consumers have limited incomes. 4.)Consumers have limited wants. 5.)Consumers can rank preferences. 6.)Consumers acknowledge prices. What do economists assume when evaluating the utility-maximizing decision-making process?

1, 3, 5, and 6 Reason: When examining decision making, we assume consumers are rational, have limited income, rank preferences, and acknowledge prices. It is not assumed that consumers are selfish, but rather self-interested. We tend to believe consumers have virtually unlimited wants, but only limited income to make the purchase.

Alex is consuming candy bars that cost $1 each. When he purchases the 5th candy bar his total utility increases from 6 utils to 8 utils. What is the marginal utility of the 5th candy bar?

2 utils Reason: The marginal utility is calculated as the change in total utility (8 utils - 6 utils) divided by the change in quantity (5 candy bars - 4 candy bars). For this example, the marginal utility is 2 utils (2 utils / 1 candy bars).

Which of the following is true of 'information'?

Acquiring information is costly.

Suppose marginal utility is decreasing when more units are consumed. Which of the following statements is true?

As long as marginal utility is positive total utility will increase when another unit is consumed.

What would be a reason why the government would choose to tax the sale of cigarettes?

Cigarettes generate negative externalities.

Which of the following is not one of the four assumptions about utility maximization?

Consumers are homogeneous.

When economists flip analysis of a "bad" what approach do they take?

Instead of evaluating the "bad" the evaluate prevention of the "bad."

Dave bought a pizza which was divided into five slices. After eating the third slice he couldn't eat the fourth slice. Applying the law of diminishing marginal utility to this scenario which of the following statements is true?

The marginal utility derived from the fourth slice is less than the marginal utility derived from the third slice.

Suppose you live near a large factory that produces a good that you do not consume. If you are subjected to loud noises and bad odors from the factory then you experienced

a negative externality.

The unpaid benefit of an activity that is enjoyed by a third party is called:

a positive externality

When there is ____ and ____ efficiency, the market produces the right goods in the correct amounts using the fewest resources possible.

allocative/productive

Something we would rather have less of is called

an economic bad

When a firm uses price to prevent people from consuming a good or service the good is called

an excludable good.

The benefit enjoyed by or cost imposed on a third party that is not directly involved in the production or consumption of a good or service is called:

an externality

From an economic perspective pollution involves ______ and _______

costs; benefits

From an economic perspective pollution involves ______ and _______.

costs; benefits

Utility maximization helps explain the substitution effect that is noted when explaining the law of:

demand

You will be able and willing to consume more units only if they become less expensive than the previous units. This is because you derive less and less additional satisfaction from the consumption of additional units of a good or service according to the law of:

diminishing marginal utility.

Utility maximization implies purchasing goods and services until their marginal utilities per dollar are

equal

One of the justifications for government intervention in markets is the potential to improve on the market outcome in markets characterized by

externalities

The benefit enjoyed by or cost imposed on a third party that is not directly involved in the production or consumption of a good or service is called a(n):

externalities

When ___ exist, the outcome observed may not be the efficient outcome.

externalities

The benefit enjoyed by or cost imposed on a third party that is not directly involved in the production or consumption of a good or service is called a(n) :

externality

hen economists evaluate the prevention of crime instead of crime they are

flipping the analysis.

When people consume a nonexcludable good without paying for it, it is called the ___-___ problem

free-rider

When a positive externality exists, the socially optimal level of output will be ___ than that resulting from a private market.

greater

From an economic perspective pollution

has both costs and benefits

Systematically thinking about the benefits associated with the consumption of goods and services can:

help consumers make better decisions.

Utility maximization assumes that consumers attempt to get the most total utility possible out of their limited

income

The marginal utility associated with eating one sub sandwich is 5 utils. The marginal utility of a second sandwich is 3 utils. In this case total utility (increases/decreases) with the consumption of the second sandwich.

increases

Diminishing marginal utility means total utility is:

increasing at a decreasing rate as long as marginal utility is positive.

A system that allows a person a certain percentage of the allowable catch in an open-water fishery is called a(n)

individual transferable quota.

If you derive less and less additional utility from the consumption of additional units of a good or service you will be able and willing to consume more units only if they become ___ expensive than the previous units.

less

When a negative externality exists, the socially optimal level of output will be (more/less) than that resulting from a private market.

less

Social ____ cost is the cost to society of producing an additional unit of a good or service.

marginal

The additional satisfaction or happiness received from the consumption of an additional unit of a good or service is the ___ utility of the good or service.

marginal

Utility maximization implies purchasing goods and services until their ___ utilities per dollar are equal.

marginal

The law of diminishing marginal utility states that the:

marginal utility associated with the consumption of a good or service becomes smaller with each extra unit that is consumed in a given time period.

When deciding between purchasing two goods, an individual should purchase the good with the highest:

marginal utility per dollar. Reason: When deciding which good to purchase, the good with the higher marginal utility per dollar is the good that will generate the greatest over utils.

The law of diminishing marginal utility states that the (total/marginal) utility associated with the consumption of a good or service becomes (less/more) with each additional unit that is consumed in a given time period.

marginal/less

When the market does not produce an output level that maximizes total surplus it is called a

market/failure

The marginal benefit of preventing pollution is

measured in terms of reduced health expenses and improved living standards.

A ___ externality is the uncompensated cost of an activity that is imposed on a third party.

negative

Many of the goods that are taxed by the government, such as cigarettes, gasoline, and alcohol generate ___ externalities.

negative

When a ___ externality exists, the socially optimal level of output will be less than that resulting from a private market.

negative

A public good is any good or service that is

nonrivalrous and nonexcludable

When externalities exist

outside intervention may be able to improve the market outcome, increasing efficiency and economic surplus

When externalities exist:

outside intervention may be able to improve the market outcome, increasing efficiency and economic surplus

Utility maximization is the process of obtaining the greatest level of:

overall satisfaction or happiness from consuming goods and services, subject to consumers' preferences, incomes, and prices

Governments may use public policy to encourage the production of goods that generate ___ externalities.

positive

Marginal utility may be decreasing when more units are consumed but as long as marginal utility is ____ total utility will increase when another unit is consumed

positive

When a ___ externality exists, the socially optimal level of output will be greater than that resulting from a private market.

positive

____ demand is the demand for a good or service that considers only the private benefits of its consumption.

private

Private markets fail to provide the optimal amount of some goods such as public firework displays because

private companies will have difficulty getting anybody to pay for them.

The demand for a good or service that considers only the private benefits of its consumption is called

private demand

The supply of a good or service that reflects only the private costs of its production is called

private supply

Social demand is the demand for a good or service that reflects both the ____ and ____ benefits of its consumption.

private/external

Social supply is the supply of a good or service that reflects both the ___ and ___ costs of its production

private/external

The market interaction between buyers and sellers results in ___ , and ___ efficiency.

productive/allocative

A good that is both nonrival and nonexcludable is called

public

Any good or service that is nonrivalrous and nonexcludable is a ___ good.

public

Private markets fail to provide the optimal amount of ____________ because they are non rival and non excludable.

public goods

Governments can provide ___ goods because they have the ability to force people to ___ for a good or service by collecting taxes.

public/pay

When goods and services are rivalrous, the consumption of a good or service by one person ___ the quantity available for consumption by others.

reduces

The exclusive right to determine how a resource is used

refers to property rights.

According to the Coase Theorem if a property right is well defined and transaction costs are low

resources will gravitate to their highest-valued use.

Consumers seek to maximize (satisfaction/total revenue) based on their preferences, limited incomes, and the prices of the goods and services available to them.

satisfaction

Ideally encouraging the production of goods that generate positive externalities will result in the ___ optimal output level.

socially

If the government taxes revenues in order to provide a public good it is attempting to

solve the free-rider problem.

Utility maximization helps explain the ___ effect that is noted when explaining the law of demand.

substitution

Total utility is equal to the:

sum of marginal utilities.

Private demand is

the demand for a good or service that considers only the private benefits of its consumption

A property right is

the exclusive right to determine how a resource is used.

Even though the price per ounce of popcorn is much lower for the largest size at a movie theater not everyone buys the large bucket of popcorn because:

the extra utility from the extra popcorn is less than the extra cost to the buyer.

When people consume a nonexcludable good without paying for it it is called

the free-rider problem.

The provision of public goods that otherwise would be underprovided or not provided at all is one potential role of _____.

the government

In general, the optimal level of pollution to either prevent or to clean up occurs where

the marginal benefit of preventing pollution equals the marginal cost of preventing pollution.

A market failure occurs when

the market does not produce an output level that maximizes total surplus.

If the marginal cost of a pollution prevention program exceeds the marginal benefit of the program

the program will not proceed.

The high cost of a pollution reduction program that increases access to cleaner water and reduces airborne industrial waste from factories could be offset by

the reduction in health-care expenses due to cleaner air.

Social supply is

the supply of a good or service that reflects both the private and external costs of its production.

In general when people have ownership (or control) of a resource

they have incentive to improve it.

Ceteris paribus, what do you expect to happen to the equilibrium quantity of pollution prevented if the marginal benefit of pollution prevention decreases?

Equilibrium quantity decreases.

If the marginal benefit of pollution increases, what happens to the equilibrium quantity of pollution?

Equilibrium quantity of pollution increases.

Which of the following is most likely considered an economic bad?

Nuclear waste

Rival

One of the justifications for government intervention in markets is the potential to improve on the market outcome in markets characterized by others

If we flip analysis of pollution to evaluate pollution prevention what is true of the marginal benefit (MB) and the marginal cost (MC) curves?

Pollution prevention has standard MB and MC curves.

Consumers seek to maximize satisfaction based on:

Preferences, budget, and the prices of the goods and services purchased.

The difference between total utility and marginal utility is that marginal utility is the:

added satisfaction of consuming another unit of the good whereas total utility is the cumulative marginal utilities of all units consumed.

Social demand is the demand for a good or service that reflects

both the private and external benefits of its consumption.