micro test 3

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equal across all goods consumed and all income is spent

consumers maximize their utility when the marginal utility per dollar is

marginal utility

consumers value additional units of a good less and less

external cost (tax)

cost paid by bystanders, not consumers or buyers

private cost

cost paid by the consumer or the producer

externalities

costs/benefits that fall on the bystanders

indifference curve

curved line

as one moves down along an indifference curve, the slope of the indifference curve

decreases

as one moves down along an indifference curve, the slope of the indifference curve typically

decreases

markets producing too much output

external costs result in

the rate at which a consumer is willing to trade one good for another and remain indifferent

marginal rate of substitution is the

private cost

market cost=

slope of indifference curve

mrs=

on highest indifference curve but still on budget constraint

optimal consumption bundle is

budget constraint

straight slope. $of gb/$of ga

income effect

the change in consumption resulting from a change in real income

efficient way to reduce pollution at lower costs

tradeable allowances are an

all the costs necessary to reach an agreement

transaction costs are

substitution effect

when consumers react to an increase in a good's price by consuming less of that good and more of other goods

too high; too low

when external benefits are present, the market price is ______, however when external costs are present, the market price is ______

slopes downward

when the income effect from a wage increase is greater than the substitution effect, the supply curve for labor

social surplus

consumer surplus+producer surplus+bystander surplus

private marginal benefit equals the social cost

social surplus is maximized when

Pigouvian subsidy

a subsidy on a good with external benefits

Pigouvian Tax

a tax on a good with external costs

decrease in mu and qp

an increase in price of a good leads to

consumers value additional units of a good less and less

by assuming diminishing marginal utility, we mean that

pigouvian taxes, tradeable allowances, command and control

government solutions to externality problems include

to lower ones

higher indifference curves are preferred

cross each other

indifference curves cannot

producers whose goods have external benefits

pigouvian subsidies are awarded to

social cost equals

private cost+external cost

transaction costs are low and property rights are clearly defined

the coase theorem says that private bargains can ensure an efficient market equilibrium even when externalities exist if

equates the slope of the budget constraint with the slope of the indifference curve

the consumption bundle that maximizes utility for a consumer is the bundle that


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