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