Econ Final

in a perfectly competitive market, if one seller chooses to charge a price for its good that is slightly higher than the market price, then it will

lose all or most of its customers

give an example of a pecuniary externality

ludwig mentions that frank, the local rancher, is inflating land prices by buying too much land

define physical capital

machines and equipment that can be used for production

john is attempting to decide on a movie. he determines that the new batman movie provides him with $5 more of a net benefit than the new spiderman movie. optimization in levels or optimization in differences?

optimization in differences, since he is calculating the change in net benefits between alternatives

marcia finds that the net benefit of flying from chicago to honolulu on a non-stop UA flight is $400, and the net benefit for the same trip flying on a one-stop AA flight is $200. optimization in levels or optimization in differences?

optimization in levels, since she is comparing the net benefits between alternatives.

define long run

period of time when all of a firm's inputs can be varied

define short run

period of time when at least one of a firm's inputs is fixed

a non-market price imposition is a

price control

to allocate the goods produced to the people who value them the most, we use the _________

price mechanism

in a market economy, the alignment of interests is accomplished through the use of

prices

when there are negative externalities present, free markets ______, and when there are positive externalities, free markets ________.

produce too much; produce too little

to reduce inequality and poverty in an economy, the government uses a

progressive tax system to fund transfer payments

optimization in LEVELS examines________, while optimization in DIFFERENCES analyzes ______.

total net benefits of alternatives; the change in net benefits

what equation calculates the profits of a firm?

total revenues - total costs

what is true regarding the differences between a monopoly and a perfectly competitive firm?

unlike a perfectly competitive firm, a monopoly faces downward sloping marginal revenue curve and does not have a supply curve

scarcity is the situation of having ______ wants in a world of _____ resources

unlimited; limited

to say that a good has network effects means that the

value of the product increases as more people use it

positive questions ask _______ and normative questions ask _____

what is or what will be;what ought to be

tax incidence refers to

who bears the burden of a tax

the lowest price that the seller is willing to receive to sell an extra unit of a good is called ______, while the highest price that a buyer is willing to pay for an extra unit of a good is called _____

willingness to accept; willingness to pay

the price at which a seller is indifferent between making a sale and not doing so is known as his

willingness-to-sell value and reservation price

suppose you have to organize a double oral auction for a good that has perfectly elastic demand. do you expect prices to approach the competitive equilibrium?

yes

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 price stayed above average variable cost

the concept of opportunity cost would explain whether someone chooses to drive, take a cab, take a bus, or walk to school or work because someone with ______

a high wage is more likely to drive or take a cab to work because his time is worth more

give an example of a negative externality

jeb mentions that the hog farm down the road from his house is creating a very nasty smell

all else being equal, the steeper the demand and supply curve, the ______ the social surplus in a market

larger

for a market to be in equilibrium, the costs of making a product must be ______ the final price at which the product sells

less than

causation occurs when there is a

logical cause-and-effect relationship

two characteristics of a good economic question are

-is it important to individuals or society -it can be anwered

if an individual only consumes goods X and Y and is currently maximizing her total benefits, which of the following must be true? -all of the above

-no other consumption choice can make total benefits greater -the "equal bang for the buck" rule is adhered to -the marginal benefits per dollar spent are the same for both goods -MBx/Px=MBy/Py

what are the properties to a monopoly

-one seller -price maker -high barriers to entry

in assessing the performance of a perfectly competitive market, we can say that

-price efficiently allocates goods and services to buyers and sellers -any departure from the equilibrium necessarily reduces social surplus -no individual can be made better off without making someone else worse off

Give examples of externalities

-rochelle has asthma caused by the pollution of a local factory near her home -jose, who is allergic to pollen, is sick from the flowers that grow in his neighbor's garden

what are the four major factors that shift the supply curve when it changes?

-sellers' beliefs about the future -technology used in production -the scale of sellers -idk NOT: the price of the good itself

examples of causation

-talking on the phone while driving will lead to car accidents -heavy drinking will lead to liver disease

what are the five major factors that shift the demand curve when it changes?

-the price of complementary goods -income and wealth -expectations about the future -idk -idk NOT A REASON: the price of the good itself

the price elasticity of demand for a good is likely to be less elastic:

-the smaller the number of close substitutes for the good -the shorter the available time during which consumers can adjust -the lower the budget share spent on the good

when externalities are present:

the free market outcome is not efficient

what is meant by comparative statistics. explain with example

a change in an outcome,such as consumption, that results from a change in a factor, such as the price

how does a consumer's budget set differ from his 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

The statement that the US government should increase carbon taxes to reduce carbon emissions that cause global warming is __________

a normative statement, since it describes what ought to be done and is therefore not possible to confirm with data

define empiricism

a situation where economists use data to analyze what is happening in the world

define equilibrium

a situation where no one would benefit from changing his or her behavior

define optimization

a situation where people weigh costs and benefits when making a decision

what describes a monopolist's demand curve

a y-intercept of $8 and downward sloping with a slope of -1

Economists study _______; therefore, the unifying feature of economics is a focus on _____

all human behavior; choice

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

why is the market demand curve for public goods calculated as a vertical summation of individual demand curves?

because the public good is non-viral, so you and others can consume every unit of the good at the same time

in a perfectly competitive market, sellers ________ and buyers ________

cannot charge more than the market price; cannot pay less than the market price

more police officers and lower crime rates is likely to be causation or correlation?

causation

economists mostly use optimization in differences, as opposed to optimization in levels, because

comparing different features of alternatives is simple

why is price lower in a competitive market than in a monopoly?

competitive markets face perfectly elastic demand.........

a linear PPC would show ______, and a PPC that is curved away from the origin would show ____.

constant opportunity costs; increasing opportunity costs

define second degree price discrimination

consumers are charged different prices based on characteristics of their purchase, such as the quantity they purchase

define first degree/perfect price discrimination

consumers charge the maximum price they are willing to pay

Examples of what is considered an economic agent

consumers, parents, criminals, and firms

a difficult problem for central planners is bringing together those economic agents whose interest coincide in order to trade. This is known as the ____ problem

coordination

the length of women's skirts and stock market performance is likely to be causation or correlation

correlation

compare a set of feasible alternatives and picking the best one is an optimization process called

cost benefit analysis

define the concept of causation

describes how one event can bring about change in another

oligopolistic firms that sell differentiated products determine their prices when prices are

determined simultaneously by the firms as best responses given other firm prices

examples of scarce resources

diamonds, mechanical pencils, gas, and time

define third degree price discrimination

different groups of consumers are charged different prices based on customer or location attributes

what tool would you employ to analyze the relationship between gas prices and consumer behavior?

economic models

when economists test their theories using evidence-based analysis, they are most likely using

empiricism through the use of data

for a market to be in equilibrium, the amount produced by sellers must be ________ the amount purchased by the buyers

equal to

in the model of an oligopoly with identical (homogeneous) products, the price is likely to be ______

equal to marginal cost

Examples of scarce resources for producers.

equipment and tools, low-skill labor, and natural resources for production

the two most important goals for government policy involve a trade off between _____ and _____`

equity and efficiency

a consumer's budget constraint refers to the collection of all possible bundles that

exactly exhaust a consumer's entire budget

terms of trade is the

exchange rate of goods for goods

in the domestic economy when outsourcing exists, prices ____, social surplus _____, and labor market welfare _____

fall; increases; decreases

What is addressed in the study of economics?

financial markets, inflation rates, optimal tax policies, and the costs associated with a decision

give an example of a positive externality

george mentions that ms. daisy has planted some lovely new roses in front of her store

for a market to be in equilibrium, buyers must place a value on the uses of the product that is _____ the cost of buying the product

greater than

when comparing the accounting profit with economic profit, it must be true that the accounting profit is ___________ economic profit

greater than or equal to

if plant A uses older technology than plant B, it is likely to have a _____ marginal cost than plant B

higher

for a trade to take place, a buyer's willingness to pay must be _____

higher than the seller's willingness to accept OR equal to the seller's willingness to accept

for economists, the "buyer's problem" refers to

how consumers arrive at a choice as to what to purchase

example of a positive question

how much is the national debt

once planners have successfully brought economic agents together, a second problem of aligning the interests of the economic agents must be solved. this is known as the ____ problem

incentive

define law of diminishing returns

increases in inputs eventually leads to less additional output

the largest resource of revenue for the federal government is

individual income taxes

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

to restrict a firm's monopoly power, why cant antitrust authorities just set a floor or a ceiling in the market?

it is difficult to set a fair price, even if regulators did, the firm would then have no incentive to innovate

negative externality based on market forces only, how will this impact the production levels for a factory if negative externalities are present?

it will produce the good above the socially efficient level

how would the introduction of legal or technical barriers to entry affect the long-run equilibrium in a perfectly competitive market?

it would reduce any downward pressure on prices from entry and allow economic profits in the long run

what is the largest source of revenue for state governments

miscellaneous taxes and fees, such as tolls on roads and public transportation tickets

how does a natural monopoly differ from a firm that becomes a monopoly due to network effects?

natural monopolies result from economies of scales, while network effects come from the benefits to consumers from having many people use a service

for two goods that are complements, the cross-price elasticity of demand will be

negative

if a good is considered to be a luxury good, does it mean that the Law of Demand does not hold?

no, it only means that its income elasticity of demand is greater than 1.0, so the law of demand still holds

is the entire burden of the tax always borne by those on whom it is imposed?

not necessarily,since the burden of the tax depends on price elasticity

example of a negative correlation between variables

number of winter coats sold and the temp outside

terms of trade are determined

on the basis of opportunity costs

why is it difficult for the market to deliver socially efficient quantities of goods like clean air or street lighting? these are examples of _____; therefore, even if you ______ for the good you still get to

public goods; do not pay; enjoy it

when one of the five major factors changes, causing an increase in demand, the demand curve shifts

rightward

in your first presentation to management, how would you describe your planned methodology to perform the analysis?

scientific method

antitrust policy started with the ______, which prohibited any agreements or actions that would put restraints on trade

sherman act of 1890

in the next 20 years, a sizeable proportion of the US labor force is expected to include many people above the age of 65. as a result,the US PPC would _____

shift inward

Example of a normative question

should welfare be repealed?

a production possibilities curve (PPC)

shows the relationship between the maximum production of one good for a given level of production of another good

in equilibrium, everyone _______

simultaneously optimizes, so that nobody benefits by changing his or her own behavior

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 change

What is a positive statement?

something stated that can be backed up with real life data/numbers

what is meant by randomization in the context of an economic agent

subjects are assigned by chance, rather than by choice, to a group

what does it mean to say that we are running out of "cheap oil"?

that oil reserves are becoming more expensive to find and extract over time

define marginal product

the change in total production associated with using one more unit of input

optimization is the process that describes

the choices that people make

the firm's supply curve represents

the minimum price the seller is willing to accept to sell an extra unit of a good

define production

the process of transforming inputs into outputs

define specialization

the result of workers developing a certain skill set in order to increase total productivity

define economics

the study of how agents choose to allocate scarce resources and the impact of those choices on society

are there real-world markets that resemble double oral auctions?

yes, trading on the NY stock exchange is very similar to a double oral auction