Study Guide pt.2

How does consumer surplus change as the equilibrium price of a good rises or falls?

As the price of a good rises, consumer surplus decreases, and as the price of a good falls, consumer surplus increases

How does producer surplus change as the equilibrium price of a good rises or falls?

As the price of a good rises, producer surplus increases, and as the price of a good falls, producer surplus decreases

Economic surplus in a market is the sum of _____ surplus and _____ surplus. In a competitive market, with many buyers and sellers and no government restrictions, economic surplus is at a _____ when the market is in _______

Consumer; producer; maximum; equilibrium

The United States has three legal categories of firms. Which of the three categories accounts for the most profit in the United States?

Corporations account for the most profit in the United States

The Patient Protection Affordable Care Act (PPACA)

Is recently enacted legislation that significantly reorganizes the U.S. health care system.

Why is the demand curve referred to as a marginal benefit curve?

It shows the willingness of consumers to purchase a product at different prices

Why is the supply curve referred to as a marginal cost curve

It shows the willingness of firms to supply a product at different prices

Which of the following is not among its major provisions?

Makes all health care professionals employees of the federal government

What do we mean by the separation of ownership from control in large corporations?

Shareholders own the corporation, but it is controlled by managers.

ExxonMobil is a large corporation. Who owns this company?

Stockholders

How is the separation of ownership from control related to the principal-agent problem?

The agents (managers) may pursue their own interests rather than the interests of the principals (Shareholders)

Consumer surplus is

The difference between the highest price a consumer is willing to pay and the price the consumer actually pays

Deadweight loss is

The reduction in economic surplus resulting from a market not being in competitive equilibrium

A partnership is

a firm owned jointly by two or more persons and not organized as a corporation

A bond represents ____________, while a share of stock represents __________

a loan to the company part ownership of the company

A black market is

a market in which buying and selling take place at prices that violate government price regulations

The principal agent problem occurs when

an agent pursues his own interests rather than the interests of the principal who hired him.

An income statement shows a firm's

costs, revenues, and profits

what is economic efficiency?

economic efficiency is where consumer surplus and producer surplus are maximized

Increases in a country's income can improve health by

improving sanitary conditions, accelerating medical research, improving food distribution

improvements in health can increase a country's total income by

improving worker morale, enabling people to work harder, expanding the available workforce

Improvements in health of the average American caused the U.S. production possibilities frontier to shift out primarily by

increasing the country's effective workforce

It is better to have outside directors on the board of directors, as opposed to only inside directors, because

independent outsiders would be better suited to monitor and control the management of the corporation

Limited liability becomes more important for firms trying to raise funds from a large number of investors, rather than from a small number of investors, because

investors that make a small investment in a firm may be unwilling to risk all their personal assets if the firm fails.

The owners of corporations have

limited liability

Subtracting the value of a firm's liabilities from the value of its assets leaves its

net worth

change over time in the average height of a country's citizens are used as a measure of the country's living standards because height reflects

overall nutritional status

what can health insurance companies do to minimize problems associated with asymmetric information such as adverse selection or moral hazard? To deal with asymmetric information, insurance companies can

require policyholders to pay coinsurance.

Limited liability means that

shareholders in a corporation cannot lose more than their investment in the firm

The three major types of firms in the United States are called

sole proprietorships, partnerships, and corporations.

When the government imposes price floors or price ceilings,

some people win, some people lose, and there is a loss of economic efficiency

a ____ is a financial security that represents partial ownership of a firm, while a ____ is a financial security that represents a promise to repay a fixed amount of funds

stock bond

Marginal benefit is

the additional benefit from consuming one more unit

Marginal cost is

the additional cost of producing one more unit.

Producer Surplus is

the difference between the lowest price a firm would be willing to accept and the price it actually receives.

Economic surplus is maximized when

the marginal benefit of consumption is equal to the marginal costs of production

Externalities affect the economic efficiency of a market equilibrium by causing a difference between

the private cost of production and the social cost of production. the private benefit of consumption and the social benefit of production

The government grants limited liability to the owners of corporations

to limit shareholder risk and thus encourage investment in corporations

Large corporations may obtain funds for operations and expansion

with retained earnings

Owners of small businesses typically obtain funds for expansion

with retained earnings, by taking on partners, or by borrowing funds from friends or a bank