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