Eco Chapter 7-11 – Flashcards

question
The study of how the allocation of resources affects economic well-being is called
answer
Welfare Economic
question
A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it
answer
maximizes the combined welfare of buyers and sellers.
question
Willingness to pay
answer
measures the value that a buyer places on a good
question
Consumer surplus
answer
is the amount a consumer is willing to pay minus the amount the consumer actually pays.
question
Producer surplus measures the
answer
benefits to sellers of participating in a market.
question
Producer surplus directly measures
answer
the well-being of sellers
question
Total surplus is
answer
equal to producer surplus plus consumer surplus.
question
The "invisible hand" is
answer
a concept developed by Adam Smith to describe the virtues of free markets.
question
Laissez-faire is a French expression which literally means
answer
allow them to do.
question
Market power refers to the
answer
ability of market participants to influence price.
question
Which tools allow economists to determine if the allocation of resources determined by free markets is desirable?
answer
consumer and producers surplus
question
Negative Externality
answer
The cost to society of a decision made by an individual, company or any other entity that is creating a Negative Externality is the uncompensated cost suffered by bystanders affected by the decision (external cost) plus the direct cost of the decision (private cost) incurred by the decision maker. The decision maker is not paying for the entire cost of the decision.
question
Positive Externality
answer
The social value of a "decision" made by an individual, company or any other entity that is creating a Positive Externality is the uncompensated "benefit" received by bystanders affected by the "decision" (external benefit) plus the direct benefit of the "decision" (private value) received by the decision maker. The decision maker is not receiving the entire benefit of the decision.
question
When a good is excludable
answer
people can be prevented from using the good The property of a good whereby a person can be prevented from using it
question
Goods that are excludable include both
answer
private goods and natural monopolies.
question
Goods that are not excludable include both
answer
common resources and public goods
question
An FM radio signal is an example of a good that is
answer
nonrival in consumption.
question
An example of a private good would be
answer
a t-shirt.
question
A cheeseburger is
answer
excludable and rival in consumption.
question
A cable television broadcast of a movie is
answer
excludable and not rival in consumption.
question
At the local park there is a playground for children to use. While anyone is allowed to use the playground, it is often very busy, reducing the enjoyment of many of the children who use it. The playground is a
answer
common resource.
question
A free-rider problem exists for any good that is not
answer
excludable.
question
Tom is a non-union employee at General Power. The majority of the employees at General Power are unionized. The union at General Power has negotiated very good benefits. Even though he is not a union member and he does not have to pay union dues, Tom receives all the benefits that the union has negotiated. Tom's behavior is an example of
answer
free riding
question
Who among the following is a free rider?
answer
Fred watches many public television programs, but he has never sent in a contribution to the station.
question
When a free-rider problem exists,
answer
the market will devote too few resources to the production of the good.
question
National defense is provided by the government because
answer
free-riders make it difficult for private markets to supply the socially optimal quantity
question
Knowledge is an example of a
answer
public good.
question
A lighthouse might be considered a private good if
answer
the owner of the lighthouse is able to exclude beneficiaries from receiving the benefits of the lighthouse.
question
If the government decides to build a new highway, the first step would be to conduct a study to determine the value of the project. The study is called a
answer
cost-benefit analysis
question
The Tragedy of the Commons occurs because
answer
a common resource is rival in consumption
question
Imagine a 2,000-acre park with picnic benches, trees, and a pond. Suppose it is publicly owned, and people are invited to enjoy its beauty. When the weather is nice, it is difficult to find parking on summer afternoons. Otherwise, it is a great place. An efficient solution to the parking problem would be to
answer
charge higher prices for parking at busy times.
question
Consider the following problems: Overcrowded public highways, overfishing in the ocean, polluted air, and the near-extinction of the wild rhinoceros. What do these problems have in common?
answer
They are all the result of a failure to establish clear property rights over something of value.
question
When externalities exist, buyers and sellers
answer
neglect the external effects of their actions, and the market equilibrium is not efficient.
question
Which of the following is an example of an externality?
answer
a beautiful flower garden outside of the local post office, a flu shot that prevents a student from transmitting the virus to her roommate cigarette smoke that permeates an entire restaurant all of the above
question
If a sawmill creates too much noise for local residents
answer
the government can raise economic well-being through noise-control regulations
question
Private markets fail to account for externalities because
answer
decisionmakers in the market fail to include the costs of their behavior to third parties
question
When negative externalities are present in a market
answer
social costs will be greater than private costs.
question
A negative externality will cause a private market to produce
answer
more than is socially desirable.
question
Which of the following is an example of a positive externality?
answer
a nice garden in front of your neighbor's house
question
If education produces positive externalities, we would expect
answer
the government to subsidize education.
question
When the government uses a command-and-control policy to solve an externality, it
answer
creates policies that directly regulate behavior.
question
A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards. This decision provides an example of
answer
a direct regulation of an externality
question
Emission controls on automobiles are an example of a
answer
command-and-control policy to increase social efficiency
question
Corrective taxes are typically advocated to correct for the effects of
answer
negative externalities.
question
Private solutions may not be possible due to the costs of negotiating and enforcing these solutions. Such costs are called
answer
transaction costs.
question
Dick owns a dog whose barking annoys Dick's neighbor Jane. Suppose that the benefit of owning the dog is worth $200 to Dick and that Jane bears a cost of $400 from the barking. Assuming Dick has the legal right to keep the dog, a possible private solution to this problem is that
answer
Jane pays Dick $300 to give the dog to his parents who live on an isolated farm.
question
A positive externality
answer
is a benefit to someone other than the producer and consumer of the good
question
A positive externality will cause a market to produce
answer
less than is socially desirable
question
Which of the following is an example of a positive externality
answer
Mary not catching the flu from Sue because Sue got a flu vaccine.
question
When the price rises from P1 to P2, consumer surplus
answer
decreases by an amount equal to B+C.
question
Consumer=
answer
Buyer and the Demand
question
Producer =
answer
Seller and the Supply
question
Suppose that the production of plastic creates a social cost which is depicted in the graph above. Without any government regulation, how much plastic will be produced? (Private Cost)
answer
650
question
Suppose that the production of plastic creates a social cost which is depicted in the graph above. What is the socially optimal quantity of plastic?
answer
500 social cost
question
Which of the following is an example of a positive externality?
answer
Mary not catching the flu from Sue because Sue got a flu vaccine.
question
Dick owns a dog whose barking annoys Dick's neighbor Jane. Suppose that the benefit of owning the dog is worth $700 to Dick and that Jane bears a cost of $500 from the barking. Assuming Dick has the legal right to keep the dog, a possible private solution to this problem is that
answer
The current situation is efficient
question
When a good is excludable
answer
people can be prevented from using the good.
question
Suppose that the Town of Podunk is considering hiring an additional police officer. The reduction in crime is estimated to be worth $10 for each of Podunk's 4,500 residents. What should the city do?
answer
Hire the police officer if the cost of the new officer is less than $45,000.
question
Explicit cost
answer
require an outlay of money, e.g. paying wages to workers ( opporunity cost
question
Implicit cost
answer
Do not require a cash outlay. e.g. the opportunity cost of the owners time
question
Taxes on specific goods such as gasoline and alcoholic beverages are called
answer
excise taxes.
question
The two types of taxes that are most important to state and local governments as sources of revenue are
answer
sales taxes and property taxes
question
The largest source of income for the federal government is
answer
individual income taxes.
question
A person's tax liability refers to
answer
question
The government taxes corporate income on the basis of
answer
question
A payroll tax is a tax on
answer
the wages that a firm pays its workers.
question
All of the following are transfer payments except
answer
personal income taxes.
question
The government's health plan for the elderly is called
answer
Medicare.
question
The federal healthcare spending program that specifically targets the poor is called
answer
Medicaid.
question
Public schools, which educate most students through high school, are paid for primarily by
answer
local governments.
question
Under a regressive tax system,
answer
the marginal tax rate for high income taxpayers is lower than the marginal tax rate for low income taxpayers.
question
Tax evasion is
answer
illegal.
question
If the government imposes a tax of $3,000 on everyone, the tax would be
answer
question
A lump-sum tax
answer
question
The benefits principle of taxation can be used to argue that wealthy citizens should pay higher taxes than poorer ones on the basis that
answer
the wealthy benefit more from services provided by government than the poor
question
Vertical equity states that taxpayers with a greater ability to pay taxes should
answer
contribute a larger amount than those with a lesser ability to pay.
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question
The study of how the allocation of resources affects economic well-being is called
answer
Welfare Economic
question
A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it
answer
maximizes the combined welfare of buyers and sellers.
question
Willingness to pay
answer
measures the value that a buyer places on a good
question
Consumer surplus
answer
is the amount a consumer is willing to pay minus the amount the consumer actually pays.
question
Producer surplus measures the
answer
benefits to sellers of participating in a market.
question
Producer surplus directly measures
answer
the well-being of sellers
question
Total surplus is
answer
equal to producer surplus plus consumer surplus.
question
The "invisible hand" is
answer
a concept developed by Adam Smith to describe the virtues of free markets.
question
Laissez-faire is a French expression which literally means
answer
allow them to do.
question
Market power refers to the
answer
ability of market participants to influence price.
question
Which tools allow economists to determine if the allocation of resources determined by free markets is desirable?
answer
consumer and producers surplus
question
Negative Externality
answer
The cost to society of a decision made by an individual, company or any other entity that is creating a Negative Externality is the uncompensated cost suffered by bystanders affected by the decision (external cost) plus the direct cost of the decision (private cost) incurred by the decision maker. The decision maker is not paying for the entire cost of the decision.
question
Positive Externality
answer
The social value of a "decision" made by an individual, company or any other entity that is creating a Positive Externality is the uncompensated "benefit" received by bystanders affected by the "decision" (external benefit) plus the direct benefit of the "decision" (private value) received by the decision maker. The decision maker is not receiving the entire benefit of the decision.
question
When a good is excludable
answer
people can be prevented from using the good The property of a good whereby a person can be prevented from using it
question
Goods that are excludable include both
answer
private goods and natural monopolies.
question
Goods that are not excludable include both
answer
common resources and public goods
question
An FM radio signal is an example of a good that is
answer
nonrival in consumption.
question
An example of a private good would be
answer
a t-shirt.
question
A cheeseburger is
answer
excludable and rival in consumption.
question
A cable television broadcast of a movie is
answer
excludable and not rival in consumption.
question
At the local park there is a playground for children to use. While anyone is allowed to use the playground, it is often very busy, reducing the enjoyment of many of the children who use it. The playground is a
answer
common resource.
question
A free-rider problem exists for any good that is not
answer
excludable.
question
Tom is a non-union employee at General Power. The majority of the employees at General Power are unionized. The union at General Power has negotiated very good benefits. Even though he is not a union member and he does not have to pay union dues, Tom receives all the benefits that the union has negotiated. Tom's behavior is an example of
answer
free riding
question
Who among the following is a free rider?
answer
Fred watches many public television programs, but he has never sent in a contribution to the station.
question
When a free-rider problem exists,
answer
the market will devote too few resources to the production of the good.
question
National defense is provided by the government because
answer
free-riders make it difficult for private markets to supply the socially optimal quantity
question
Knowledge is an example of a
answer
public good.
question
A lighthouse might be considered a private good if
answer
the owner of the lighthouse is able to exclude beneficiaries from receiving the benefits of the lighthouse.
question
If the government decides to build a new highway, the first step would be to conduct a study to determine the value of the project. The study is called a
answer
cost-benefit analysis
question
The Tragedy of the Commons occurs because
answer
a common resource is rival in consumption
question
Imagine a 2,000-acre park with picnic benches, trees, and a pond. Suppose it is publicly owned, and people are invited to enjoy its beauty. When the weather is nice, it is difficult to find parking on summer afternoons. Otherwise, it is a great place. An efficient solution to the parking problem would be to
answer
charge higher prices for parking at busy times.
question
Consider the following problems: Overcrowded public highways, overfishing in the ocean, polluted air, and the near-extinction of the wild rhinoceros. What do these problems have in common?
answer
They are all the result of a failure to establish clear property rights over something of value.
question
When externalities exist, buyers and sellers
answer
neglect the external effects of their actions, and the market equilibrium is not efficient.
question
Which of the following is an example of an externality?
answer
a beautiful flower garden outside of the local post office, a flu shot that prevents a student from transmitting the virus to her roommate cigarette smoke that permeates an entire restaurant all of the above
question
If a sawmill creates too much noise for local residents
answer
the government can raise economic well-being through noise-control regulations
question
Private markets fail to account for externalities because
answer
decisionmakers in the market fail to include the costs of their behavior to third parties
question
When negative externalities are present in a market
answer
social costs will be greater than private costs.
question
A negative externality will cause a private market to produce
answer
more than is socially desirable.
question
Which of the following is an example of a positive externality?
answer
a nice garden in front of your neighbor's house
question
If education produces positive externalities, we would expect
answer
the government to subsidize education.
question
When the government uses a command-and-control policy to solve an externality, it
answer
creates policies that directly regulate behavior.
question
A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards. This decision provides an example of
answer
a direct regulation of an externality
question
Emission controls on automobiles are an example of a
answer
command-and-control policy to increase social efficiency
question
Corrective taxes are typically advocated to correct for the effects of
answer
negative externalities.
question
Private solutions may not be possible due to the costs of negotiating and enforcing these solutions. Such costs are called
answer
transaction costs.
question
Dick owns a dog whose barking annoys Dick's neighbor Jane. Suppose that the benefit of owning the dog is worth $200 to Dick and that Jane bears a cost of $400 from the barking. Assuming Dick has the legal right to keep the dog, a possible private solution to this problem is that
answer
Jane pays Dick $300 to give the dog to his parents who live on an isolated farm.
question
A positive externality
answer
is a benefit to someone other than the producer and consumer of the good
question
A positive externality will cause a market to produce
answer
less than is socially desirable
question
Which of the following is an example of a positive externality
answer
Mary not catching the flu from Sue because Sue got a flu vaccine.
question
When the price rises from P1 to P2, consumer surplus
answer
decreases by an amount equal to B+C.
question
Consumer=
answer
Buyer and the Demand
question
Producer =
answer
Seller and the Supply
question
Suppose that the production of plastic creates a social cost which is depicted in the graph above. Without any government regulation, how much plastic will be produced? (Private Cost)
answer
650
question
Suppose that the production of plastic creates a social cost which is depicted in the graph above. What is the socially optimal quantity of plastic?
answer
500 social cost
question
Which of the following is an example of a positive externality?
answer
Mary not catching the flu from Sue because Sue got a flu vaccine.
question
Dick owns a dog whose barking annoys Dick's neighbor Jane. Suppose that the benefit of owning the dog is worth $700 to Dick and that Jane bears a cost of $500 from the barking. Assuming Dick has the legal right to keep the dog, a possible private solution to this problem is that
answer
The current situation is efficient
question
When a good is excludable
answer
people can be prevented from using the good.
question
Suppose that the Town of Podunk is considering hiring an additional police officer. The reduction in crime is estimated to be worth $10 for each of Podunk's 4,500 residents. What should the city do?
answer
Hire the police officer if the cost of the new officer is less than $45,000.
question
Explicit cost
answer
require an outlay of money, e.g. paying wages to workers ( opporunity cost
question
Implicit cost
answer
Do not require a cash outlay. e.g. the opportunity cost of the owners time
question
Taxes on specific goods such as gasoline and alcoholic beverages are called
answer
excise taxes.
question
The two types of taxes that are most important to state and local governments as sources of revenue are
answer
sales taxes and property taxes
question
The largest source of income for the federal government is
answer
individual income taxes.
question
A person's tax liability refers to
answer
question
The government taxes corporate income on the basis of
answer
question
A payroll tax is a tax on
answer
the wages that a firm pays its workers.
question
All of the following are transfer payments except
answer
personal income taxes.
question
The government's health plan for the elderly is called
answer
Medicare.
question
The federal healthcare spending program that specifically targets the poor is called
answer
Medicaid.
question
Public schools, which educate most students through high school, are paid for primarily by
answer
local governments.
question
Under a regressive tax system,
answer
the marginal tax rate for high income taxpayers is lower than the marginal tax rate for low income taxpayers.
question
Tax evasion is
answer
illegal.
question
If the government imposes a tax of $3,000 on everyone, the tax would be
answer
question
A lump-sum tax
answer
question
The benefits principle of taxation can be used to argue that wealthy citizens should pay higher taxes than poorer ones on the basis that
answer
the wealthy benefit more from services provided by government than the poor
question
Vertical equity states that taxpayers with a greater ability to pay taxes should
answer
contribute a larger amount than those with a lesser ability to pay.