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88 Cards in this Set
- Front
- Back
Antibiotics may be ___________, since people only consider their _______________. |
Overused; private costs of consumption not the social costs |
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Markets are often inefficient when when external costs are present because: |
Social costs exceed social benefits at the private market solution |
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When external benefits are present, the market price is __________, however when external costs are present, the market price is ______________. |
too high; too low |
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An eternal benefit in a market will cause the market to produce: |
less than is socially desirable |
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To maximize profit, firms should keep producing as long as marginal revenue is: |
greater than marginal cost |
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Which of the following statements is correct?
1. When the marginal cost curve is below the average cost curve, the average cost curve must be rising
2. When the marginal cost curve is above the average cost curve, the average cost curve must be rising. |
2. When the marginal cost curve is above the average cost curve, the average cost curve must be rising. |
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The oil industry is an increasing-cost industry because: |
Expanding output requires firms to use more expensive production methods to find and extract oil from less desirable locations. |
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A firm should exit the industry if which of the following conditions apply?
1. TR > TC 2. Lifetime expected profit is positive. 3. Prices are low now but expected to rise. 4. P < AC |
4. P < AC |
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The elimination principle, a general feature of competitive markets, tells us that: |
above normal profits are temporary |
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For a competitive firm, which of the following conditions describes the profit maximization condition?
1. P = MC 2. MR = MC 3. TR = TC |
1. P = MC & 2. MR = MC |
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A monopolist can sell 300 units of output for $29.00 per unit. Alternatively, it can sell 301 units of output for $28.25 per unit. The marginal revenue of the 301st unit of output is: |
- $196.75 |
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If the quantity demanded for a hand-carved pineapple is 2 at a price of $16, and the quantity demanded will increase to 3 if the seller lowers the price to $14, what is the seller's marginal revenue from selling 3 units of pineapple? |
10 |
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Natural monopolies exist when one firm can: |
produce the market output at a lower cost than two or more firms. |
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To maximize profit, Calvin Klein wants to set a higher price for their pants in Europe than in Africa because the demand curve in Africa is: |
Lower and/or more elastic |
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Arbitrage is ___________ in one market and ____________ in another market. |
buy low; sell high |
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Perfectly price discriminating monopolists charge: |
each consumer his or her maximum willingness to pay, so consumer surplus is zero. |
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Which of the following would NOT be considered a network good?
1. Facebook 2. quiet study rooms 3. online player versus player games 4. cell phones |
2. Quiet study rooms |
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The prisoner's dilemma describes situations where the pursuit of: |
individual interest lead to a group outcome that in the interest of no one. |
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A strategy that has a higher payoff than any other strategy no matte what the other player does is called a: |
dominant strategy |
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Compared to private goods, the free market would ___________ public goods. |
underproduce |
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Why is national defense a public good? |
1. Because people who don't pay for national defense still benefit from having it.
2. Because one person's use of national defense doesn't reduce anyone else's ability to use it. |
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What is an explanation for why wild animals are often hunted to the point of extinction? |
The tragedy of the commons |
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Tuna fish are being driven to extinction because of overfishing. If all the fishermen know about this, why don't they fish less to slow down the extinction? |
A lack of property rights over the tuna fish stock in the sea. |
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Which list below contains only common resources?
1. national defense, sunshine, smog reduction
2. online video games, public beaches, soup kitchen meals, public roads
3. public beaches, soup kitchen meals, public roads |
3. Public beaches, soup kitchen meals, public roads |
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Overutilization and lack of conservation are more likely a problem for: |
goods that are not owned |
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A cost paid by the consumer or the producer |
Private Cost |
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A cost paid by people other than the consumer or the producer trading in the market. |
External Cost |
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The cost to everyone (private cost + external cost) |
Social Cost |
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External costs or external benefits that fall on bystanders. |
Externalities |
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Consumer surplus + producer surplus + everyone else's surplus |
Social Surplus |
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The price and quantity that maximizes social surplus |
Efficient Equilibrium |
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The quantity that maximizes social surplus |
Efficient Quantity |
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A tax on a good with external costs (negative externality) |
Pigouvian tax |
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A benefit received by people other than the consumers or producers trading in the market |
External Benefit |
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A subsidy on a good with external benefits |
Pigouvian Subsidy |
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All the costs necessary to reach an agreement |
Transaction Costs |
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The principle that if transaction costs are low and property rights are clearly defined, private bargains will ensure that the market equilibrium is efficient even when there are externalities. |
Coase Theorem |
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Most obvious (but not always the best) method to reduce the external cost of electricity generation is for the government to order firms to us (or make) less electricty. This is an example of: |
Command and control |
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The time after all exit or entry has occurred |
Long Run |
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The period before exit or entry can occur |
Short Run |
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Price times quantity sold (PxQ) |
Total Revenue |
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The cost of producing a given quantity of output |
Total Cost |
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A cost that requires a monetary expenses |
Explicit Cost |
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A cost that does not require an expense of money |
Implicit Cost |
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Total revenue minus total costs including implicit costs |
Economic Profit |
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Total revenue minus explicit costs |
Accounting profit |
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Costs that do not vary with output |
Fixed costs |
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Costs that vary with output |
Variable costs |
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The change in total revenue from selling an additional unit |
Marginal Revenue |
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The change in total cost from producing an additional unit |
Marginal Cost |
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The total cost of producing a given quantity divided by that quantity (TC/Q) |
Average Cost |
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The condition when P = AC; at this price the firm is covering all of its costs including enough to pay labor and capital their ordinary opportunity costs |
Zero Profit |
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A cost that once incurred can never be recovered |
Sunk Cost |
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A industry in which costs increase with greater output; shown with an upward sloped supply curve |
Increasing Cost Industry |
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An industry in which industry costs do not change with greater output; shown with flat supply curve; shown with a flat supply curve |
Constant Cost Industry |
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An industry in which the industry costs decrease with an increase in output; shown with a downward sloping supply curve |
Decreasing Cost Industry |
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The principle that in a competitive market, above-normal profits are eliminated by entry and below-normal profits are eliminated by exit. |
Elimination principle |
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The power to raise price above marginal cost without fear that other firms will enter the market. |
Market Power |
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A firm with market power |
Monopoly |
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The advantages of large-scale production that reduce average cost as quantity increases. |
Economies of Scale |
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A situation when a single firm can supply the entire market at a lower cost than two or more firms |
Natural Monopoly |
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Factors that increase the cost to new firms of entering an industry |
Barriers to entry |
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The selling of the same product at different prices to different customers. |
Price Discrimination |
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The practice of taking advantage of price differences for the same good in different markets by buying low in one market selling high in another market. |
Arbitrage |
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The situation that exists when customer is charged his or her maximum willingness to pay |
Perfect Price Discrimination |
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A form of price discrimination in which one good, called the base good, is tied to a second good called the variable good. |
Tying |
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The requirement that products be bought together in a bundle or package. |
Bundling |
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A group of suppliers that tries to act as if they were a monopoly |
Cartel |
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A market dominated by a small number of firms |
Oligopoly |
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A market with a large number of firms selling similar but not identical products |
Monopolistic competition |
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Decision making in situations that are interactive |
Strategic Decision Making |
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A strategy that has a higher payoff than any other strategy no matter the strategies of other players |
Dominant Strategy |
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Situations where the pursuit of individual interest leads to a group outcome that is in the interest of no one |
Prisoner's Dilemma |
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Laws that give the government the power to regulate or prohibit business practices that may be anticompetitive |
Antitrust Laws |
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A good whose value to one consumer increases the more that other consumers use the good |
Network good |
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A situation in which no player has an incentive to change strategy unilaterally |
Nash equilibrium |
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Game in which the players are better off if they choose the same strategies than if they choose different strategies and there is more than one strategy on which to potentially coordinate |
Coordination Game |
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A market with many potential entrants |
Contestable Market |
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The costs of switching purchases from one firm to another. Firms sometimes try to raise these costs |
Switching Costs |
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When people who don't pay cannot easily be prevented from using the good, the good is non-excludable |
Non-excludable |
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When one person's use of the good does not reduce the ability of another person to use the same good, the good is non-rival |
Non-rival |
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Goods that are excludable and rival |
Private good |
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Goods that are non-excludable and non-rival |
Public good |
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Someone who consumes a public good without paying a share of the costs |
Free rider |
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Someone who must pay a share of the costs of public good but does not enjoy the benefits |
Forced rider |
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Goods that are excludable but non-rival |
Non-rival private good |
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Goods that are non-excludable but rival |
Common resources |
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The tendency of any resource that is unowned and hence non-excludable to be overused and under maintained |
Tragedy of the Commons |