Econ Final Flash Cards
(115 cards)
1
Q
What was the earliest form of exploitable energy
A
human muscle power
2
Q
Where does the term horsepower from
A
exploitable animal power used for thousands of years as an early form of energy
3
Q
What was the world’s first nuclear generator
A
Oak Ridge, TN 1940s
4
Q
What is the primary tool economist use to measure net benefit of any market outcome
A
economic efficiency
5
Q
How is economic efficiency defined in Principles of Micro
A
an economy is efficient if all opportunities to make some people better off without making other people worse off have been exhausted
- when all gains from trade have been exhaused
- when total economic surplus has been maximized
6
Q
what is private efficiency
A
maximizing the net economic benefit to only those involved in an economic transaction/ activity
7
Q
what is social efficiency
A
maximizing the net economic benefit to society as a whole
8
Q
what does social efficiency take into account
A
an individuals net personal net benefit and the impact on society as a whole
9
Q
What does an economists perfect world look like
A
market equilibrium is defined by maximum net benefit to society
10
Q
Who write the famous theory of the invisible hand
A
Adam Smith
11
Q
What is the First Theorem of Welfare Economics
A
a market equilibrium is only socially efficient if and only if:
- there is perfect competition
- property rights are well defined
- consumers and producers all display perfectly rational behavior
- there are no information asymmetries
- there are no transactions costs
- there are no externalities
12
Q
When does market failure occur
A
when any of the first theorem of welfare economic principles are not met
13
Q
What is the most extreme type of market power
A
monopoly
14
Q
What does a monopolist do
A
reduces production and charges higher prices compared to the socially efficient market quantity and price
15
Q
Is the monopoly equilibrium socially efficient
A
No, even though the market is in equilibrium, the monopoly equilibrium is not socially efficient in the sense that the net benefit to society is not maximized
16
Q
What is an example of a monopoly in the energy markets
A
Standard Oil Company, they controled 91% of global crude oil production in 1904
17
Q
what is an oligopoly
A
a market structure in which there are a few producers with strong market power
18
Q
What is a cartel
A
when a group of oligopolists collude with each other and cooperate in order to control the market price
19
Q
What is an energy example of a oligopoly/ cartel
A
OPEC (Organization of Petroleum Exporting Countries)
20
Q
What does OPEC stand for
A
Organization of Petroleum Exporting Countries
21
Q
What is an exception to the rule that markets must be perfectly competetive
A
when a production process is characterized by economies of scale
22
Q
what is economies of scale
A
means that long-run average cost per unit of output decreases as the quantity produce increases
23
Q
what is a natural monopoly
A
if a production process displays economy of scale then a single firm can supply the entire market at the lowest cost to society
24
Q
What is an energy example of economies of scale
A
electric power, natural gas, water & sewage companies like Georgia Power
25
What does property rights entail
a bundle of entitlements defining the owner's rights, privileges, and limitations for use of the resource
26
what are the three main characteristics of well-defined property rights
1. exclusivity
2. transferability
3. enforceability
27
What does the exclusivity property right characteristic mean
all benefits and costs of owning and using the resource accrue to the owner, and only to the owner, either directly or indirectly by sale to others
28
what does the transferability property right characteristic mean
all property rights should be transferable from one owner to another through voluntary exchange
29
what does the enforceability property right characteristic mean
property rights should be secure from involuntary seizure or encroachment by others
30
What type of goods violate the condition that property rights must be well-defined
public goods like the interstate highway system, national defense
31
what are the two key characteristics of public goods
1. non-excludability
2. non-rival
32
what does non-excludable mean
no one can be excluded from consuming the good
33
what does non-rival mean
one person consuming the public good does not reduce the amount available to others
34
how do consumers and producers have to behave
rationally, market failure occurs when consumers or producers do not behave rationally
35
what happens when people do not behave rationally
net benefits are not maximized, and market efficiency is undermined
36
what does asymmetric information mean
when one party knows something about the good/ service that the other party does not know
37
what are the two broad categories of information asymmetry
moral hazard and adverse selection
38
what does moral hazard mean
when one party cannot perfectly monitor the other's actions
39
adverse selection
when one party cannot know the other party's "type" the latter may present false information about its type (classic "Lemons problem"
40
what do transaction costs do
they can prevent mutually beneficial trades from occurring, leading to inefficient outcomes
41
what are the three main categories of transaction costs
search and information costs
bargaining and legal costs
monitoring and enforcement costs
42
what does search and information costs mean
opportunity cost of time/ effort spent gathering and analyzing information
43
what does bargaining and legal costs mean
can be significant for major capital investments like energy infastructure
44
what does monitoring and enforcement costs mean
complex transactions typically require highly detailed contracts, which must be monitored and enforced
45
when do externalities occur
when individual actions result in economic costs or benefits not take into account by the market
46
what is an example of a good externality
good street lighting at night reduces crime
47
what is an example of a negative externality
burning fossil fuels generates pollution and carbon emission
48
when can government intervention improve society's welfare
when markets do not achieve efficiency
49
examples of market intervention to correct market failure
anti-trust laws, provision of public goods
50
what does equity mean
roughly synonymous with fairness
51
is economics concerned with equity or efficiency
efficency
52
what is the meaning of sustainability
development that meets the needs of present generations without compromising the ability of future generations to meet their needs
53
what are the two conditions of sustainability
dynamic efficiency and intergenerational equity
54
what does dynamic efficiency mean
maximizing the flow of social net benefits over time
55
what does intergenerational equity mean
future generations are at least as well off as the current generation; total economic surplus is not declining over time
56
what does weak sustainability mean
assumes some natural capital can be substituted for by other forms of capital over the long-run
57
what does strong sustainability mean
assumes other forms of capital are not long run substitutes for natural capital
58
How is the demand curve different from the inverse demand curve
both curves depict the exact same relationship between price and quantity demanded
59
what does a normal good mean
if income increases, then all else equal quantity demanded will increase, expect a positive sign on the demand equation
60
what does a substitute good mean
if price of substitute rises, then all else equal quantity demanded will rise, so we expect positive sign in demand equation
61
what does a complement good mean
if price of a complement rises, then all else equal quantity demanded will fall, so we expect a negative sign in the demand equation
62
what do elasticities do
measure the responsiveness of quantity demanded to changes in a good's price
63
price elasticity of demand
ratio of the percentage change in quantity demanded to the percentage change in price
64
income elasticity of demand
ratio of the percentage change in quantity demanded to the percentage change in consumer income
65
cross price elasticity of demand
the ratio of percentage change in quantity demanded to the percentage change in price of substitute or complement good
66
what happens to demand for SUV's when gas price falls
demand increase - demand curve shifts out (right)
67
what is consumer surplus
measure of net economic benefit of consumption
68
how to calculate consumer surplus
difference between consumers willingness to pay for a good and the price they actually pay
area below demand curve, above price, up to quantity demanded
69
what is the first order condition with supply
p - C'(Q)=0
p= C'(Q)
p = MC(Q)
70
how does marginal cost relate to output production
marginal cost increases as output decreases
71
what does C''(Q)>0 assumption tell us
total costs are increasing at an increasing rate,
ie. diminishing marginal returns to factors of production
72
what is producer surplus
measure the net economic benefit of production
73
how to calculate producer surplus
difference between the price the producer receives for a good and the minimum willingness to accept price
area below price, above supply curve, up to the quantity supplied
74
what does market equilibrium imply
under perfect competition automatically maximizes social welfare, or total economic surplus
75
What is Average Total Cost
ATC is total cost (TC) divided by output (Q), or equal to sum of average fixed cost (AFC) and average variable cost (AVC)
ATC= TC / Q
76
what does increasing returns to scale yield
economies of scale, fewer inputs are needed per unit of output as sale increases, reducing average cost
77
what does decreasing returns to scale yield
diseconomies of scale, more inputs are needed per unit of output as scale increases, increasing average cost
78
where is the monopoly profit maximizing condidtion
MR = MC
79
what is a free rider
someone who enjoys benefit of public good but does not pay an efficient amount for their consumption of it
80
What is the samuelson condition for efficent public good provision
marginal cost for providing the public good should equal the sum of the private marginal benefits
81
what does a Pigouvian tax to correct negative externalities do
causes market participants to "internalize" the externality
t=MEC(Qso)
82
non-renewable resource meaning
mineral and fossil fuel resources found in finite supply in the earth's crust; there is a fixed stock of the resource
83
current reserves meaning
known stock of the resource that can profitably extracted at current prices
84
potential reserves
stock of the resource that may become profitably extractable if prices rise high enough
85
undiscovered reserves
unspecified deposits of mineral-bearing material believed to exist on the basis of geological data and theory
86
resource endowment
the natural occurrence of resources within a country or region
87
marginal user cost definition
opportunity cost of extracting/ using a resource today, which is that it will not be available to use in future
88
what is a backstop resource
a substitute for depletable resource
89
when does a backstop resource begin being consumed
at the point where the total marginal cost of extracting the depletable resource exceeds the marginal cost of producing the backstop resource
90
what are external costs
costs not account for by either the marginal production or user costs
91
how do external costs affect the switching time to a backstop resource
switching point would come sooner
92
what is the theory of endogenous risk
in which the probabilities of different outcomes are themselves affected by the choices we make
93
is oil a renewable resource?
No, it is considered non-renewable because it is not regenerated in the earth's crust at a rate fast enough to keep up with current rate of human consumption
94
what is absolute scarcity
finite amount of oil resources available, therefore if we keep using it we will run out
95
what is relative scacity
as oil becomes relatively more scare than other resources, its price will rise, incentivizing us to adapt in various ways
96
how many countries are in OPEC
12 countries
97
Founding members of OPEC
Iran, Iraq, Kuwait, Saudi Arabia, Venezuela
98
Two countries that have terminated OPEC membership
Indonesia and Gabon
99
what does OPEC to do keep prices favorable
by controlling the vast majority of world's oil resources, they can restrict production to keep price high
100
competitive fringe
the dominant firm takes advantage of small firms by setting the price, becomes the price leader
101
3 classifications of natural gas
1. Conventional vs unconventional
2. wet vs dry
3. sweet vs sour
102
Conventional natural gas meaning
found in large subterranean accumulations or reserves, easy to extract
103
unconventional natural gas meaning
not found in large accumulations, more difficult to extract. Trapped in rock formations with low permeability
104
wet vs dry natural gas meaning
wet gas contains high levels of natural gas liquids like ethane, butane...
105
sweet vs sour natural gas meaning
sour gas contains sulphur, sweet gas does not
106
1938 Natural gas act
enacted by congress to regulate new long-line interstate pipelines
granted power to Federal Power Commission
107
1942 - 1978 Wellhead Price Controls
4 rationales for wellhead price controls
- need for comprehensive regulatory framework
- anti-competitive behavior of oil companies
-lack of competition in natural gas production markets
- a shift of price differential rents from producers to consumers
FPC ruled that sales from producers to affiliated interstate pipelines would be subject to federal oversight
108
1954 Phillips Petroleum vs State of Wisconsin
Supreme Court decision required FPC to begin regulating wellhead prices on all field sales
109
1978 Natural Gas Policy Act
created Federal Energy Regulatory Committee (FERC) to oversee changes ushered by NGPA, phased out wellhead price controls on new supplies
110
Benefit of 1978 Natural Gas policy Act
-market demand did not increase as much as predicted
-addition of new customers to pipeline and utility delivery networks
-interstate gas supplies increased by more than increase in production
111
Consequences of partial wellhead price decontrol
new contracts negotiated prices that were still too high to be supported by the market, resulting in excess supply
112
Name of pricing structure for Gas pipelines
two-part tariff
113
description of two-part tariff for gas pipelines
firm customers subscribe to a portion of the pipelines capacity
fixed monthly fee per unit of subscribed capacity (called an access or reservation fee)
variable charge per unit of gas shipped (usage charge)
both are regulated
114
spot price arbitrage
implies difference between the Hub and City gate spot price must equal the transportation charge
115
what do firm customers do if they do not utilize their capacity
the ship gas or release it to other shippers to use
unregulated transportation charge from this
