Exam #2

Question 1

A maximum price that sellers can charge.

Answer 1

Price Ceiling

Question 2

A price ceiling that prevents the market from reaching the market equilibrium price.

Answer 2

Binding price ceiling

Question 3

A minimum price that sellers can charge

Answer 3

Price Floor

Question 4

A price floor that prevents the market from reaching the equilibrium price.

Answer 4

Binding price floor

Question 5

A minimum or maximum quantity that can be sold

Answer 5

Quantity regulation

Question 6

A requirement to buy or sell a minimum amount of a good

Answer 6

Mandate

Question 7

A limit on the maximum quantity of a good that can be sold

Answer 7

Quota

Question 8

A tax assessed as a percentage of the price of a product

Answer 8

Percentage Tax

Question 9

A tax assessed as a dollar amount, independent of the price of a product.

Answer 9

Per-Unit Tax

Question 10

The total amount of money collected through a tax

Answer 10

Tax revenue

Question 11

The burden created by the change in after-tax prices faced by buyers and sellers

Answer 11

Economic Burden

Question 12

The division of the economic burden of a tax between buyers and sellers

Answer 12

Tax Incidence

Question 13

The burden of being assigned by the government to send a tax payment.

Answer 13

Statutory Burden

Question 14

A payment made by the government to those who make a specific choice.

Answer 14

Subsidy

Question 15

Describes what is happening, explaining why, or predicting what will happen.

Answer 15

Positive Analysis

Question 16

Prescribes what should happen, which involved value judgements

Answer 16

Normative Analysis

Question 17

The total benefits minus total costs flowing from a decision.

Answer 17

Economic Surplus

Question 18

An outcome is more economically efficient if it yields more economic surplus

Answer 18

Economic Efficiency

Question 19

The efficient outcome yields the largest possible economic surplus

Answer 19

Efficient Outcome

Question 20

An outcome yields greater equity if it results in a fairer distribution of economic benefits

Answer 20

Equity

Question 21

Buyers and sellers exchange money of goods only if they both want to

Answer 21

Voluntary Exchange

Question 22

The economic surplus you get from buying something

Answer 22

Consumer surplus

Question 23

The economic surplus you get from selling something

Answer 23

Producer Surplus

Question 24

Allocating goods to create the largest economic surplus, which requires that each good goes to the person who’ll get the highest marginal benefit from it.

Answer 24

Efficient Allocation

Question 25

Producing a given quantity of output at the lowest possible cost, which requires producing each good at the lowest marginal cost.

Answer 25

Efficient Production

Question 26

The quantity that produces the largest possible economic surplus.

Answer 26

Efficient Quantity

Question 27

Produce more of a good if its marginal benefit is greater than (or equal to) the marginal cost

Answer 27

Rational Rule for Markets

Question 28

When the forces of supply and demand lead to an inefficient outcome

Answer 28

Market Failure

Question 29

How far economic surplus falls below the efficient outcome

Answer 29

Deadweight loss

Question 30

When the government policies lead to worse outcomes

Answer 30

Government Failures

Question 31

Who gets what

Answer 31

Distributional consequences

Question 32

The benefits that come from reallocating resources, goods, and services to better uses.

Answer 32

Gains from trade

Question 33

The ability to do a task using fewer inputs

Answer 33

Absolute advantage

Question 33

The ability to do a task at a lower opportunity cost

Answer 33

Comparative advantage

Question 34

Focusing on specific tasks

Answer 34

Specialization

Question 34

Markets whose payoffs are linked to whether an uncertain event occurs

Answer 34

Prediction markets

Question 35

When knowledge needed to make a good decision is not available to the decision maker.

Answer 35

Knowledge problem

Question 36

Markets within a company to buy and sell scarce resources

Answer 36

Internal markets

Question 37

A side effect of an activity that affects bystanders whose interests aren't taken into account

Answer 37

Externality

Question 38

The extra cost paid by the from one extra unit

Answer 38

Marginal Private Cost

Question 39

A cost imposed on bystanders

Answer 39

External Cost

Question 40

The extra external cost imposed on bystanders from one extra unit

Answer 40

Marginal External Cost

Question 41

All marginal costs, no matter who pays them, = MPC + MEC

Answer 41

Marginal Social Cost

Question 42

An activity whose side effects harm bystanders

Answer 42

Negative Externality

Question 43

The outcome that is most efficient for society as a whole, including the interests of buyers, sellers, and bystanders

Answer 43

Socially Optimal

Question 44

Produce more of an item if its marginal social benefit is greater than (or equal to) the marginal social cost.

Answer 44

Rational Rule for Society

Question 44

An activity whose side effects benefit bystanders

Answer 44

Positive externality

Question 45

The extra benefit enjoyed by the buyer from one extra unit

Answer 45

Marginal Private Benefit

Question 46

A benefit accruing to bystanders

Answer 46

External Benefit

Question 47

The extra external benefit accruing to bystanders from one extra unit

Answer 47

Marginal External Benefit

Question 48

All marginal benefits, no matter who gets them; = MPB + MEB

Answer 48

Marginal Social Benefit

Question 49

A tax designed to induce people to take account of the negative externalities they cause.

Answer 49

Corrective Tax

Question 50

A subsidy designed to induce people to take account of the positive externalities they cause

Answer 50

Corrective Subsidy

Question 51

A quantity regulation implemented by allocating a fixed number of permits, which can then be traded.

Answer 51

Cap and Trade

Question 52

If bargaining is costless and property rights are clearly established and enforced, then externality problems can solved by private bargains.

Answer 52

Coarse Theorem

Question 53

When someone cannot be easily excluded from using something

Answer 53

Nonexludable

Question 54

A good for which your use of it comes at someone else's expense

Answer 54

Rival Good

Question 55

A good for which one person's use doesn't subtract from another's.

Answer 55

Nonrival Good

Question 56

When someone can enjoy the benefits of a good without bearing the costs.

Answer 56

Free-Rider Problem

Question 57

A nontrivial good that is nonexcludable and hence subject to the free-rider problem

Answer 57

Public Good

Question 58

A good that is excludable, but nonrival in consumption

Answer 58

Club Good

Question 59

A good that is rival and also non excludable

Answer 59

Common Resource

Question 60

The tendency to over consume a common resource

Answer 60

The Tragedy of the Commons