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Econ 110 > exam III > Flashcards

exam III Flashcards

1
Q

what is the economy compared to

A

a perpetually spinning object

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2
Q

what will slow the economy down

A

friction

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3
Q

define externality

A

prices serve as dynamically efficient signals and incentives which maximize societal welfare, where there are no confounding factors

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4
Q

what do spillover effects influence

A

the well-being of third parties

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5
Q

social costs=

A

private costs+external costs

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6
Q

social benefits=

A

private benefits+external benefits

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7
Q

what do market supply and demand represent

A

private costs and benefits

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8
Q

define negative externalities

A

the social cost of a transaction are greater than the private costs

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9
Q

where are costs from negative externalities from

A

those outside the market

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10
Q

what is an example of negative externalities

A

pollution, smoking, deforestation

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11
Q

define positive externalities

A

social benefits of a transaction are greater than private benefits

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12
Q

are positive externalities under or over produced

A

underproduced

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13
Q

who can enjoy the benefits of positive externalities

A

people outside of the market

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14
Q

what are examples of positive externalities

A

internet usage, vaccines

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15
Q

what makes an externality positive or negative

A

the quality of the good

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16
Q

what will a free market oversupply? what will it undersupply?

A

negative externalities
positive externalities

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17
Q

what are external costs represented by

A

S2, or PC+EC

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18
Q

define Pigouvian subsidy

A

a positive externality-producing good set to equal the external benefit

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19
Q

define Pigouvian tax

A

a negative externality-producing good set equal to the external cost

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20
Q

what do externalities do

A

push the market to ideal consumption and production points

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21
Q

what does taxing do

A

causes a gap between what buyers pay and what price producers chose and depletes DWL

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22
Q

what is rivalry in consumption

A

if I consume a good, you can’t consume the same good

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23
Q

what does buying something first indicate

A

a higher willingness to pay

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24
Q

what does increased price signal

A

the good is more highly valued by society

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25
what is the key distinction of externality
aggregated consumption, not production
26
define pecuniary
relating to/consisting of money
27
define pecuniary externality
actions by trading members affect the price paid/received by the third party
28
profits _________ firms to innovate
incentivize
29
what will markets fail to do
provide the supply demanded
30
competition can ______________ innovation
discourage
31
what is an alternate method to patrons and and copyrights
extending the intellectual property rights
32
what do intellectual property rights do
give inventors the exclusive legal right to make/use/sell the innovation for a limited time
33
what are property rights
well-defined, protected, and enforced
34
define public goods
non-excludable and non-rival
35
define excludable
those who do not pay are excluded
36
define rival
one persons use prevents another persons use
37
give some examples of club goods
security, wifi, concerts
38
give some examples of public goods
gravity, national defense, disease control
39
give some examples of common goods
roads, stocked fish, parks
40
give some examples of private goods
phones, groceries, shoes
41
1. private goods 2. common goods 3. club goods 4. public goods
42
what is the first rule of econ
there is never enough of anything to fully satisfy everyone
43
what is the first rule of politics
disregard the first rule of econ
44
define government failure
gov involvement in the economy leads to less favorable outcomes than what would've occurred otherwise
45
what are three things that may cause a government to be inefficient
bais for reasoning affects voter preference for policy shared visions cause voters to have flawed perceptions involvement makes asking for political favors more cost-effective than competing
46
define rationality
individuals choose options that best advance their personal desires at the least possible cost
47
what do people do when faced with uncertainty
weight the expected benefits vs expected costs
48
define expected
perceived possibility
49
what is a public good problem?
non-excludability which leads to free-riding
50
define tragedy of the commons
tendency of any non-excludable good to be overused and under-maintained
51
give an example of command and control
governments imposing shorter seasons due to over hunting/fishing
52
what is a con of command and control
black markets
53
who are cultural norms associated with
Elinor Ostrom
54
what does the enforcement of norms do
prevent tragedy of the commons
55
where are cultural norms effective
small, self-serving communities
56
what are cultural norms associated with
coarse theorem
57
define coarse theorem
transaction costs are low property rights are clearly defined
58
what do many governments institute
individually transferable quotas
59
define cap and trade
the creation of private resources
60
expected benefit _ expected cost
≥
61
describe the anti-market basis
people do not understand the invisible hand people perceive profit as a transfer from people to business while economists recognize it as a matter of progress
62
what do profits incentive
a reduction in production costs and move resources from less-valued industries
63
describe anti-foreign policy
people underestimate the benefits of interactions with foreigners denies free movement, people, and goods
64
define human welfare
specialization and gains from trade
65
define economic growth
supply and demand
66
what do immigrants increase
supply and demand for local goods and services
67
what does a large increase in labor demand lead to
more jobs and higher wages
68
describe make-work bias
people equate prosperity with employment, not production underestimate benefits of conserving labor individual prosperity is associated with work
69
what is social prosperity
doing a job/helping others
70
what are shared vision problems
people see a perfect situation rather that the best solution
71
define rent-seeking
extraction of uncompensated value from others via the political process without making any contribution to productivity
72
define rent
unjust profit from mercy holding sacred assets rather than by its improvement
73
define protectionist
raising barriers to enter for firms that want to compete with each other
74
define kick-back
increases the odds of getting reelected much more than taxpayers
75
define GPD
market value of all final goods/service produced within a political region within a year
76
which country has the largest GDP? how much does it make
US, 20 trillion
77
what do richer countries usually have
education life expectations racial conflict inequality well-functioning legal systems
78
what are used to determine GDP? why?
final goods to avoid double counting
79
what is the expenditure equation
Y=C+I+G+NX
80
what does each letter represent in Y=C+I+G+NX
Y- GDP C- consumption I- investment G- government spending NX- net export-import
81
the US has a trade ________-
deficit
82
define trade deficit
goods are imported at a higher rate than they are exported
83
define per capita
per person do
84
which countries have a higher GDP
countries with more people
85
what are GDP shortcomings? describe them
1. governments are in charge of calculating GDP a high GDP looks good for politicians 2. trade deficits seen in most advanced economies 3. skewed menas averages can be skewed with income inequality
86
define real GDP
measures the value of a good to a customer that has been adjusted for inflation
87
define nominal GDP
expressed in current $ value
88
define consumer price index
measures the cost of purchasing a bundle of goods at one point in time relative to the cost of purchasing identical goods years later
89
what is the base year normally set at
100
90
inflation rate=
%ΔCPI
91
what are problems that can be run into with CPI
can not account for the changes in the goods people purchase or product quality
92
what are CPI solutions
chained CPI and GDP deflators
93
define chained CPI
the changes of goods used in the time period prior typically reduced yearly inflation estimated by .2-.4 percent
94
define GDP deflator
accounts for changes in a range price of all goods included in GDP includes capital goods purchased by the government
95
RGDP=
NGDP x (100/πindex)
96
πindex=
cost of bundle/ (base year cost x 100)
97
%ΔRGDP
%ΔNGDP-%π
98
%Δ=
Xt-Xt-1/Xt-1

Econ 110 (4 decks)

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