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Economics > Micro Book 3 > Flashcards

Micro Book 3 Flashcards

(68 cards)

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1
Q

What are free goods

A

A good that has no cost of production that can be produced at no opportunity cost

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2
Q

When is a good excludable

A

If someone else can be prevented from benefitting from it

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3
Q

What describes a good that when consumed by one person it affects someone else’s ability to benefit from it

A

Rivalrous

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4
Q

Is a private good non-rivalrous and non-excludable

A

No!

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5
Q

What is a public good

A

A good that is non-excludable and non-rivalrous

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6
Q

What does a public good have to be?

A

Non-excludable, non-rivalrous, non-rejectable

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7
Q

What can non-excludablitity lead to?

A

The free-rider problem (nobody has any incentive to buy the good, as they can benefit without paying)

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8
Q

What is the marginal cost for producing a public good

A

There is none!

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9
Q

What are goods that exhibit some of the characteristics of public goods

A

Quasi-public goods or non-pure public goods

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10
Q

When can a market fail?

A

When there is a misallocation of resources

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11
Q

What are the three functions of price

A

Signalling function
Incentive function
Rationing or Allocative function

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12
Q

What is the Signalling function of price

A

To give information to traders to enable them to plan their economic activity

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13
Q

What is the Incentive function of price

A

Economic agents will alter their behaviour based on signals

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14
Q

What is the Rationing/Allocative function of price

A

Deciding how resources are used

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15
Q

When do missing markets occur

A

When the incentive function of prices completely break down and a market fails to exist or disappears

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16
Q

What is the ‘tragedy of the commons’

A

The effect of individuals acting in a way where their own self-interest is contrary to what is best for society as a whole (overconsumption of public goods)

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17
Q

Are merit goods under consumed?

A

Yes! They are goods that are more beneficial for consumers than they realise.

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18
Q

What are Demerit goods?

A

Goods that are more harmful for consumers than they realise. They will likely be overconsumed in a market

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19
Q

What can be the cause of underconsumption of merit goods or the overconsumption of demerit goods

A

Information failure

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20
Q

What is the case where a buyer/seller knows more than the other party?

A

Asymmetric information

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21
Q

What is an externality

A

A cost or benefit to a third party

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22
Q

What are positive externalities

A

When there is benefit to a third party

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23
Q

What are negative externalities

A

When there is a cost to a third party

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24
Q

Marginal definition?

A

An increase of one unit

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25
Who is "private" referring to
The supplier/consumer of a good
26
Who is "social" referring to
Third parties
27
Marginal Cost
The cost of one additional unit
28
Marginal Benefit
The benefit of one additional unit
29
When does government failure occur
Government intervention in the economy results in a net loss of welfare
30
What are the sources of government failure
Information failure Unintended consequences Excessive administration costs Conflicting objectives Distortion of price signals
31
What are distortion of price signals
The government intervenes in a way that changes prices
32
What are the 7 forms of government intervention
Indirect Taxes Subsidies Regulations Information Provision Price Controls State Provision Tradable Premits
33
What are the 5 behavioural economics
Heuristics Anchoring Availability Bias Social Norms Altruism
34
What are heuristics
A 'mental shortcut' or 'rule of thumb'
35
What is anchoring
A particular piece of information skews an agent's perceptions and frame of reference that they base their valutions
36
Why does choice architecture help with managing a market
It designs choices that economic agents face in such a way that the agents decisions are influenced by the way in which they are presented
37
What are 5 types of choice architecture
Framing Default Choice Manadated Choice Restricted Choice Nudges
38
How can conflicting objectives cause government failure
The government faces lots of different competing objectives
39
How can information gaps cause government failure
The government fails to spot a potential problem in the intervention, the government rarely possess full information
40
How can excessive administration costs cause government failure
The cost of correcting the market failure is greater than the benefit of the intervention
41
How can unintended consequences cause government failure
Something that the government didn't intend to happen happens
42
What is Availability Bias
A tendency to give undue importance to the most recent or well-known example of something
43
What are Social Norms
An accepted pattern of behaviour within a society
44
What is Alturism
Acting entirely in the interest of others without regard to one's utility
45
What is an Indirect Tax
A tax on goods and services. Will increase a firms' cost of production, often levied on goods that generate negative externalities
46
What is a Subsidy
A sum of money given by the government in order to encourage the production of a good/service, often levied on goods that generate positive externalities
47
What are Regulations that the government can impose
A regulation is a law passed and enforced by the government Can either aim to make production more expensive for firms or reduce consumption on the good
48
What is Information Provision
Seeking to provide information to consumers, either through education or by advertisements
49
What are Price Controls that the government can impose
The government can either impose a floor/minimum price or a ceiling/maximum price
50
What are State Provisions
Something is provided by the government, often free at the point of consumption (a reason taxes may be paid!) Likely the only solution to missing markets and public goods
51
What are Tradable Permits
Where the government may decide to impose a limit on the amount of negative externalities a firm can produce, then splits that limit into volumes of permits. The permits are then allocated through an auction Over time the government reduces the supply of these permits as they start to expire
52
What does the term "bounded rationality" mean
People may attempt to behave rationally but can't due to: *Limited ability to process information *The information available is incomplete *The time available is limited
53
What does the term "bounded self-control" mean
A person lacking the self-discipline to pursue the best option
54
What is Framing
A way to influence an individual by the context in which information is presented
55
What is a Default Choice
A pre-set choice that an individual must make a conscious decision to change
56
What is a Mandated Choice
Individuals are forced to make a choice without a default one being set
57
What is a Restricted Choice
Giving individuals a limited number of options to prevent problems with the volume of information
58
What are Nudges
Encouraging individuals to change their behaviour without removing their ability to choose, must be low cost. Also referred to as "libertarian parternalism"
59
An example of the Distortion of Price Signals
Guaranteeing income to farmers under the EU's Common Argicultural Policy enables inefficient farms to stay in business, leading to overproduction
60
An example of Conflicting Objectives
They may subsidise an industry producing demerit goods as they worry about unemployment
61
An example of Information Gaps
The re-classification of cannibis in the 2000s (Class B drug to Class C drug back to Class B drug)
62
An example of Excessive Administration Costs
A country estimates the damage done by rogue tradesmen at $150 million, the government then lauches a scheme costing $200 million
63
An example of Unintended Consequences
"Use it or Lose it" budget lead to the consequence of departments spending recklessly at the end of a budget period
64
An example of Framing
Gym memberships being qouted as X pence per day instead of annual fees
65
An example of Default Choices
Having to opt out of organ donation or a pension scheme
66
An example of Mandated Choices
Installing software
67
An example of Restricted Choice
The government offerinf savers the option of the five "best" private pensions instead of thousands
68
An example of Nudges
Displaying foods so that consumer are more likely to choose healthier food / removing impulse-buy chocolates from checkouts

Economics (12 decks)

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