Midterm 2 Flashcards

(19 cards)

1
Q

Public good

A

Neither excludable nor rival in consumption (national defense, rural roads, city streets, freeways, etc.)

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2
Q

Cost-benefit analysis

A

Study that compares the costs and benefits to society of providing a public good.

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3
Q

Club good

A

Excludable and not rival on consumption (police).

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4
Q

Common resource

A

Not excludable but rival in consumption (snow plowing or city streets when congested).

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5
Q

Private good

A

Excludable and rival in consumption (education).

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6
Q

Government provides non-public goods. Why?

A

The externalities associated with them.

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7
Q

Free rider

A

An individual who benefits from a good without paying for it.

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8
Q

How can government solve free rider problem?

A

Sponsoring a good and paying for it with tax revenue.

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9
Q

How can the private market solve the free rider problem?

A

By making a public good private (making it excludable).

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10
Q

Why do transportation services increase fares during rush hour?

A

Increasing the fare internalizes the externality caused by the congestion of the service, which leads people to not take the given service.

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11
Q

Benefits principle

A

Paying for the be fit received (sales tax or entry fee).

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12
Q

Ability-to-pay principle

A

Levying taxes according to the taxpayers ability to pay (taxed based on income).

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13
Q

Marginal Product (MP)

A

Increase in output arising from an additional unit of input. Decrease MP indicates that MP of an input declines as quantity of input increases.

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14
Q

Total Cost (TC)

A

All inputs needed to produce a given quantity of output (FC + VC).

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15
Q

Average Total Cost (ATC)

A

TC/Quantity

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16
Q

Marginal Cost (MC)

A

Cost of producing an additional unit of output (Change in TC/ Change in Quantity).

17
Q

ATC and MC

A

MC>ATC = ATC rises.

18
Q

MC Curve

A

U-shaped and rises sharply as output increases, MC increases for outputs greater than a certain quantity because of diminishing returns, MC intersects with ATC at the minimum of ATC curve (efficient scale).

19
Q

ATC curve

A

U-shaped, when MC>ATC: ATC rises, when MC < ATC: ATC declines,