Pindyk PDF.

Question 1

Externalties?

Answer 1

Action by a consumer or producer, which affects other producer/consumers, but is not accounted for in the market price.

Question 2

Negative externality?

Answer 2

When a firm dumps waste in a river, and it affects othes. Firm has no incentive to account for external costs when making production decisions. No market for external costs & reflected in the price of X.

Question 3

Positive externality?

Answer 3

When a house owner repaints and plants an attractive garden. Neighbors benefits from this, but owners decisions did not take this benefits into account.

Question 4

MEC, marginal external cost?

Answer 4

Increase in cost imposed externally as one or more firms increase output by 1 unit.

Question 5

Msc, marginal social cost?

Answer 5

Sum of the marginal cost of production & marginal external cost.

Question 6

MEB, Marginal external benefit?

Answer 6

Increased benefit that accrues to other parties as a firm increases output by one unit.

Question 7

MSB, Marginal social benefit?

Answer 7

Sum of the marginal private benefit + marginal external benefit.

Question 8

MC, Marginal cost?

Answer 8

..

Question 9

Public good?

Answer 9

Non- exclusive & non rival= marginal cost of provision to an additional consumer is zero & people can’t be excluded from using/consuming it.

Question 10

Non-rival good?

Answer 10

Good, there marginal cost to an additional consumer is 0.

Question 11

Non-exclusive good?

Answer 11

Good that people can’t be excludet from using/consuming. Difficult/ impossible to charge for its use.
Ex: försvar, lighthouse, public tv.

Question 12

Goods, exclusive but non-rival?

Answer 12

Low traffic + bridge = non rival because one extra car don’t affect speed. But bridge travel is exclusive if they add a fee.

Question 13

Goods, non-exclusive but rival?

Answer 13

Ocean/lake is non rival, but fishing is rival, imposes cost on others. More fish caught = fewer fish avaliable to others.

Question 14

A free rider?

Answer 14

Consumer or producer who not pay for a non exclusive good, can enjoy the benefit of X without paying for it.

Question 15

Price elasticity of demand?

Answer 15

% change in quality demanded of a good resulting from a 1% increase in price.

Question 16

Elasticity?

Answer 16

% change in one variable, resulting from a 1% increase in another.

Question 17

Infinitly elastic demand?

Answer 17

Consumers will buy as much they can get, at a single price. For a higher price the demands trops to 0.
For a lower prize the demand increases without limits.

Question 18

Completely inelastic demand?

Answer 18

Consumer will buy a fixed quantity of a good, regardless of its price.

Question 19

Cross-Price elasticity of demand?

Answer 19

% change in quantity demanded of X, resulting from a 1% in the price of another good/thing.