unit 6

Question 1

Adverse selection problem

Answer 1

a market situation where one party, due to possessing more information than the other, exploits the situation to their advantage, potentially leading to inefficient outcomes and market failure

Question 2

moral hazard

Answer 2

In economics, a moral hazard is a situation where an economic actor has an incentive to increase its exposure to risk because it does not bear the full costs associated with that risk, should things go wrong.

Question 3

lorenz curve

Answer 3

perfect equality

Question 4

gini index

Answer 4

how equitable your income is
area a / area a + area b

Question 5

perfect equality

Answer 5

0

Question 6

perfect inequality

Answer 6

1

Question 7

Explain the difference between a production externality and a consumption externality.

Answer 7

A production externality arises from the production process, resulting in two cost curves. A consumption externality arises from the consumption process, resulting in two benefit curves.

Question 8

Identify two policies that can mitigate the effects of a positive externality

Answer 8

A Per unit subsidy, regulation promoting more output

Question 9

Identify two policies that can mitigate the effects of a negative externality

Answer 9

A Per unit tax, regulation limiting output, permits

Question 10

Why are public goods considered a market failure?

Answer 10

Profit-seeking firms in the free market don’t provide enough public goods and services since they don’t generate profit. If society wants public goods, the government often needs to step in.

Question 11

Define nonexclusion

Answer 11

It is impossible to exclude individuals or groups from enjoying the benefits of goods or services, regardless of whether or not they have paid for them.

Question 12

Definenon-rivalry(sharedconsumption).

Answer 12

Multiple individuals can use or consume the goods or services simultaneously without diminishing its availability or quality for others

Question 13

Anti-trust laws

Answer 13

Antitrust laws were designed to prevent monopolies and make markets more competitive.

Question 14

What is the difference between a per-unit tax and a lump-sum tax?

Answer 14

A per-unit tax is a tax on each unit produced.If more units are made, the amount of the tax increases, but the tax is the same no matter how many units are made.

Question 15

Whatisthedifference betweenincomeinequality andwealthinequality?

Answer 15

Income inequality involves annual earnings. Wealth inequality looks at how accumulated assets are distributed.

Question 16

Identify three sources of inequality.

Answer 16

Abilities, human capital, inheritance, effects of discrimination, access to financial markets, mobility,etc.

Question 17

What are progressive taxes?

Answer 17

Taxes that take a larger percentage of income from high-income groups. Takes morepercent fromrichpeople

Question 18

What are proportional taxes?

Answer 18

Taxes that take the same percent of income from all income groups. Take the same percent from everyone

Question 19

What are regressive taxes?

Answer 19

Taxes that take a larger percent of income from low-income groups.Takes more percent from poor people

Question 20

externality in production

Answer 20

spill over cost or benifit by producers of ht product

Question 21

exterrnality in consumption

Answer 21

spill over costs or benifits caused by the consumers of a product

Question 22

rival goods

Answer 22

good that gets used up as it gets consumed

Question 23

excludable good

Answer 23

can only be consumed for those who pay for it

Question 24

free-rider probelm

Answer 24

when poeple enjoy benifits wihtout paying - non-exlcudable goods
so goods are underproduced - less incentive

Question 25

public goods

Answer 25

non rival non excludable - market failure - will be underproduced in free market

Question 26

per unit subsidy in production

Answer 26

Shifts supply curve to the right

Question 27

per unit tax in production

Answer 27

Shifts supply curve to the left Shifts marginal cost up, decreasing quantity

Question 28

Lump sump tax on production

Answer 28

Shift ATC up, doesn't change price or quantity in short run

Question 29

how to regualte natural monoply

Answer 29

impose a price ceiling at socially optimal price

Question 30

reasons for market failure

Answer 30

market power asymetric information externalities free rider problem

Question 31

Deadweight loss reasons

Answer 31

tax and trade barriers asymetric information Price floor/ceilings imperfect competition externalities public goods

Question 32

government policies to eliminate deadweight loss

Answer 32

taxes, subsidies, environmentla regulations, assignment of property rights, reassignment of property rights, public provisions

Question 33

2 things are required to internalize an externality through coase theorem (no government intervention)

Answer 33

Well-defined property rights Low/zero transaction costs

Question 34

positive externality in consumption

Answer 34

MSB>MPB

Question 35

Positive externality in production

Answer 35

MSC

Question 36

Negative externality in consumption

Answer 36

MSB

Question 37

Negative externality in production

Answer 37

MSC>MPC

Question 38

Pigouvian tax

Answer 38

per unit tax

Question 39

club goods

Answer 39

non rivralrous excludable

Question 40

common resources

Answer 40

non excludable rivalrous

Question 41

Tragedy of the Commons

Answer 41

a situation where individuals, acting in their own self-interest, exhaust or deplete a shared resource, leading to a negative outcome for everyone involved

Question 42

Why do public goods result in inefficiency and underproduction

Answer 42

Consumers have no incentive to reveal their demand for public goods Consumers have no incentive not to overconsume common resource

Question 43

common resource solutions

Answer 43

government ownership taxes regulation assigning property rights

Question 44

non price regulation

Answer 44

rules to ensure competition, environmental protection or health and safety

Question 45

The poverty threshold

Answer 45

is the annual income below which a family is officially considered poor.

Question 46

The poverty rate

Answer 46

is the percentage of the population with incomes below the poverty threshold

Question 47

Mean household income

Answer 47

is the average income across all households.

Question 48

Median household income

Answer 48

is the income of the household lying in the middle of the income distribution.

Question 49

The Gini coefficient

Answer 49

is a number that summarizes a country’s level of income inequality based on how unequally income is distributed across the quintiles.

Question 50

A means-tested program

Answer 50

is available only to individuals or families whose incomes fall below a certain level.

Question 51

An in-kind benefit

Answer 51

is a benefit given in the form of goods or services.

Question 52

A negative income tax

Answer 52

is a program that supplements the income of low-income workers.

Question 53

Average cost pricing occurs when

Answer 53

regulators set a monopoly’s price equal to its average cost to prevent the firm from incurring a loss.

Question 54

Marginal cost pricing occurs when

Answer 54

regulators set a monopoly’s price equal to its marginal cost to achieve efficiency.

Question 55

Artificially scarce good

Answer 55

is a good that is excludable but nonrival in consumption.

Question 56

A good is subject to a network externality when

Answer 56

the value of the good to an individual is greater when more other people also use the good.