Unit 6 (Micro)

Question 1

Market failure

Answer 1

When the free market is not producing where it should be (where society wants)

Question 2

Positive externality

Answer 2

• A market failure

- There are external benefits to society so we are not producing enough for society bc society MC< society MB

Question 3

Negative externality

Answer 3

• Market failure
• There is external cost to society
• We are producing too much for society bc society MC>Society MB

Question 4

What are the 2 main characteristics of a public good

Answer 4

1. Non exclusion

2. Shared consumption (non-rivalrous)

Question 5

What is a free rider

Answer 5

Someone who enjoys the benefits of a good even if they don’t pay. If they don’t have to pay then they are not going to pay

Question 6

Failures of the market system

Answer 6

• Reasons why the government exists
• monopolies
• protecting the future (ex prevent overfishing)
• Severe business fluctuations (ex: covid toilet paper panic)
• Cost disease of the service sector ( gov’t has to set wage for jobs like education, firemen, where productivity can’t be measured)
• Equality v efficency
• externalities
• public goods

Question 7

External cost

Answer 7

• Negative externality

- Uncompensated costs that an individual or firm imposes on other (EX: pollution)

Question 8

Coase Theorem

Answer 8

Externalities can be corrected if “transaction” costs are low

Question 9

Pigovian subsidy/tax

Answer 9

Tax for negative externality and subsidy for positive externality

• (For subsidy) When the government pays the difference between society’s price and the market price of the externality
• Corrects the externality
• Corrects the deadweight loss

Question 10

How do we get companies to pollute less?

Answer 10

Taxes

Question 11

Cap and trade

Answer 11

• One of the solutions to the pollution
• Cap the amount of pollution in the atmosphere (for example 100000 bits)
• Then make pollution grants/contracts
  
  • each grant/contract allows a business to pollute the atmosphere by 10,000 bits
  • if a business wants to pollute more than 10,000 bits they must buy more
  • Free market takes over when selling these contracts
  • companies must pay for contracts (and thus pay to help clean up the pollution) or find a way to pollute less

Question 12

Excludable

Answer 12

Suppliers can prevent people who don’t pay for the product from using them

Question 13

Rival in consumption

Answer 13

Same unit cant be consumed by more than one person at the same time

Question 14

Common-Pool/Common property resources

Answer 14

• Nonexcludable (can’t stop free riders)
• Rivalrous (can’t be used by multiple ppl at same time)
• Land/land suface
• atmosphere
• water
• irrigation water
• fishing grounds
• wild game
• pastures
• forests
• coal, ore, iron
• fish in river
• flood control
• road

Question 15

Private goods

Answer 15

• Excludable (can prevent free riders)
• Rivalrous (can’t be used by multiple ppl at the same time)
• food
• clothing
• newspapers
• cars
• gasoline
• personal electronics
• Icecream cone

Question 16

(Pure) Public goods

Answer 16

-Non excludable (can’t prevent free riders)
-Non-rivalrous (can have multiple ppl using it at the same time)
-Unencoded radio
-Free-to-air TV programs
- street lights
-lighthouses
-national defense
-neighborhood park
PROVIDED BY GOVERNMENT

Question 17

Club goods

Answer 17

• Excludable (can prevent free riders)
• Nonrivalrous (multiple ppl can use it at the same time)
• Cinemas
• Private parks
• cabel and satellite tv\
• pay websites
• most social services
• Movies

Question 18

Lorenz curve

Answer 18

Shows the efficiency vs equality of the country

• what percent of gdp is produced by how many households
• the farther in the more efficent
• the farther out the more equal
• measures wealth disparity

Question 19

Efficency wage

Answer 19

When you pay your employees higher than the equilibrium wage/minimum amt you can pay them

Question 20

Suppose that each person in a community had to pay the full cost of his or her own education from kindergarden through highschool. One would expect that

Answer 20

Less education would be acquired since society has not considered the positive external benefits of education

Question 21

An ______ is nonexcludable and nonrival in consumption

Answer 21

Public good

Question 22

Where would a natural monopoly be regulated so that the outcome is socially efficent

Answer 22

Where MC=D/MR

Question 23

Where would a natural monopoly be regulated so that the outcome is allocatively efficent

Answer 23

Where ATC=D/MR

Question 24

What is an artifically scare good

Answer 24

Aka club good. One person can buy it but others can use it

Question 25

What is an example of an artifically scarce good

Answer 25

Music that is downloadable from the internet for a fee

Question 26

A common resource is a good that is

Answer 26

Non excludable and rival in competition

Question 27

What is an example of environmental standards

Answer 27

Legal limits on SO2 emissions

Question 28

If the marginal benefit received from a good is less than the marginal opportunity cost of production then how can society's well being be improved by a change in production

Answer 28

Decrease production

Question 29

The marginal social cost curve lies above the supply curve for fish because

Answer 29

The marginal social cost includes the cost of depleting this common resource

Question 30

The government can intervene in fishing markets to avoid overfishing by I. assigning property rights to fish II. imposing a tax on fishing boats III. increasing the length of the fishing season IV. granting a limited number of tradable permits to use the good a.) I only b. II only c. III only d. II and IV only c. I, II, and IV only

Answer 30

C I, II, and IV only

Question 31

Under the _____, the Department of Justice can bar the merger of two firms in the same industry if the merger will have significant anti-competitive consequences

Answer 31

Clayton act

Question 32

An externality is sail to internalized when..

Answer 32

Individuals take external costs and benefits into account in their decision making

Question 33

Your community requires the sewage treatments plant to process raw sewage so that it is safe to return the water to the environment. This is an example of

Answer 33

An environmental standard

Question 34

Pharmaceutical companies typically face very high fixed costs when developing new drugs. The marginal cost of producing a drug after development is very low. When these companies set price and output to maximize profit, patients pay ____ price for ___ amounts of the drug than are socially optimal

Answer 34

higher;lower

Question 35

Payments by governments to individuals, without the government receiving goods or services in exchange, are often referred to as

Answer 35

Government transfers

Question 36

Increases in income inequality in the US have been attributed to

Answer 36

The impact of technological innovation on the demand for labor

Question 37

Since the public safety that a police force provides is a ______ in consumption, the efficent price is _____

Answer 37

nonrival;zero

Question 38

A market will always produce too much of a good when the price of the good is a. greater than its marginal cost of provision b. equal to its marginal cost of provision c. less than its marginal cost of provision d. equal to its marginal social benefit e. greater than its marginal social benefit

Answer 38

C. Less than its marginal cost of provision