Economics Lecture Review on Externalities and Factors of Production

These flashcards cover key concepts related to externalities, factors of production, market structure, and government intervention in economics.

What are the three factors of production?

Land, labor, and capital.

What government interventions can interfere with the invisible hand to achieve social optimum outcomes?

Price ceilings, subsidies, and income transfers.

What is the key difference between monopolies and perfect competition?

Number of firms, economic profits in the long run, entry barriers, price fixing, and product uniqueness.

What constitutes positive externalities?

Benefits experienced by third parties from an economic transaction, such as vaccines and education.

What are negative externalities?

Costs incurred by third parties due to an economic transaction, such as pollution.

What happens to the supply curve when trying to remedy negative externalities?

The supply curve is shifted to the left to reduce supply.

What are compensatory taxes?

Taxes imposed to raise the private costs of production in order to reduce output of harmful goods.

What is the tragedy of the commons?

Overuse of resources that have no cost to use, leading to depletion or damage.

Give an example of a positive externality in education.

Increased human capital leads to a more productive society and a better economy.

What illustrates a positional externality in sports?

Performance-dependent pay in sports, such as tennis player earnings being affected by competition outcomes.

What is a positional arms race?

Mutual offsetting investments aimed at enhancing competitive performance, requiring continual investment to maintain advantage.

What is the purpose of laws and regulations regarding negative externalities?

To reduce the supply of harmful goods and protect societal welfare.

How does the cost theorem relate to externalities?

Negotiation between parties can lead to efficient solutions for externalities if costs can be effectively negotiated.

What impact does government intervention have on supply and demand?

Government regulations and taxes can increase production costs, effectively reducing supply.

What is an example of a negative externality in a neighborhood context?

Decreased property values due to a neighbor's neglected property.

When might a firm choose to not use a filter for pollution?

If profit increases significantly without the filter despite the negative impact on others.