Gibbons Exam 3 prep

how much we can produce

The productions possibilities curve tells us ( ) from existing resources and technology

comparative advantage

What is the basis for trade?

comparative not absolute advantage

Specialization is based on ( ) not ( ) advantage

winners and losers

There are ( ) and ( ) in trading states and countries

losers

The winners of trade can more than compensate the ( )

free trade

important arguments against ( ) exist

Productions Possibilities Curve

Shows the relationship between the maximum production of one good for a given level of production of another good

possible, inefficient

a point within a PPC is ( ) but would a(n) ( ) point of production

not possible

a point outside a PPC is ( )

opportunity cost

when examining a PPC, slope of PPC = ...

efficiently use resources

points on the PPC represents levels of production of the goods that...

comparative advantage

the ability of one economic agent to produce at a lower opportunity cost than another

individual opportunity costs

the key of determining who has comparative advantage is to compare

produce

The person with the lowest opportunity cost should

absolute advantage

the ability of an economic agent to produce more output than another agent with the same resources

terms of trade

the "price" of one good in terms to another; the exchange rate between goods

export

a good produced domestically and shipped to another state or country

import

a good produced in another state or country but sold domestically

more resources

higher quality resources

improvement in technology

How does the PPC expand?

free trade

trade with no government involvement

a world price

what does trade with no government involvement lead to?

world price compares to the domestic price

importing and exporting decisions depends on how the...

export, you can sell your goods at a higher price internationally increasing your profit

when world price is above domestic price you... why?

import, cheaper to buy goods from the international market than to produce them domestically

if the world price is below the domestic price you will... why

1. Natural resources

2. Stocks of human-made resources

3. Technology

4. Education, work habits, and experience of labor

5. Relative abundance of labor and physical capital

6. Climate

Why would a domestic price be different than the world price?

protectionism

the view that governments should control trade due to the harmful effects of free trade

tariff

a tax added on to the

price of an imported product

tariff

what increases the market price of the product

produces only what it has a comparative advantage in.

Complete specialization occurs when each​ individual, firm, or​ country:

lies between their opportunity costs.

According to the principle of comparative​ advantage, both parties will engage in a trade if the trading​ price:

new competitors in the marketplace.

increases in worker education, changes in productivity growth due to population growth, increases in natural resources are all factors that shift the Production Possibilities Curve outward​. what is not a factor

increase, decrease

if the domestic price for a good is lower than the world price when a country opens itself to​ trade, domestic suppliers will...the price of the​ good, which in turn will...the domestic demand for the good

lose, win

When a country opens itself to trade and becomes an importer of goods and​ services, sellers ( ) and buyers (. )

aging population

technology, climate, natural resources, are all of the following are factors that contribute to a​ country's comparative advantage​ except:

maintain a variety of agricultural industries.

National security concerns might cause a nation​ to:

maintain its​ culture's uniqueness.

One reason a country might seek to implement protectionist policies could be​ to:

it raises prices for consumers and

lowers social surplus.

What is a reason why economists in general do not favor protectionism

externality

occurs when an economic activity has either a spillover cost to or a spillover benefit for a bystander

deadweight loss

total cost of the externality to society=

negative externality

an economic activity that has a negative spillover effect

positive externality

an economic activity that has a positive spillover effect

pecuniary externality

when a market exchange affects other people through market prices

inefficient

when externalities are present, the free market outcome is...

produce and consume too much

when there are negative externalities present, free markets...

produce and consume too little

when there are positive externalities present, free markets...

Coase Theorem

states that private beginning will result in an efficient allocation of resources

true

the end result of coase theorem is that government intervention is not necessary to solve externality problems-private bargaining can do the job

Command-and-control policies

in which the government directly regulates the allocation of resources

market-based policies

in which the government provides incentives for private organizations to internalize the externality

Pigouvian tax

tax necessary to incentive a firm to produce the socially optimal level of output

tax on producer

marginal external cost=

subsidy to consumer

marginal external benefit=

Pigouvian subsidy

the subsidy necessary to make an economic agent increase consumption to the socially optimal level

rival good

goods that only one person can consume at a time

nonrival gooods

goods that more than one person at a time can consume

excludable goods

must be paid for in order to consume them

non excludable goods

can be consumed, even if they are not paid for

free-rider problem

when an individual does not pay for a good because it is non excludable

mandatory

The solution for the free-rider problem is the government makes paying for it ( )

private provision of public goods

takes place when private citizens make contributions to the production or maintenance of a public good

-money may not go to the areas of most critical need

-too variable

-when the economy is needed the most, giving decreases

what is wrong with charity

because of the combination of open access and depletion through use

why does the externality involved with a common pool resource arise?

tragedy of the commons

when common pool resources are overused

-private ownership (defined by the government)

-government regulation (fishing limits for example)

-tax on use

Solutions to the tragedy of the commons

labor, physical capital, land

the three main factors of production are

value of marginal product of labor

firms derive the demand for labor by determining the ...

trading off the marginal benefit from labor given by earnings against the marginal cost, the value of foregone leisure

the supply of labor is determined by...

true

wage inequality can be attributed to differences in human capital, differences in compensating wages, and discrimination in the job market t/f

achieve its production objectives

in addition to labor, a producer must derive the demand for physical capital and land to...

one buyer, many sellers, greater than

A monopoly has ( ) and many ( ). Price is set ( ) marginal cost

Single producer

good or service with no close substitutes

a downward sloping demand curve

name three factors that describe a monopoly market structure

increasing benefits and economies of scale deal with decreasing costs.

Network externalities and economies of scale both can contribute to the formation of a monopoly.​ However, they differ in that network externalities deal with

fixed, average

the case for a natural monopoly is characterized by high ( ) costs and decreasing ( ) costs

patent

government-granted permission to be the sole producer and seller of a good

copyright

government-granted rights to the creator of literary or artistic work

a monopoly's demand curve is the industry's demand curve, while the competitive firm's demand curve is perfectly elastic

A significant difference between monopolies and competitive firms is that

total revenue

For a monopolist, what is calculated the same was as in perfect competition

price

for a monopolist, marginal revenue is not equal to

the​ mid-point of the demand​ curve

for a monopolists demand curve, If the price is above ( ), the quantity effect dominates.

lowering price increases revenue.

for a monopolists demand curve, If the quantity effect​ dominates, ...

the​ mid-point of the demand​ curve

for a monopolists demand curve, If the price is below ( ), the price effect dominates.

marginal revenue is 0

total revenue for a monopolist is maximized only if

negative marginal revenue

if a monopoly selling 300 computers at $3,000 decides to lower its price to $2,000 in order to sell 100 more computers, then the firm has

marginal cost equals marginal revenue

a monopolist should continue to increase production until...

is less than 70 dollars

A monopoly is selling workbooks to students in a college town and is currently maximizing profits by charging ​$70.0070.00 per book. The marginal cost of textbooks

do not vary production based on market price

Monopolists do not use a supply curve because they

increases market quantity

eliminating a monopoly...

the perfectly competitive, maximizes

A social planner would choose the same outcome as that which results in ( ) equilibrium because that outcome ( )social surplus

first degree price discrimination

charges each consumer the maximum price​ they're willing to pay.

the monopolist​ doesn't know each​ consumer's willingness to pay.

In​ reality, practicing price discrimination is difficult​ because:

higher lower reverse

When compared to​ competition, monopoly prices are ( ) and quantity produced is ( ). The purpose of antitrust policy is to

( ) this situation.

economic loss can occur

By forcing monopolists to set price equal to marginal​ cost,

PC & monopoly

realistic models of market structure lie somewhere between...

competitive

counting the number of firms DOES NOT tell us whether the market is...

market competitive

when discussing perfect competition and a monopoly, you need to know additional models are necessary to help answer questions about how many firms are necessary to make a ...

competition, prices

when discussing perfect competition and a monopoly, studying the interactions between firms allows us to learn about the nature of ( ) and how ( ) are set

differentiated

the variety of mattresses available indicates that mattresses are (. ) products

a monopolistic competition

Because there are many firms that manufacture and sell​ mattresses, the market structure for mattresses is likely...

monopoly, homogeneous

assuming the oil cartel is an oligopoly, it would be more similar to a ( ) due to its ( ) product

monopolistic competition

Since Coke and Pepsi control most of the soda​ industry, they would be considered an oligopoly that is most similar to a ...