Econ 2010 final

Knowt Flashcard Set: Economics Study Guide

1. Externalities

Q: What are externalities?
A: Side effects of economic activities that affect third parties not directly involved in the transaction.

Q: What is a positive externality?
A: A beneficial effect on a third party (e.g., education, vaccinations).

Q: What is a negative externality?
A: A harmful effect on a third party (e.g., pollution, noise).

Q: What happens in markets with negative externalities?
A: Overproduction (market produces more than socially efficient).

Q: What happens in markets with positive externalities?
A: Underproduction (market produces less than socially efficient).

Q: Name solutions to externalities.
A: Taxes (Pigouvian), subsidies, regulations, tradable permits, Coase Theorem.

2. Network Goods & Platforms

Q: What is a network good?
A: A good whose value increases as more people use it (e.g., Facebook, Visa).

Q: What does "competing for the market" mean?
A: Firms try to dominate the market (winner-takes-most) rather than compete within it.

Q: Why are digital goods often "free"?
A: Zero marginal cost to distribute (monetized via ads/data).

3. Labor Markets

Q: What does the labor supply curve represent?
A: Workers’ willingness to work at different wage levels.

Q: How are wages determined?
A: Equilibrium where labor supply = labor demand.

Q: What is the marginal productivity of labor (MPL)?
A: Additional output from hiring one more worker.

Q: What is the signaling model of education?
A: Education signals ability to employers (not just skill acquisition).

4. Public Goods & Tragedy of the Commons

Q: What makes a good non-rival?
A: One person’s use doesn’t reduce availability for others (e.g., public radio).

Q: What is the free rider problem?
A: People benefit without paying, leading to underprovision of public goods.

Q: What is the tragedy of the commons?
A: Overuse of a common resource due to lack of ownership (e.g., overfishing).

Q: Name solutions to the tragedy of the commons.
A: Government regulation, privatization, tradable permits.

5. Asymmetric Information

Q: What is moral hazard?
A: Post-contract reckless behavior (e.g., insurance fraud).

Q: What is adverse selection?
A: High-risk individuals are more likely to participate (e.g., sick people buying insurance).

Q: How can firms address asymmetric information?
A: Screening, signaling (e.g., warranties, certifications).

6. Public Finance

Q: What is the largest U.S. federal spending category?
A: Mandatory spending (Social Security, Medicare).

Q: What is the difference between deficit and debt?
A: Deficit = annual shortfall; Debt = accumulated deficitsQ: How does a budget surplus occur? A: When government revenues exceed its expenditures over a given period.