Health Econ: Exam 1

question

economics

answer

the study of how individuals and societies use limited resources to satisfy unlimited wants

question

positive economics analysis

answer

attempt to describe how the economy functions, relies on testable hypotheses

- without judgement, just facts

question

normative economics analysis

answer

relies on value judgements to evaluate or recommend alternative policies

question

scarcity, alternatives

answer

fundamental economic problems include _________ and individuals/societies having to choose among available _____________

question

opportunity cost

answer

the cost of not selecting the "next-best" alternative

question

economic good

answer

the quantity demanded exceeds the quantity supplied at a zero price

question

free good

answer

the quantity supplied exceeds the quantity demanded at a zero price

question

economic bad

answer

people are willing to pay to avoid the item

- ex) getting the flu vaccine to avoid getting sick

question

rational self-interest

answer

individuals select the choices that make them happiest, given the information available at the time of a decision

question

microeconomics

answer

the study of individual economic agents and individual markets

- foundation of health economics

question

macroeconomics

answer

the study of economic aggregates

question

marginal benefit

answer

additional benefit resulting from a one-unit increase in the level of an activity

question

marginal cost

answer

additional cost associated with one-unit increase in the level of an activity

question

net benefit

answer

individuals are not expected to maximize benefit, nor are they expected to minimize costs

- the difference between marginal benefit and marginal cost

question

expands

answer

marginal benefit greater than marginal cost, the activity __________

question

contracts

answer

marginal benefit less than marginal cost, the activity ________

question

optimal

answer

marginal benefit is equal to marginal cost the activity is at an ___________ level

question

declines, rises

answer

marginal benefit generally __________ as the level of an activity rises

question

rises

answer

for most activities, marginal cost ________ as the level of the activity increases

question

law of diminishing returns

answer

output will ultimately increase by progressively smaller amounts when the use of a variable input increases while other inputs are held constant

question

marginal opportunity cost

answer

the amount of another good that must be given up to produce one more unit of a good

question

law of increasing cost

answer

marginal opportunity cost rises as the level of an activity increases

question

resource

answer

distribution of income is determined in the ___________ market

question

output

answer

the allocation of goods and services is determined in the ________ market

question

sole proprietorship

answer

a business with a single owner, most common form of business organization

question

partnership

answer

two or more individuals share ownership

question

corporation

answer

a legal entity separate from its owners

question

deficit

answer

a trade _________ occurs when imports exceed exports

question

surplus

answer

a trade _________ occurs when exports exceed imports

question

demand

answer

a relationship between price and quantity demanded in a given time period

question

law of demand

answer

an inverse relationship between the price of a good and the quantity demanded in a given period

question

preferences, prices, income, consumers, expectations

answer

the determinants of demand includes:

- tastes and ________________

- ____________ of related goods and services

- _________

- number of ______________

- ___________________ of future prices and income

question

substitute goods

answer

an increase in the price of one results in an increase in the demand for the other

question

complementary goods

answer

an increase in the price of one results in a decrease in the demand for the other

question

normal

answer

a good is a __________ good if an increase in income results in an increase in the demand for the good

question

inferior

answer

a good is an ____________ good if an increase in income results in a reduction in the demand for the good

- ex) not purchasing ramen noodles anymore because you have more money to eat better

question

increase, reduce

answer

a higher expected future price will ___________ current demand

a lower expected future income will ____________ the demand for all normal goods

question

exchange rate

answer

the rate at which one currency is exchanged for another

question

currency appreciation

answer

an increase in the value of a currency relative to other currencies

question

currency depreciation

answer

a decrease in the value of a currency relative to other currencies

question

supply

answer

the relationship that exists between the price of a good and the quantity supplied in a given time period

question

law of supply

answer

the direct relationship exists between the price of a good and the quantity supplied in a given time period

question

price floor

answer

legally mandated minimum price designed to maintain a price above the equilibrium level

-ex) agricultural price supports, minimum wage laws

question

price ceiling

answer

legally mandated maximum price

question

deadweight loss

answer

the reduction in economic surplus resulting from a market not being in competitive equilibrium

question

elasticity

answer

a measure of the responsiveness of one variable to a change in another variable

question

price discrimination

answer

different customers are charges different prices for the same product, due to differences in price elasticity of demand

question

substitutes

answer

cross-price elasticity is positive if and only if the goods are?

question

complements

answer

cross-price elasticity is negative if and only if the goods are?

question

short run

answer

period of time in which capital is fixed

question

production

answer

the total amount of output produced by a firm is a function of the levels of input usage by the firm

question

total physical product (tpp) function

answer

a short-run relationship between the amount of labor and the level of output

question

marginal physical product (mpp)

answer

the additional output that results from the use of an additional unit of a variable input, holding other inputs constant

question

fixed costs

answer

costs that do not vary with the level of output, are the same at all levels of output

question

variable costs

answer

costs that vary with the level of output, is equal to 0 when the output is 0

question

marginal cost (mc)

answer

cost of an additional unit of output

question

economies of scale

answer

factors that lower average cost as the size of the firm rises in the long run

question

diseconomies of scale

answer

factors that raise average costs as the size of the firm rises in the long run

question

constant returns of scale

answer

average costs do not change as the firm size changes

question

pareto optimality

answer

maximum amount of economic surplus

question

asymmetric information

answer

one party to a contract has different information that the other party

- adverse selection, moral hazard

question

adverse selection

answer

a market process in which "bad" results occur when buyers and sellers have asymmetric information

question

moral hazard

answer

occurs when one party to a contract has a incentive to alter his or her behavior to the detriment of the other party once a contract exists

question

externalities

answer

side effects of production or consumption that affect individuals not directly involved in the activity or transaction

question

positive externalities

answer

externalities that occur when one or more parties not involved in the transaction benefit from the activity

- results in underproduction and underconsumption

- those engaged in the transaction do not take the external benefits into account in their decision making

question

negative externalities

answer

externalities that occur when third parties are harmed

- results in social costs that are not borne by parties involved in the transaction

- results in overproduction and consumption

question

internalizing externalities

answer

the use of taxes or subsidies to correct for an externality

question

public good

answer

a good that is non-rival and non-excludable

question

nonrivalry in consumption

answer

one person's consumption does not affect the quantity or the quality of the good available to others

question

non-excludability

answer

no one can be effectively excluded from using the good

- national defense, public fireworks, lighthouses

question

coase theorem

answer

if property rights are well defined and there are no transaction costs, private bargaining can correct for the presence of positive or negative externalities

question

a monopoly

answer

the only supplier of a particular commodity

question

monopsony

answer

a single entity's control of a market to purchase a good or service

question

oligopoly

answer

a few entities dominating an industry

question

gini coefficient

answer

the ratio of the area that lies between the line of equality and the Lorenz curve

- can range from 0 to 1

1 of 75

question

economics

answer

the study of how individuals and societies use limited resources to satisfy unlimited wants

question

positive economics analysis

answer

attempt to describe how the economy functions, relies on testable hypotheses

- without judgement, just facts

question

normative economics analysis

answer

relies on value judgements to evaluate or recommend alternative policies

question

scarcity, alternatives

answer

fundamental economic problems include _________ and individuals/societies having to choose among available _____________

question

opportunity cost

answer

the cost of not selecting the "next-best" alternative

question

economic good

answer

the quantity demanded exceeds the quantity supplied at a zero price

question

free good

answer

the quantity supplied exceeds the quantity demanded at a zero price

question

economic bad

answer

people are willing to pay to avoid the item

- ex) getting the flu vaccine to avoid getting sick

question

rational self-interest

answer

individuals select the choices that make them happiest, given the information available at the time of a decision

question

microeconomics

answer

the study of individual economic agents and individual markets

- foundation of health economics

question

macroeconomics

answer

the study of economic aggregates

question

marginal benefit

answer

additional benefit resulting from a one-unit increase in the level of an activity

question

marginal cost

answer

additional cost associated with one-unit increase in the level of an activity

question

net benefit

answer

individuals are not expected to maximize benefit, nor are they expected to minimize costs

- the difference between marginal benefit and marginal cost

question

expands

answer

marginal benefit greater than marginal cost, the activity __________

question

contracts

answer

marginal benefit less than marginal cost, the activity ________

question

optimal

answer

marginal benefit is equal to marginal cost the activity is at an ___________ level

question

declines, rises

answer

marginal benefit generally __________ as the level of an activity rises

question

rises

answer

for most activities, marginal cost ________ as the level of the activity increases

question

law of diminishing returns

answer

output will ultimately increase by progressively smaller amounts when the use of a variable input increases while other inputs are held constant

question

marginal opportunity cost

answer

the amount of another good that must be given up to produce one more unit of a good

question

law of increasing cost

answer

marginal opportunity cost rises as the level of an activity increases

question

resource

answer

distribution of income is determined in the ___________ market

question

output

answer

the allocation of goods and services is determined in the ________ market

question

sole proprietorship

answer

a business with a single owner, most common form of business organization

question

partnership

answer

two or more individuals share ownership

question

corporation

answer

a legal entity separate from its owners

question

deficit

answer

a trade _________ occurs when imports exceed exports

question

surplus

answer

a trade _________ occurs when exports exceed imports

question

demand

answer

a relationship between price and quantity demanded in a given time period

question

law of demand

answer

an inverse relationship between the price of a good and the quantity demanded in a given period

question

preferences, prices, income, consumers, expectations

answer

the determinants of demand includes:

- tastes and ________________

- ____________ of related goods and services

- _________

- number of ______________

- ___________________ of future prices and income

question

substitute goods

answer

an increase in the price of one results in an increase in the demand for the other

question

complementary goods

answer

an increase in the price of one results in a decrease in the demand for the other

question

normal

answer

a good is a __________ good if an increase in income results in an increase in the demand for the good

question

inferior

answer

a good is an ____________ good if an increase in income results in a reduction in the demand for the good

- ex) not purchasing ramen noodles anymore because you have more money to eat better

question

increase, reduce

answer

a higher expected future price will ___________ current demand

a lower expected future income will ____________ the demand for all normal goods

question

exchange rate

answer

the rate at which one currency is exchanged for another

question

currency appreciation

answer

an increase in the value of a currency relative to other currencies

question

currency depreciation

answer

a decrease in the value of a currency relative to other currencies

question

supply

answer

the relationship that exists between the price of a good and the quantity supplied in a given time period

question

law of supply

answer

the direct relationship exists between the price of a good and the quantity supplied in a given time period

question

price floor

answer

legally mandated minimum price designed to maintain a price above the equilibrium level

-ex) agricultural price supports, minimum wage laws

question

price ceiling

answer

legally mandated maximum price

question

deadweight loss

answer

the reduction in economic surplus resulting from a market not being in competitive equilibrium

question

elasticity

answer

a measure of the responsiveness of one variable to a change in another variable

question

price discrimination

answer

different customers are charges different prices for the same product, due to differences in price elasticity of demand

question

substitutes

answer

cross-price elasticity is positive if and only if the goods are?

question

complements

answer

cross-price elasticity is negative if and only if the goods are?

question

short run

answer

period of time in which capital is fixed

question

production

answer

the total amount of output produced by a firm is a function of the levels of input usage by the firm

question

total physical product (tpp) function

answer

a short-run relationship between the amount of labor and the level of output

question

marginal physical product (mpp)

answer

the additional output that results from the use of an additional unit of a variable input, holding other inputs constant

question

fixed costs

answer

costs that do not vary with the level of output, are the same at all levels of output

question

variable costs

answer

costs that vary with the level of output, is equal to 0 when the output is 0

question

marginal cost (mc)

answer

cost of an additional unit of output

question

economies of scale

answer

factors that lower average cost as the size of the firm rises in the long run

question

diseconomies of scale

answer

factors that raise average costs as the size of the firm rises in the long run

question

constant returns of scale

answer

average costs do not change as the firm size changes

question

pareto optimality

answer

maximum amount of economic surplus

question

asymmetric information

answer

one party to a contract has different information that the other party

- adverse selection, moral hazard

question

adverse selection

answer

a market process in which "bad" results occur when buyers and sellers have asymmetric information

question

moral hazard

answer

occurs when one party to a contract has a incentive to alter his or her behavior to the detriment of the other party once a contract exists

question

externalities

answer

side effects of production or consumption that affect individuals not directly involved in the activity or transaction

question

positive externalities

answer

externalities that occur when one or more parties not involved in the transaction benefit from the activity

- results in underproduction and underconsumption

- those engaged in the transaction do not take the external benefits into account in their decision making

question

negative externalities

answer

externalities that occur when third parties are harmed

- results in social costs that are not borne by parties involved in the transaction

- results in overproduction and consumption

question

internalizing externalities

answer

the use of taxes or subsidies to correct for an externality

question

public good

answer

a good that is non-rival and non-excludable

question

nonrivalry in consumption

answer

one person's consumption does not affect the quantity or the quality of the good available to others

question

non-excludability

answer

no one can be effectively excluded from using the good

- national defense, public fireworks, lighthouses

question

coase theorem

answer

if property rights are well defined and there are no transaction costs, private bargaining can correct for the presence of positive or negative externalities

question

a monopoly

answer

the only supplier of a particular commodity

question

monopsony

answer

a single entity's control of a market to purchase a good or service

question

oligopoly

answer

a few entities dominating an industry

question

gini coefficient

answer

the ratio of the area that lies between the line of equality and the Lorenz curve

- can range from 0 to 1

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Health Econ: Exam 1

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