Microeconomics Study Finals (Exam 4)

question

elastic demand

answer

A situation in which consumer demand is sensitive to changes in price

question

inelastic demand

answer

demand in which changes in price have little or no effect on the amount demanded

question

negative externalities

answer

The negative effects of a production or service
Ex: Loud music keeping neighbors awake
Ex: Pollution

question

positive externalities

answer

The positive effects of a production of service.
Ex: Decrease in crime because of education
Ex: Growing a Garden

question

Who invented The Invisible Hand

answer

Adam Smith

question

Coase Theorem

answer

the proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own
Coase Theorem Assumes:
- Free entry & exit barriers
- Perfect information
- Zero transaction costs
- Perfectly defined & enforce property rights

question

collective action

answer

Organized groups that pursue common goals
- Interest Groups
- Free Writers (Letting others do the work)
- Group collective action

question

Public Choice Theory

answer

Recognition of the reality that politicians have selfish motives and human flaws
- Rational Self Interest
- Involves some kind of exchange

question

Interest groups are

answer

an organized group of people with common objectives who actively try to influence policymaking

question

Large vs Small Interest Groups

answer

Large
- Harder to Maintain
- More Funding
- Taxed Higher
- Often disorganized and ineffective
Small
- Less People
- Uncomplicated Management
- Low cost decisions

question

Special Interest Groups

answer

A group of people or organization seeking or receiving special advantages

question

External Benefits

answer

A benefit that is received to a third party (bystander) and not by the consumer or producer
Ex: Flu shot from the producer that is given to the consumer reduces the probability of other people getting the flu (bystanders)

question

public goods

answer

Goods, such as clean air and clean water, that everyone must share.

question

Pork Barreling

answer

Using government funds to please voters or legislators and win votes

question

Rational Self-Interest Theory

answer

People will make choices that at the time and with the information that they have will give the greatest amount of satisfaction

question

rent seeking

answer

activities undertaken by individuals or firms to influence public policy in a way that will increase their incomes
(Transfer of wealth instead of the creation of wealth)

question

free trade

answer

international trade, free of government interference
Ex: No tariffs placed on foreign goods

question

Condorcet Paradox

answer

the failure of majority rule to produce transitive preferences for society
Ex: A circle

question

Tragedy of the Commons(Written by Aristotle)

answer

Overuse of land, lack of interest to maintain the land (Every individual has the incentive to use the resource just as much as the other person)

question

Tragedy of the Contested

answer

To many owners to one resource, leads to underuse of resources (Blocking of a river, must pay a toll to continue along the river)

question

median voter theorem

answer

The theory that parties in a two-party system can maximize their vote by locating themselves at the position of the median voter—the voter whose preferences are exactly in the middle.

question

Tariffs

answer

A tax on imported goods

question

positive economics

answer

Economic FACTS
Ex: Rejection of theories

question

negative economics

answer

Economic OPINIONS
Ex: Higher education should be free

question

Metering Costs

answer

The cost of measuring information

question

encompassing interests

answer

Overlapping interest in success more than the interest of grabbing and running (Succeeding together, Ex: Mexico and the US want to keep tariffs low)

question

Grabbing and Running

answer

Overuse, takes all the money instead of taking a portion and allowing it to regrow (Ex: A bandit "grabbing and running" loot and then uses the stolen loot to hire a guard to protect the bandit from "grabbing and running")

question

Quasi Rent

answer

Temporary rent, Rent that is adjusted for the cost of establishing a monopoly

question

Monopoly Market

answer

1 Single Seller
Ex: Being the only company allowed to sell fruits

question

Monopsony Market

answer

a market consisting of a single buyer and many sellers

question

creative destruction

answer

Creation of a new item/product or method which leads to an out performance of older items creating a monopoly (good for consumers, provides new products)

question

There are five necessary conditions for a Coase efficient invisible hand of politics. What are they?

answer

1. Minimal political entry barriers
2. Optimally informed electorate:
3. Minimal decision costs
4. Minimal political transaction costs
5. Optimal political contracts

1 of 32

question

elastic demand

answer

A situation in which consumer demand is sensitive to changes in price

question

inelastic demand

answer

demand in which changes in price have little or no effect on the amount demanded

question

negative externalities

answer

The negative effects of a production or service
Ex: Loud music keeping neighbors awake
Ex: Pollution

question

positive externalities

answer

The positive effects of a production of service.
Ex: Decrease in crime because of education
Ex: Growing a Garden

question

Who invented The Invisible Hand

answer

Adam Smith

question

Coase Theorem

answer

question

collective action

answer

Organized groups that pursue common goals
- Interest Groups
- Free Writers (Letting others do the work)
- Group collective action

question

Public Choice Theory

answer

Recognition of the reality that politicians have selfish motives and human flaws
- Rational Self Interest
- Involves some kind of exchange

question

Interest groups are

answer

an organized group of people with common objectives who actively try to influence policymaking

question

Large vs Small Interest Groups

answer

Large
- Harder to Maintain
- More Funding
- Taxed Higher
- Often disorganized and ineffective
Small
- Less People
- Uncomplicated Management
- Low cost decisions

question

Special Interest Groups

answer

A group of people or organization seeking or receiving special advantages

question

External Benefits

answer

question

public goods

answer

Goods, such as clean air and clean water, that everyone must share.

question

Pork Barreling

answer

Using government funds to please voters or legislators and win votes

question

Rational Self-Interest Theory

answer

People will make choices that at the time and with the information that they have will give the greatest amount of satisfaction

question

rent seeking

answer

activities undertaken by individuals or firms to influence public policy in a way that will increase their incomes
(Transfer of wealth instead of the creation of wealth)

question

free trade

answer

international trade, free of government interference
Ex: No tariffs placed on foreign goods

question

Condorcet Paradox

answer

the failure of majority rule to produce transitive preferences for society
Ex: A circle

question

Tragedy of the Commons(Written by Aristotle)

answer

Overuse of land, lack of interest to maintain the land (Every individual has the incentive to use the resource just as much as the other person)

question

Tragedy of the Contested

answer

To many owners to one resource, leads to underuse of resources (Blocking of a river, must pay a toll to continue along the river)

question

median voter theorem

answer

The theory that parties in a two-party system can maximize their vote by locating themselves at the position of the median voter—the voter whose preferences are exactly in the middle.

question

Tariffs

answer

A tax on imported goods

question

positive economics

answer

Economic FACTS
Ex: Rejection of theories

question

negative economics

answer

Economic OPINIONS
Ex: Higher education should be free

question

Metering Costs

answer

The cost of measuring information

question

encompassing interests

answer

Overlapping interest in success more than the interest of grabbing and running (Succeeding together, Ex: Mexico and the US want to keep tariffs low)

question

Grabbing and Running

answer

question

Quasi Rent

answer

Temporary rent, Rent that is adjusted for the cost of establishing a monopoly

question

Monopoly Market

answer

1 Single Seller
Ex: Being the only company allowed to sell fruits

question

Monopsony Market

answer

a market consisting of a single buyer and many sellers

question

creative destruction

answer

Creation of a new item/product or method which leads to an out performance of older items creating a monopoly (good for consumers, provides new products)

question

There are five necessary conditions for a Coase efficient invisible hand of politics. What are they?

answer

1. Minimal political entry barriers
2. Optimally informed electorate:
3. Minimal decision costs
4. Minimal political transaction costs
5. Optimal political contracts

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Microeconomics Study Finals (Exam 4)

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