Eco 201 Test 2

Front 1

The Role of Prices

Back 1

1. communicate info. to decision makers
2. coordinate actions of market participants (invisible hand)
3. motivate economic players

Front 2

Price Controls

Back 2

Government mandated price levels

Front 3

Price Ceiling (Cap)

Back 3

An upper limit set on a price

Front 4

Binding

Back 4

Keeps the price in the market from reaching equilibrium price level

Front 5

Price Floor

Back 5

A lower limit set on a price

Front 6

Excise Tax

Back 6

Tax imposed on some specific good

Front 7

Tariff

Back 7

Tax on some specific imported good

Front 8

Quota

Back 8

Quantitative restriction on the amount that one country can export to another

Front 9

Price Fixing/Collusion

Back 9

An agreement among firms to divide the market, set prices, or limit production

Front 10

Predatory Pricing

Back 10

Big companies cut their price to drive out small competitors, then hack prices back up

Front 11

Merger Activity

Back 11

Companies joining together; may create a monopoly

Front 12

Monopsony

Back 12

Only one buyer faces many sellers; can dictate terms to its suppliers (controls market for suppliers)

Front 13

Economic Efficiency

Back 13

-All activities generating more benefits than costs are undertaken
-No activities are undertaken for which the cost exceeds the benefit
-Resources are going into the market at the right level

Front 14

Cap-and-Trade Policy

Back 14

-Get credits to do something (like pollution)
-Can sell extra credits to other companies

Front 15

External Costs

Back 15

When a third party bears a cost from a market transaction in which they take no part

Front 16

Rivalry

Back 16

One person consumes only at the expense of someone else being able to consume the good

Front 17

Excludability

Back 17

Once you buy something you can exclude others from using it

Front 18

Mixed Goods

Back 18

Characteristics of public and private goods

Front 19

Free Riding

Back 19

Consuming something that you don't pay for

Front 20

The Free-Rider Problem

Back 20

Won't get enough $ from it (since you have a choice of whether or not to pay)
Ex: roads, bridges, parks, national defense

Front 21

Allocative Efficiency

Back 21

Gov't can provide public goods at efficient levels

Front 22

Deadweight Loss

Back 22

The loss of gains from trade to buyers and sellers that occurs when a tax is imposed. The deadweight loss imposes a burden on both buyers and sellers over and above the actual payment of the tax.

Front 23

Price Discrimination

Back 23

Charging two different people two different prices for the same product.

Front 24

Price Elasticity of Demand (Ed)

Back 24

A measure that indicates the degree of consumer response to a price change

Front 25

Why Tax?

Back 25

1. To generate revenue for gov't
2. Protectionist trade policy (tariff)
3. To alter a behavior or activity that generates negative externalities (ex: try to reduce smoking)

Front 26

Benefit Principle of Taxation

Back 26

The individuals who receive the benefit of a good or service should pay the tax necessary to supply that good