Final Review

Front 1

A public good is a good that

Back 1

is available for everyone to consume, regardless of who pays

Front 2

A government can promote efficiency by intervening in a market in which there are

Back 2

either spillover costs or spillover benefits

Front 3

A private good is a good that

Back 3

is consumed by a single person or household

Front 4

A good that is available for everyone to consume, regardless of who pays and who doesn't is called a

Back 4

public good

Front 5

The free-rider problem implies that

Back 5

each person will try to benefit from the public goods without paying for it

Front 6

Public choice economics studies

Back 6

how governments operate

Front 7

The median voter rule says that

Back 7

government decisions will reflect the preferences of the median voter

Front 8

the opportunity cost of something is

Back 8

what you sacrifice to get the good

Front 9

for a nation to have a comparative advantage in a good it must have

Back 9

a lower opportunity cost of producing that good

Front 10

the "terms of trade" refers to the :

Back 10

relative amounts of the goods that will be exchanged for each other in trade

Front 11

If France can produce grapes at a lower opportunity cost than any other nation, France is said to have ________ in the production of grapes.

Back 11

comparative advantage

Front 12

A situation in which there is no trade refers to an

Back 12

Autarky

Front 13

Exporting nations often agree to voluntary export restraints in an attempt to:

Back 13

avoid more restrictive trade policies

Front 14

A voluntary export retraint is a trade policy by which a nation agrees to limit its:

Back 14

exports of a good in order to avoid more restrictive trade policies

Front 15

Tariff

Back 15

A tax on domestically produced products

Front 16

Import bans, import quotas, voluntary export restraints, and tariffs on goods all do what?

Back 16

Reduce imports and raise prices for consumers

Front 17

What situation will arise in the domestic market following the imposition of a tariff?

Back 17

Imports decrease, domestic production increases, prices increase

Front 18

What situation will arise in the domestic market following the imposition of an import quota?

Back 18

Imports decrease, domestic production increases, prices increase

Front 19

______ collects additional revenues from a quota and ______ collect additional revenues from tariffs

Back 19

Importers; goverments

Front 20

A tariff is proffered to a quota because

Back 20

A tariff, but not a quota, generates additional revenue from the government, which can be used for public programs

Front 21

the ________ tariff reulted in worldwide retaliation against the US during the Great Depression

Back 21

The Smoot-Hawley Tariff- the most famous example of the cost of retaliation of a tariff

Front 22

A possible reason to impose a protectionist policy such as a tariff is to

Back 22

protect domestic workers from foreign competition

Front 23

If a firm charges a foreign market a lower price than it charges the domestic market that firm is said to be ______ its products.

Back 23

Dumping(which is the newest form of protectionism)

Front 24

______ occurs when a firm cuts prices below production costs in a deliberate attempt to drive competitors out of business.

Back 24

Predatory dumping

Front 25

Accoring to the infant industry argument for trade protectionism:

Back 25

New industries need to be shielded in the early stages of "learning by doing"

Front 26

A consumer maximizes utility by choosing

Back 26

a combination of goods such that the marginal rate of substitution is equal to the price ratio

Front 27

Increases in utility are represented by moving

Back 27

to an indifference curve to the northeast

Front 28

An indifference curve represents the set of

Back 28

all possible combinations of goods that yield the same level of utility to the consumer

Front 29

The increase in the price of a good

Back 29

increases the opportunity cost of consuming the good

Front 30

The law of diminishing marginal utility states that:

Back 30

as a consumer consumes more of a product, the consumer gets progressively less satisfaction out of each incremental unit of the good

Front 31

What is the term for the satisfaction or pleasure the consumer experiences when he or she consumes the good?

Back 31

The utility by consuming a good

Front 32

The law of demand states that quantity demanded of a product increases as

Back 32

the price of the product falls

Front 33

The substitution effect of a price change implies that as the price of a good falls, people are more likely to:

Back 33

buy more of the good

Front 34

The income effect of a price change implies that

Back 34

As the price of a good falls, people are likely to buy more of all normal goods

Front 35

Suppose that bananas and apples are normal goods, and that the price of bananas falls. If the income effect outweighs the substitution effect, we would predict that people will consume _______ bananas and _________ apples.

Back 35

more;more

Front 36

The law of supply states that

Back 36

Firms supply more of a product as the price of the product rises

Front 37

Suppose that the quantity supplied of pizza exceeds the quantity demanded for pizza. We would expect that

Back 37

The price of pizza will decrease

Front 38

The market equilibrium is shown by the intersection of the ___________ curve and the ______________ curve.

Back 38

Supply; demand

Front 39

Excess demand occurs when the price is _________ than the equilibrium price; excess supply occurs when the price is _________ than the equilibrium price.

Back 39

Less; Greater

Front 40

A maximum price below the equilibrium price causes excess ________, while a minimum price above the equilibrium price causes excess _________.

Back 40

Demand; supply

Front 41

the price and quantity change in the same direction, ____________ is changing; if the price and quantity change in opposite directions, __________ is changing.

Back 41

Demand; supply

Front 42

An increase in the wage of computer workers will shift the supply curve for computers to the left. True or false? Explain.

Back 42

True. An increase in the wage increases production cost, so fewer computers will be supplied at each price.

Front 43

The price elasticity of demand reflects the responsiveness of

Back 43

Quantity demanded to a change in price

Front 44

Suppose that you have a budget of $20 for movies every month. You see the same number of movies every month no matter what happens to the price of movies. This suggests that your demand for movies is

Back 44

Ver inelastic because you are not responsive to price changes

Front 45

If a product is a necessity and has no substitue at all, demand for the product is more likely to be

Back 45

Very inelastic

Front 46

If consumers have a long time to respond to an incease in electricity prices, their demand is likely to be ______ than if they are only given a short time.

Back 46

more elastic; In the short run it would be di±cult to replace all of the electrical
appliances in your abode so you simply pay the higher prices. So, in the short
run the demand for electricity is inelastic. However, in the long run you could
replace your electric stove with a gas one, for example. So, if you have a long
time to respond to a price change your demand will be more leastic.

Front 47

On a linear demand curve, demand is ______ at low quantities than it is at the middle of the demand curve

Back 47

more elastic

Front 48

If the quantity demanded of a good falls by 2% when income falls by 10%, the good's demand is

Back 48

Income elastic; Because people responding to the loss of income by buying a reducing
consumption by a lower percentage.

Front 49

The supply curve will be ______ when firms have more time in which to respond to the price change.

Back 49

more elastic

Front 50

If the price elasticity of supply is 1, supply is

Back 50

Unitary elastic

Front 51

Diminishing marginal returns implies that firms

Back 51

require more and more workers to produce each additional unit of output

Front 52

Marginal product in the short-run

Back 52

May initially increase, then eventually decrease

Front 53

Marginal cost is defined as

Back 53

The change in total variable cost resulting from a one unit increase in the change in quantity

Front 54

Average variable cost equals

Back 54

average total cost minus average fixed cost

Front 55

Average total cost is defined as

Back 55

total cost divided by quantity

Front 56

If a firm's total fixed costs are $10m the firm's marginal cost of producing the first unit of output is $10, and the average total cost of producing 2 units of output is $14, the marginal cost of the second unit of output is

Back 56

$8

Front 57

To minimize average total cost, a firm should always increase output when

Back 57

Marginal cost is less than average total costs