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Economy-Chapter 5
Test #2 Notecards
33
Economics
Undergraduate 2
10/26/2010

Additional Economics Flashcards

 


 

Cards

Term

Resource Allocation Methods:

 

 

Definition
  • market prices
  • commands
  • majority rule
  • contest
  • first-come,first-serve
  • sharing equally
  • lottery
  • personal characteristics
  • force
Term

Resource Allocation Methods:

 

Market Price:

Definition
when a market allocates a scarce resource, the people who get the resource are those who are willing to pay the market price
Term

Resource Allocation Methods:

 

Command:

Definition
Command System: allocates resources by the order (command) of someone in authority
Term

Resource Allocation Methods:

 

Majority Rule:

Definition
allocates resources in the way the majority of voters choose
Term

Resource Allocation Methods:

 

Contests:

Definition
allocates resources to a winner or group of winners
Term

Resource Allocation Methods:

 

First-Come, First-Serve

Definition
allocates resources to those who are first in line
Term

Resource Allocation Methods:

 

Sharing Equally:

Definition
when a resource is shared equally, everyone gets the same amount of it
Term

Resource Allocation Methods:

 

Lottery:

Definition
allocate resources to those with the winning number, draw the lucky cards, or come up lucky on some other gamming system
Term

Resource Allocation Methods:

 

Personal Characteristics:

Definition
allocates resources to those with the "right" characteristics
Term

Resource Allocation Methods:

 

Force:

Definition
provides an effective way of allocating resources- for the state to transfer wealth from the rich to the poor and establish the legal framework in which voluntary exchange can take place in markets
Term

Demand and Marginal Benefit:

 

Demand, Willingness to pay, and Value:

 

Definition
  • value is what we get, while price is what we pay
  • marginal benefit is measured as the maximum price that a person is willing to pay for another unit of a g/s
  • but willingness to pay determines demand
  • a Demand Curve is a Marginal Benefit Curve
Term

Demand and Marginal Benefit:

 

Individual Demand:

Definition
the relationship between the price of a good and the quantity demanaded by one person
Term

Demand and Marginal Benefit:

 

Market Demand:

Definition

the relationship between the price of a good and the quantity demanded by all of the buyers in the market

 

the market demand curve is the horizontal sum of the individual demand curves

Term

Demand and Marginal Benefit:

 

Consumer Surplus:

Definition

the Maximum amount a consumer would be willing to pay for a good minus the actual price payed for it, summed over the quantity bought

 

measured on a graph as the area under the demand curve and above the price paid up to the quantity bought

Term

Supply and Marginal Cost:

 

Supply, Cost, and Minimum Supply-Price:

Definition
  • cost is what the producer gives up, price is what the producer receives
  • marginal cost is the minimum price producers must receive to produce one more unit of a g/s
  • but the minimum supply-price determines supply
  • a Supply Curve is a Marginal Cost Curve
Term

Supply and Marginal Cost:

 

Individual Supply:

Definition
the relationship between the price of the good and the quantity supplied by one producer
Term

Supply and Marginal Cost:

 

Market Supply:

Definition

the relationship between the price of a good and the quantity supplied by all of the producers in the market

 

the market supply curve is the horizontal sum of the individual supply curves

Term

Supply and Marginal Cost:

 

Producer Surplus:

Definition

the difference between the price a producer receives for a good and the opportunity cost of producing it, summed over the quantity sold

 

measured on a graph as: the area below the market price and above the supply curvem summed over the quantity sold

Term

Is the Competitive Market Efficient?

 

At the Equillibrium Quantity....?

Definition
  • at the equillibrium quantity, marginal benefit equals marginal cost, so the quantity is the efficient quantity
  • when the efficient quantity is produced, total surplus (sum of producer surplus and consumer surplus) is maximized
Term

Is the Competitive Market Efficient?

 

The Invisible Hand:

Definition
Adam Smith's "invisible hand" idea implied that competitive markets send resources to their highest valued use in society
Term

Is the Competitive Market Efficient?

 

Overproduction and Underproduction:

Definition
inefficiency can occur because too little of an item is produced-underproduction- or too much of an item is produced-overproduction
Term

Is the Competitive Market Efficient?

 

Underproduction:

Definition

if production is restricted, there is an underproduction and the quantity is inefficient

 

this is a social loss

Term

Is the Competitive Market Efficient?

 

Deadweight loss

Definition

the decrease in consumer surplus and producer surplus (total surplus) that results from producing an inefficient quantity of a good

 

is a loss of surplus to society

Term

Is the Competitive Market Efficient?

 

Overproduction

Definition

if production is expanded, a deadweight loss arises from overproduction

 

this is a social loss

Term

Is the Competitive Market Efficient?

 

Obstacles to Efficiency:

Definition
  • price and quantity regulations
  • taxes and subsidies
  • externalities
  • public goods and common resources
  • monopoly
  • high transaction costs
Term

Is the Competitive Market Fair?

 

Two Idea Groups:

Definition
  • It's not fair if the result isn't fair.
  • it's not fair if the rules aren't fair.
Term

Is the Competitive Market Efficient?

 

Utilitarianism:

Definition

the idea that only equality brings efficiency

 

utilitarianism is the principle that states that we should strive to achieve "the greatest happiness for the greatest number"

 

[ignores the cost of making income transfers]

Term

Is the Competitive Market Efficient?

 

It's not fair if the result isn't fair:

[sample]

Definition
  • if everyone gets the same marginal utility from a given amount of income, and 
  • if the marginal benefit of income decreases as income increases,
  • then taking a dollar from a richer person and giving it to a poorer person increases the total benefit
  • only when income is equally distributed has the greatest happiness been achieved
Term

Is the Competitive Market Efficient?

 

it's not fair if the rules aren't fair:

Definition

idea is based on the symmetry principle

 

 

Term

Is the Competitive Market Efficient?

 

Symmetry Principle:

Definition

the requirement that people in similiar situations be treated similiarly

 

in economics, it means equality of opportunity, not equality of income

Term
Net Benefit to Consumers:
Definition

consumer surplus measures the net benefit to consumers from participating in a market, rather than the total benefit

 

for the market, consumer surplus is equal to the total benefit received from consumers minus the total amount they must pay to buy the good

Term
Net Benefit Received by Producers:
Definition

producer surplus measures the net benefit received by producers from participating in the market

 

for the market, producer surplus is equal to the total amount firms receive from consumers minus the cost of producing the good

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