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20 Cards in this Set
- Front
- Back
The real cost of government goods and services is |
The private goods and services foregone. |
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If the economy is currently operating on a point on the production possibility curve for government goods and services versus private goods and services, |
A decrease in the annual output of government goods and services will allow and increase in annual output of private goods and services. |
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If the marginal social benefit of a good exceeds the marginal social cost at the current monthly output, then |
An increase in monthly output will be required for efficiency. |
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Diamonds are sold by a monopoly firm that maximizes profits. Then it follows that: |
The marginal social benefit of diamonds exceeds its marginal social cost. |
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Suppose the efficient output currently prevails in the market for ice cream. A tax on ice cream consumption will |
Result in less than the efficient output in the market. |
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Which of the following is a normative statement (opinion) |
To achieve efficiency, governments should prevent monopoly on markets. |
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The first fundamental theorem of welfare economics states that |
The competitive equilibrium, where supply equals demand, maximizes efficiency. |
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Asymmetric information represents a market situation in which |
One party in a transaction has more information that the other party. |
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If banks face a problem in loan markets when bad credit risks are the ones most likely to seek bank loans, it is |
Adverse selection. |
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Ace computers suddenly increases in demand for disk drive controllers, causing the market price of controllers to increase for all its competitors and suppliers. This is an example of |
A pecuniary externality-no need to do anything, already internalized. |
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An infra marginal positive externality |
Requires no action because the optimal level of output has been reached. |
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A positive externality results from the purchase of smoke detectors. If smoke detectors are sold in a competitive market, |
The marginal social benefit of smoke detectors will exceed the marginal private benefit received by any consumer. |
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The general theory of second best |
Suggests that efficiency might be achieved by the introduction of an offsetting economic distortion. |
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A corrective unit tax |
Should be set equal to the amount of the marginal external cost at the efficient level of output. |
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If the marginal external cost of gas consumption is $.25 and the market equilibrium quantity exceeds the efficient quantity by 8 billion, the dead weight loss of the externality is 1 billion. |
True. 1/2bh. |
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Characteristics of pure public goods |
A. Not subject to exclusion. (non excludable) B. Infeasible to price for market distribution. C. It's availability results in widely consumed external benefits. (non rival) D. Not divisible into units that can be apportioned among consumers. |
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The marginal cost of distributing a pure public good to an additional consumer is |
Zero. |
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Congestible public good |
Road. |
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The marginal cost of making a given quantity of congestible public good available to more consumers is |
Zero at first but eventually becomes positive and increasing. |
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The efficient output of a pure public good is achieved at the point at which |
The sum of the marginal benefits of all consumers equals the marginal social cost of producing the good. |