Econ 201 Exam 2: Questions & Answers: Econ 201 Exam 2 Study Guide: Updated Solution

the production of goods and services according to individual demand (Ans- consumer sovereignty a situation that occurs when 1) all activities generating more benefits than cost are undertaken and 2) no activities are undertaken for which the cost exceeds the benefit (Ans- economic efficiency government maintains a framework of security and order-an infrastructure of rules within which people can interact peacefully with one another (Ans- protective function government sometimes produces products that private markets do not produce at efficient levels (Ans- productive function many sellers but only one buyer (Ans- monopsonythird party affected by market transaction can be the result of production and/or consumption activities (Ans- externalities when a third party bears a cost from a market transaction in which they take no part (Ans- external costs when a third party benefits from a market transaction in which they take no part (Ans- external benefits policies that rely on regulation (Ans- command-and-control policies policies that increase or decrease the cost of producing or consuming a product with the intent of altering consumption or production to socially desirable levels (Ans- incentive-based policies providing property rights for a certain amount of a good like pollution and allowing permit owners to use or trade their license/permit (Ans- market-based policiesgoods or services where each unit is consumed only by one individual (Ans- private goods