ECO 2023 Final Exam Graded A+

In order to be Economically Efficient...(2) - ANSWER-1. All actions where the Benefits Costs should be undertaken 2. No actions where the Costs Benefits should be undertaken What are the 2 Roles for the Government when it comes to Economic Efficiency? - ANSWER-1. Protect Individuals and Property Rights 2. Provide Goods that cannot be easily provided by the Market (Overcome Market Failure) Market Failure includes...(4) - ANSWER-1. Lack of Competition 2. Externalities 3. Underprovision of Goods 4. Information Problems When does a Lack of Competition become a problem? - ANSWER-Firms can provide lower quantities of goods and raise their prices. The firms make greater profits while the buyers pay greater prices. (EX): Monopolies What is the Role for the Government in Addressing Lack of Competition (2)? - ANSWER-1. Refrain from creating policy that further restricts competition 2. Antitrust Policy (EX): Sherman Antitrust Act (1890) Clayton Act (1914) What is a Trust? - ANSWER-Businesses with a Large Market Share; a Lack of Competition. (STN): When firms get too big, they can discourage competition. What are Externalities? - ANSWER-The impact of a person's actions on the well-being of a non-consenting 3rd party. What are the 2 types of Externalities? - ANSWER-1. Positive (Effect on 3rd party is Beneficial) 2. Negative (Effect on 3rd party is Adverse) Externalities are indicative of Market Failure because they cause Markets to be... - ANSWER-Inefficient. What is the Coase Theorem? - ANSWER-Says that Private Parties can solve externalities on their own if they can bargain with Little Transaction Costs. According to the Coase Theorem, what 2 Conditions must be met in order for Private Parties to be able to solve their externalities? - ANSWER-1. Low Transaction Costs (# of parties (increases), transaction costs (increase)) 2. Established and Enforced Property Rights What are the 2 Routes that the Government can take in solving Externality Problems? - ANSWER-1. Command and Control Policy (Regulate Behavior Directly) 2. Market-Based Policy (Taxes and Subsidies) (...): Illustrate a Subsidy's Correcting Effect on some Market with a Positive Externality. - ANSWER-Observations: By subsidizing the production of some good that produces extra benefit for society, we incentivize suppliers to produce more of the good and increase demand by generating lower prices. The increased production and consumption will lead to an increase in the positive externality/3rd party and societal benefit. The subsidy will also naturally produce some deadweight loss, but this should be offset by the benefit to society. (...): Illustrate a Tax's Correcting Effect on some Market with a Negative Externality. - ANSWER-Observations: By taxing the production of some good that produces welfare loss to society/some 3rd party, we incentivize efficient decreases in production of the good. Naturally, this will produce some Deadweight Loss, but this should be offset by decreases in the negative externality. What are the 2 Characteristics of Public Goods? - ANSWER-1. Non-Rival Consumption (Making goods available to one consumer does not reduce its availability to others) 2. Non-Excludable (Impossible/Incredibly Costly to exclude nonpaying customers from receiving the good) What is a Free-Rider? - ANSWER-A person who receives the benefit of a good without paying the cost. People's incentive to Free-Ride causes goods to become... - ANSWER-Under-supplied. Often, no one individual is willing to provide the Public Good, but... - ANSWER-The Sum of Everyone's willingness to pay exceeds the cost. (Because of this, individuals hope to free-ride) What is a Lindahl Tax? - ANSWER-Charging each person according to their willingness to pay. What is a problem with the Lindahl Tax? - ANSWER-Each person must report their True Demand and there is an incentive to misreport this by the Consumer. What is the Role for the Government is the Provision of Public Goods? - ANSWER-The Government forces people to contribute through taxes. Private Markets can assist with the Provision of Public Goods through... - ANSWER-Tying them to Private Goods. (EX): Radio Broadcasts and Advertising One Unintended Consequence of Government Public Good Provision is... - ANSWER-Crowding Out (gov. taxes (increases), private benefactors (decrease)) When purchasing a good, Consumers may not have the information necessary to make an.... - ANSWER-Informed Choice. Informed Choices help guarantee that decisions are... - ANSWER-Economically Efficient. What is the Role for the Government in addressing Information Problems? - ANSWER-The Government can help Provide Information through Regulation. What is one way that the Market can help address Information Problems? - ANSWER-Branding. What are the 5 Fundamentals of Consumer Choice? - ANSWER-1. Limited Income which Necessitates Choice 2. Consumers make decisions Purposefully 3. One good can be Substituted for another 4. Consumers must make decisions Wit