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PSU ECON 102 Final Exam Study Guide.
Price Ceiling - Answer✔Legal max price--only effective if set below the market price
Price Floor - Answer✔Legal min price--only effective if set above the market price
Producer Surplus - Answer✔The difference between the min price a seller is willing to accept
and the market price
Consumer Surplus - Answer✔The difference between between the max price the buyer is willing
to pay and the market price
Nonrival Public Goods - Answer✔used by more and more people at no additional cost and
without depriving others of any services of the goods
Nonexcludable Public Goods - Answer✔Impossible or costly to exclude those that have not paid
for the good
The Free-Rider Problem - Answer✔Situation associated with public goods when individuals
presume that others will pay for public goods
Negative Externality (External Cost) - Answer✔is present when an economic activity imposes a
cost on third parties (Example: pollution)
How are negative externality problems resolved privately with limited govt. involvement -
Answer✔Bargaining
Positive Externality - Answer✔activity that provides benefits to third parties (flu shot)
Ways the govt. can correct positive externalities - Answer✔Govt. financing, subsides, and
regulation
Price Elasticity of Demand - Answer✔the responsiveness of quantity demanded of a good to
changes in its price
Midpoint Formula - Answer✔(Q2-Q1)/(Q1+Q2)/2x100/(P2-P1)/(P1+P2)/2x100
Point Price Elasticity of Demand Equation - Answer✔1/Slope x P1/Q1
When price elasticity of demand is elastic... - Answer✔you want to decrease the price
When price elasticity of demand is inelastic... - Answer✔you want to increase the price
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PSU ECON 102 Final Exam Study Guide.
Price Ceiling - Answer✔Legal max price--only effective if set below the market price
Price Floor - Answer✔Legal min price--only effective if set above the market price
Producer Surplus - Answer✔The difference between the min price a seller is willing to accept
and the market price
Consumer Surplus - Answer✔The difference between between the max price the buyer is willing
to pay and the market price
Nonrival Public Goods - Answer✔used by more and more people at no additional cost and
without depriving others of any services of the goods
Nonexcludable Public Goods - Answer✔Impossible or costly to exclude those that have not paid
for the good
The Free-Rider Problem - Answer✔Situation associated with public goods when individuals
presume that others will pay for public goods
Negative Externality (External Cost) - Answer✔is present when an economic activity imposes a
cost on third parties (Example: pollution)
How are negative externality problems resolved privately with limited govt. involvement -
Answer✔Bargaining
Positive Externality - Answer✔activity that provides benefits to third parties (flu shot)
Ways the govt. can correct positive externalities - Answer✔Govt. financing, subsides, and
regulation
Price Elasticity of Demand - Answer✔the responsiveness of quantity demanded of a good to
changes in its price
Midpoint Formula - Answer✔(Q2-Q1)/(Q1+Q2)/2x100/(P2-P1)/(P1+P2)/2x100
Point Price Elasticity of Demand Equation - Answer✔1/Slope x P1/Q1
When price elasticity of demand is elastic... - Answer✔you want to decrease the price
When price elasticity of demand is inelastic... - Answer✔you want to increase the price
1|Page
