Microeconomics Test 2 – MSU

the difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays.

the difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives

the additional cost to a firm of producing one more unit of a good or service.

1. MB>MC
2. maximize economic surplus

A market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.

The reduction in economic surplus resulting from a market not being in competitive equilibrium

A legally determined maximum price that sellers can charge.

A legally determined minimum price that sellers may receive.

a market in which buying and selling take place at prices that violate government price regulations.

taxes assessed as a particular dollar amount on the sale of a good or service, as opposed to a percentage tax.

the actual division of the burden of a tax between buyers and sellers in a market.

A tax imposed by a government on imports

Goods and services bought domestically but produced in other countries.

Goods and services produced domestically but sold in other countries.

ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.

The highest-valued alternative that must be given up to engage in an activity.

The ability to produce more of a good or service than competitors when using the same amount of resources.

a situation in which a country does not trade with other countries

the ratio at which a country can trade its exports for imports from other countries

A numerical limit a government imposes on the quantity of a good that can be imported into that country.

Climate and natural resources
Relative abundance of labor and/or capital
Technological differences
External economies

reductions in a firm's costs that result from an increase in the size of an industry. (eg: Silicon Valley)

Trade between countries that is without government restrictions.

Numerical limits negotiated between (VERs) countries on the quantity of a good imported by one country from another.

An international organization that oversees international trade agreements.

The use of trade barriers to shield domestic firms from foreign competition.

selling a product for a price below its cost of production

a benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service.
types: production (eg: pollution); consumption (eg: cigarette smoke), negative, positive (eg: college education)

private (cost/benefit) + externalities

a situation in which the market fails to produce the efficient level of output
(negative externalities: overproduction, positive externalities: underproduction)

how private bargaining can lead to economic efficiency in a market with an externality

the rights individuals or businesses have to the exclusive use of their property, including the right to buy or sell it

property rights

Tax (negative externalities --> overproduction, tax --> reduce amount of production)

Subsidies (positive externalities --> underproduction, subsidies --> encourage production)

use of gov taxes and subsidies in bringing about an efficient level of output in the presence of externalities.

a policy that involves the government imposing quantitative limits on the amount of pollution firms are allowed to emit, or requiring firms to install specific pollution control devices.

firms can trade emissions permits (firms with high costs of reducing pollution will buy permits from firms with low costs of reducing pollution, ensuring that pollution is reduced at the lowest possible cost.

the situation that occurs when one person's consuming a unit of good means no one else can consume it

the situation in which anyone who does not pay for a good cannot consume it.

adding horizontally the quantity

add up the price

the common resource tend to be overused

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