ECON Exam 3

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ECON Exam 3
2013-05-08 15:32:46
Econ Trost

Notecards for Exam 3
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  1. _______ is when two or more people or organizations pursue their own interests and in which no one of them can dictate the outcome. Oligopolies use this method.
    Game theory
  2. In all conflict situations there are:
    A. decision makers
    B. payoffs
    C. All of the answer choices are correct
    D. rules of the game
    C. All the answer choices are correct
    (this multiple choice question has been scrambled)
  3. What is the solution of game theory?
    Nash equilibrium
  4. To understand game theory, put the information in a ________.
    A. Game Theory Graph
    B. Simple Game Theory Char
    C. Rules of the Game Table
    D. Payoff Matrix
    D. Payoff Matrix
    (this multiple choice question has been scrambled)
  5. Regardless of the strategy pursued by the opposing company, it pays off for my company to advertise.  Advertising is then considered my _______ __________.
    Dominant strategy
  6. __________________ a strategy that is best no matter what the opposition does.
    Dominant strategy
  7. The advertising game is an example of a class of games known as __________ games.
    “prisoners’ dilemma”
  8. __________ a game in which the players are prevented from cooperating and in which each has a dominant strategy that leaves them both worse off than if they could cooperate.
    Prisoner's dilemma
  9. What if only one player has a dominant strategy?
    The player without a dominant strategy can assume that the player with the dominant strategy will play that strategy.
  10. In game theory by introducing a sense of _______ we can change the outcome of the game.
  11. _________ a strategy chosen to maximize the minimum gain that can be earned.
    Maximin Strategy

    Explanation: Basically, players choose the strategy that has the most attractive “worst case” scenario.
  12. Games get more complex when games are repeated. Year after year, eventually they may realize it’s better if neither firm advertises.  In essence, the firms learn how to ________ to do what is best for both.
    tacitly collude
  13. ___________ a company’s strategy that lets a competitor know the company will follow the competitor’s lead.  A player in one round simply mimics the other player’s behavior in the previous round – it’s the optimal strategy for getting the other player to cooperate.
    tit-for-tat strategy

    Example: In the airline example, if British Airways deviates from the $400 equilibrium and charges $600, Lufthansa could play a tit-for-tat strategy by also raising its price.
  14. In a tit for tat strategy, a player will do the same thing that the player did from the previous round?
    A. True
    B. False
    A. True
  15. Normally, the government will try punish firms that are acting anti-competitively. Who are the only exceptions?
    A. natural monopolies
    B. monopolies
    C. oligopolies
    D. perfectly competitive markets
    A. natural monopolies

    Natural monopoly à when it makes sense for a company to produce the service because it is at the lowest price. They are also heavily regulated.
    (this multiple choice question has been scrambled)
  16. Natural Monoplies will produce where ___=____.
    MC = MR

    They produce at a quantity lower than the socially optimal level. Sometimes the government can force the nm to produce a higher amount at a lower price.

    Remember: monopolies produce low quantities are very high prices.
  17. Setting a natural monopoly at an economic loss (P=MC) causes the government to provide a _________.
  18. The government has to regulate natural monopolies. The government wants a monopoly to be JUST happy enough. What do they do to fix the issue of inefficiency?
    The government makes them set their price=average cost. Then the natural monopoly will be at zero profit.
  19. What two organizations make sure that industries don’t move too far from the “perfectly competitive” outcome?
    the Federal Trade Commission (FTC) and the Antitrust Division (of the Department of Justice).
  20. _________ is a federal regulatory group created by Congress in 1914 to investigate the structure and behavior of firms engaging in interstate commerce, to determine what constitutes unlawful “unfair” behavior, and to issue cease-and-desist orders to those found in violation of antitrust law.
    Federal Trade Commission
  21. __________ is empowered to act against violators of antitrust laws.  It initiates action against those who violate antitrust laws and decides which cases to prosecute and against whom to bring criminal charges (FTC cannot bring criminal charges).
    Antitrust Division
  22. __________ is when competitors get together and decide to raise the prices
    Price Fixing
  23. _______ is making a customer buy something from someone else in order to be allowed to buy form you.
    Tying Contracts
  24. __________ is not letting your customers buy from a competitor.
    Exclusive Dealing
  25. ____________ is when someone serves on the board for 2 competing firms
    Interlocking Directorates
  26. What are 4 actions that prove that a firm is acting anti-competitively?
    • 1. price fixing
    • 2. tying contracts
    • 3. exclusive dealing
    • 4. interlocking directorates
  27. In 1974, a company stated that you could buy their coal as long as you store it on a specific train. This is an example of what?
    Tying contracts
  28. In 2001 when you bought a PC, it automatically came with Windows. This is an example of what?
    Tying contracts

    (Now this is illegal and you are able to request PC with another operator.)
  29. In 1980 a coal company stated that if their customers used a specific train system, they would never offer that customer service again from their coal company. This is an example of _______.
    exclusive dealing
  30. Coke and Pepsi spearheaded a class-action suit against several producers for Price-fixing in High Fructose Corn Syrup.
    This is an example of how companies can enforce antitrust laws on other companies.
  31. If a firm or industry is engaging in any of these illegal actions that are not competitive, a(n) _______ is filed against them.
    antitrust suit
  32. What happens if the court find that a firm is guilty of violating the antitrust laws?
    A. forbid the continuation of illegal acts
    B. force the defendants to dispose of the fruits of their wrong
    C.restore competitive conditions
    D. all answers are correct
    D. all answers are correct

    1) Tell them to stop
    2) If they earn a lot of money by doing price fixing or whatever, they have to give that money back
    3) They break the 3 firms that combined and make them act competitively
    (this multiple choice question has been scrambled)
  33. Only the ________ can bring criminal charges.
    Department of Justice
  34. Important Fact
    Any person or private company that sustains injury or financial loss because of an antitrust violation can recover damages from the guilty party over and above any fines levied (the fine is equal to 3x the damages).
  35. __________ are formal agreements on remedies among all the parties to an antitrust case that must be approved by the courts. They can be signed before, during, or after a trial.
    Consent decrees
  36. A firm pays a fine and agrees to stop whatever it is they are doing. This is an example of _______.
    Consent decrees
  37. A firm sells off (divests) some productive capacity or sells the right to market certain products to allow a merger to go through. This is an example of __________.
    Consent decrees
  38. This agreement means that the firm doesn’t admit guilt but they say they will stop doing it.
    Consent decrees
  39. The government (FTC and DOJ) looks closely at all mergers, especially in  markets. 
    A. perfectly competitive
    B. natural monopolies
    C. oligopolistic
    D. monopolistically competitive
    C. oligopolistic
    (this multiple choice question has been scrambled)
  40. The primary screening tool they use to determine whether or not to challenge a merger is the _____.
  41. ____________ is a mathematical calculation that uses market share figures to determine whether or not a proposed merger will be challenged by the government.
    Herfindahl-Hirschman Index (HHI)
  42. AT & T and T-Mobile have talked about merging. At first the government said no because they thought that the company would then have a monopoly. What information did the government look?
    the HHI
  43. If the Herfindahl-Hirschman Index is less than 1,000, the industry is considered ________, and any proposed merger will go unchallenged by the Justice Department.
    A. concentrated
    B. unconcentrated
  44. Herfindahl indexes above 1,800 mean that the industry is considered ________ already, and the Justice Department will challenge any merger that pushes the index up more than 50points.
    A. concentrated
    B. unconcentrated
  45. If the index is between 1,000 and1,800, the department will ________ any merger that would increase the index by over 100 points.
  46. ____________ is when one company buys another company in that industry. They merge together and produce same thing.
    Horizontal Merger
  47. _________ is when one company buys random other companies. All these companies that have nothing to do with each other. There is no problem with these mergers because they are not competing companies.
    Conglomerate merger
  48. _________ is when one company combines with another company from which it had purchased inputs or to which it had sold output.
    Vertical merger
  49. Microsoft software going into Dell hardware is an example of a ________ merger.
  50. Coke and Pepsi merging together is an example of a ________ merger.
  51. The more firms in an industry and the more equal in size, the smaller the _____.
  52. What is the role of the government?
    A. they restrict competition by regulating some industries.
    B. All answer choices are correct
    C. They promote competition and restrict market power, primarily through antitrust laws
    (this multiple choice question has been scrambled)
  53. How do governments restrict competition by regulating some industries?
    Price floors and ceiling are examples of this, as are the recent interventions into the banking, auto and insurance industries.  These are often meant to protect either the public, those in positions of weakness, or certain industries.
  54. _________ is when through lobbying, the industry may “capture” the regulators and persuade them to enact policy that favors the existing firms.
    Capture Theory
  55. ______ is an arrangement in which shareholders of independent firms agree to give up their stock in exchange for trust certificates that entitle them to a share of the trust’s common profits.  A group of trustees then operates the trust as a monopoly, controlling output and setting price.
    A trust
  56. ________ is a federal regulatory group created by Congress in 1887 to oversee and correct abuses in the railroad industry.
    Interstate Commerce Commission(ICC)
  57. _______ was passed by Congress in 1890, the act declared every contract or conspiracy to restrain trade among states or nations illegal and declared any attempt at monopoly, successful or not, a misdemeanor.  Interpretation of which specific behaviors were legal fell to the courts.
    Sherman Act
  58. _________: The criterion introduced by the Supreme Court in 1911 to determine whether a particular action was illegal (“unreasonable”) or legal (“reasonable”) within the terms of the Sherman Act.  Under this rule, “mere size was not an offense” and behavior was the key.
    Rule of Reason
  59. __________ was Passed by Congress in 1914 to strengthen the Sherman Act and clarify the rule of reason, the act outlawed specific monopolistic behaviors such as tying contracts, price discrimination, and unlimited mergers
    Clayton Act
  60. ___________ extended the language of the Federal Trade Commission Act to include “deceptive” as well as “unfair” methods of competition.
    Wheeler-Lea Act
  61. _______ is a rule enunciated by the courts declaring a particular action or outcome to be a per se (intrinsic) violation of antitrust law, whether the rationale are reasonable or not.
    per se rule

    Background: This is when they decided that monopolies are bad. It doesn’t matter whether you are acting reasonable, monopolies are all bad. He is not going to test on history
  62. _______ the case is which even though Alcoa wasn’t doing anything "unreasonable,” a judge still decided to break up its monopoly simply because monopolies are bad
    The Alcoa Case
  63. William Shepherd’s 4 types of Industry:
    1.Pure monopoly–One firm controls the market–Block entry
    2.Dominant firm–One firm: more than half market share–No close rival
    3.Tight oligopoly–Top 4 firms: more than 60% of market output–Evidence of cooperation
    4.Effective competition–Low concentration–Low barriers to entry–Little or no collusion
  64. Why do firms exists?
    A. Basically having a firm make stuff for you is more efficient than you trying to do it yourself
    B. All answers are true
    C. Firms minimize production costs  - not easy though.
    D. Firms minimize transaction costs by making things on a large scale
    B. All answers are true

    trost thinks these are easy concepts
    (this multiple choice question has been scrambled)
  65. Ford built their factory and he made his own steel and rubber. They created it on the lake and made their own steel. It lowers the transaction costs and maintains the stability because you are controlling your resources. This is an example of __________.
    vertical integration
  66. Vertical Integration is also known as ________.
  67. Insourcing means ___________________.
    making inputs yourself
  68. Outsourcing means _______________.
    buying inputs from elsewhere
  69. True or False: An issue for insourcing is that a vertically integrated firm might not achieve minimum efficient scale.

    This is true because sometimes it is cheaper for others to make a product.
  70. True of False: vertical integration raises transaction costs.

    It lowers them
  71. When firms are deciding to insource or outsource, they should consider:
    A. economies of scale
    B. goods
    C. services
    D. public goods
    A. economies of scale
    (this multiple choice question has been scrambled)
  72. True or False: It is almost always cheaper to outsource.
  73. Outsourcing is more _______ if there is a “well-functioning” market for the needed input.
    A. dangerous
    B. attractive
    B. attractive

    Why? There are many producers of the input product (so your supplier does not have power over you and you know the product is available – lots of competition)
  74. What are advantages of outsourcing? Check all that apply.
    A. Economies of Scale
    B. Diseconomies of Scale
    C. Specialization
    D. Low skilled Workers
    Economies of scale and specialization
  75. What are some disadvantages of outsourcing?
    A. Loss of control over inputs
    B. Could erode customer confidence in the product if they don’t know where the inputs came from.
    C. None of the above
    D. All of the above
  76. When such a structure is more efficient, we say that the firm realizes _________.
    A. Economies of scale
    B. economies of scope
    C. diseconomies of scope
    D. none of the above
  77. Apple has lowered there average costs per units by producing products that are similar. For example, Apple produces the ipad, the ipod, the ipod touch, etc. This is an example of ________.
    Economies of scope
  78. _____________ occurs when resources are misallocated, or allocated inefficiently. The result is waste or lost value.
    A. economies of scale
    B. market failure
    C. market collapse
    D. diseconomies of scale
    B. market failure
    (this multiple choice question has been scrambled)
  79. What are the four important sources of market failure?
    • (1)imperfect market structure, or noncompetitive behavior
    • (2)imperfect information
    • (3)the existence of public goods
    • (4)the presence of external costs and benefits
  80. __________ is when the customers have some lack of information about the product. It leads to transactions that people regret. There is a lack of information.
    Imperfect information
  81. What is true about the demand curve when there is imperfect information?
    The demand curve is no longer a reliable measure of willingness to pay or marginal benefit.
  82. ___________ is when normally the seller has more information about the product than the buyer.
    A. Exact Information
    B. Asymmetric Information
    C. Imperfect Information.
    D. Producer Information
    B. Asymmetric information
    (this multiple choice question has been scrambled)
  83. When you go to Toyota and you buy a used car, this is an example of ____________.
    asymmetric information
  84. When you buy a house and you are unsure of the house's past history, this is an example of ________.
    Asymmetric information
  85. __________ can occur when a buyer or seller enters into an exchange with another party who has more information.  This can also been seen as a “hidden characteristics” problem.
    A. asymmetric information
    B. imperfect information
    C. adverse selection
    D. adversity
    C. adverse selection
    (this multiple choice question has been scrambled)
  86. With adverse selection, the agent who knows more uses this knowledge to self-select in a way that harms those who don’t have the information. Consider some examples.
    • 1. used cars
    • 2. used houses
    • 3. used items on websites
    • 4. used tractors
    • 5. used buses
  87. Under imperfect information --> adverse selection occurs.
    - take the average between the price people are willing to pay for old and for new.
    -you will then understand why new cars are eliminated from the market
  88. Explain adverse selection when discussing new and used cars.
    • Half are good and half are bad.
    • Half are worth $6,000.
    • Half are worth $2,000.
    • The average is $4,000If everyone is selling bad cars, sellers are happy.
    • If everyone is selling good cars, sellers are unhappy because they know their car is worth more.
    • Old bad cars are left in the market.
  89. If you are an industrious worker you will not want to apply for this job because you are not getting paid enough.  Hence the market has selected among workers adversely, therefore, only _______ workers are left in the market.
    A. bad
    B. good
    A. bad
  90. Marginal revenue product is ______________.
    how much that input is worth to you.
  91. Employers are better off offering a _______ (higher or lower) wage so that they won't scare away the good workers.
  92. Wage may be greater than the average ________ product of labor. Still, this is better than getting ONLY
    bad workers.
    marginal revenue
  93. ____________ is when high wages attract better employees and encourage all to work hard.
    A. marginal wages
    B. unemployment wages
    C. efficiency wages
    D. beneficial wages
    C. efficiency wages

    You can hire good and back workers and simply fire bad workers.
    (this multiple choice question has been scrambled)
  94. Adverse selection is the labor market that arises when employers are unable to tell the difference between productive and less productive workers. What is the result?
    As a result only less productive workers will stay in the market.
  95. ___________is an attempt by the informed side to communicate valuable information that is otherwise hidden.
    A. Signaling
    B. Screening
  96. Advanced degrees, good grades, good recommendations, a well-done C.V. are all examples of a _________.

    • Why?
    • These things are proxies for the unobserved skill level of the potential employee.
  97. ________is just the employer looking for these signals.
    A. signaling
    B. screening
  98. Those more likely to get sick or in car accidents are also more likely to want insurance. The insurance company does not always have full information on how sick or accident prone people are. What does this do to the insurance cost?
    It raises it. This is an example of adverse selection.
  99. ___________ arises when one party to a contract alters their behavior in a costly manner because the cost of that behavior has been passed on to the other party to the contract.
    Moral hazard
  100. If you have really good car insurance maybe you don’t drive safety. This is an example of ________.
    moral hazard
  101. If you have really good health insurance then you are going ton abuse that. (go all the time and get free care) This is an example of __________.
    moral hazard
  102. If eyeglasses are free why not get several pairs a year. This is an example of ______________.
    moral hazard
  103. When dealing with moral hazard, such behavior can often be inefficient – the cost that society bears when someone goes to the doctor needlessly may far outweigh the benefit derived from that doctors visit.
    Important to understand
  104. When you go to the doctor, you have to pay a co-pay. Why were co-pays established?
    The were established because of moral hazard. They don't want people to act stupidly and use up all the resources.
  105. ____________ is when sometimes the goals of the agent (the person actually deciding what to do or how to behave) are incompatible with those of the principal (the person ultimately affected by the agent’s actions).
    The Principal-agent problem

    • Another example:
    • When the agent’s actions cannot be observed by the principal, then the agent is likely to pursue his own goals rather than do what is best for the principal.
  106. In a managerial situation, managers might have some incentive to do what is best for the firm, but managers really want to do what is best for themselves. This is an example of __________.
    the principal-agent problem
  107. A mechanic does an oil change and then he finds everything else that is wrong with your car. A mechanic thinks that because you don’t know about the car that he can charge you extra. This is an example of __________.
    The principal-agent problem
  108. If the senator is doing things that gets them re-elected, people who elected them are the principals, senators are ______.
    A. principals, agents
    B. agents, principals
    C. None of the above
    D. all of the above
    A. principals, agents
  109. Deductibles were made to keep some of the cost with the insured. This is an example directed towards eliminating __________.
    moral hazards
  110. Consumers and firms will gather information as long as the ___________ from continued search are greater than the ___________.
    A. marginal benefits, marginal costs
    B. marginal costs, marginal benefits
  111. What are market solutions to imperfect solutions?
    A. Firms will produce items cheaper and provide box labels to be informative
    B. Consumers and firms will search for information.
    C. the government will make changes accordingly
    (this multiple choice question has been scrambled)
  112. True or False: The optimal amount of searching happens where the Marginal Cost of information is equal to the marginal benefit of information.
  113. One way we can try to solve the problem of imperfect or asymmetric information is through ________.
    A. search
    B. informative advertising
    C. viral marketing
    D. word of mouth
    A. search
    (this multiple choice question has been scrambled)
  114. _______ is the biggest cost in any search.
  115. The marginal cost of finding more info __________ and the benefit of more info _________.
    A. increases, increases
    B. decreases, increases
    C. decreases, decreases
    D. increases, decreases
    D. increases, decreases

    Why? It is easy to find a little bit of info but gets much harder to find more detailed info.  MC slopes up. A little info helps a lot but more detailed info might not add much
    (this multiple choice question has been scrambled)
  116. ____________ are goods that are non-rival in consumption and/or their benefits are non-excludable (or nonexclusive).
    A. public goods
    B. open-access goods
    C. private goods
    A. public goods
    (this multiple choice question has been scrambled)
  117. You don’t know what you are buying and you are guessing the value. Sometimes it turns out that the product is not what they wanted. It happens in many situations when doing perfect bidding. This is an example of _____________.
    the winner's curse
  118. Common knowledge is considered _____ information.
  119. What is price dispersion?
    Different prices for the same product
  120. What is the optimal level for searching?
    The point at which marginal benefit equals marginal costs.
  121. What effect has the internet had?
    A. it has decreased costs
    B. it has helped to maintain costs
    C. it has increased costs
    D. it has eliminated costs
    A. it has decreased costs
    (this multiple choice question has been scrambled)
  122. What is the role of the government in imperfect information?
    • 1. they establish laws against asymmetric information
    • 2. they distribute unknown information
    • 3. to make it cheaper, the government exposes information
    • 4. agencies collect information on quality and safety of products and release it the public
  123. Full information is _____________.
    information that is useful
  124. Auctions are a great example of________.
    A. exclusive dealing
    B. tying contracts
    C. winner's curse
    D. imperfect information
    C. winner's curse
    (this multiple choice question has been scrambled)
  125. What does it mean to be unbounded rationally?
    Our brains get full.
  126. What is unbounded willpower?
    Even if we know what’s “best” for us, we are often too lazy to do it.
  127. In an _______________ economy, goods would at best be produced in insufficient quantity and at worst not produced at all.
    A. regulated
    B. unregulated
    B. unregulated
  128. ___________ is when one person’s enjoyment of the benefits of a public good does not interfere with another’s consumption of it.
    Non-rival in consumption
  129. _____________ is once a good is produced, no one can be excluded from enjoying its benefits.
  130. Public art, national defense, clean air, a lighthouse are all examples of _________.
    A. open-access goods
    B. private goods
    C. public goods
    C. public goods
    (this multiple choice question has been scrambled)
  131. What are the characteristics of a private good?
    • –Rival in consumption
    • –Exclusive
    • –Provided by private sector
  132. What are the characteristics of public goods?
    • –Nonrival in consumption
    • –Nonexclusive
    • –Provided by government
  133. Flowers in an open park are _______.
    A. open-access goods
    B. private goods
    C. public goods
    C. public goods
    (this multiple choice question has been scrambled)
  134. Electricity is an example of a _____________.
    A. quasi-private goods
    B. public goods
    C. private goods
    A. quasi-private goods

    It is non-rival but exclusive. It is exclusive because we have to pay for it.
    (this multiple choice question has been scrambled)
  135. Public art is an example of ______________.
    A. public goods
    B. quasi-private goods
    C. private goods
    A. public goods

    They are non-rival and non-exclusive
    (this multiple choice question has been scrambled)
  136. If we did not have a government, what would happen to public goods?
    A. They would be overproduced
    B. They would maintain the same level of production
    C. Everyone would contribute funds to keep public goods.
    D. They would be produced an insufficient level.
    • D
    • Even worse, they might not be produced at all.
  137. National Defense is an example of _________.
    A.private goods
    B. quasi-private goods
    C. open-access
    D. public goods
    D. public goods

    They are non-rival and non-excludable
    (this multiple choice question has been scrambled)
  138. A lighthouse is an example of _____________.
    A. public goods
    B. open-access goods
    C. private goods
    D. quasi-private goods
    A. public goods

    It is non-rival and nonexclusive. Everyone can use it while at see. You don't pay for it and no one can limit your usage of the light.
    (this multiple choice question has been scrambled)
  139. An overcrowded swimming pool is considered ____________.
    A. rival
    B. nonrival
    A. rival

    Your usage is affected how others use the pool.
  140. If you are swimming laps in a pool, your usage _________ affected by others, which means that the swimming pool is _______
    A. is, rival
    B. is not, nonrival
    B. is not, nonrival
  141. Which of the following is a public good? iPod
    B.A congested highway
    C. Tornado warning system
    D. Moose during hunting season
    C. Tornado warning system

    A congested highway could be a public good if it was non congested.
    (this multiple choice question has been scrambled)
  142. A congested highway is a _________.
    A. public good
    B. private good
    C. quasi-private goods
    D. open access good
    D. open access good

    It is rival because other cars are affecting your path; however, you are not paying to be on the highway. rival but nonexclusive
    (this multiple choice question has been scrambled)
  143. An empty toll road is a ___________.
    A. quasi-private good
    B. open access good
    C. public good
    D. private good
    A. quasi private

    It is exclusive because you pay.
    It is not congested, so it is non-rival.
    (this multiple choice question has been scrambled)
  144. Migratory birds are an example of _________.
    A. public good
    B. open access good
    C. quasi private
    D. private good
    B. open access good
    (this multiple choice question has been scrambled)
  145. Cable T.V. is a example of ______________.
    A. private good
    B. public good
    C. quasi-private good
    D. open access good
    quasi private

    It is nonrival but exclusive.
  146. What are the characteristics of each?
    public goods:
    private goods:
    natural monopolies (quasi private):
    open access goods:
    • public goods: nonrival/nonexclusive
    • private goods: rival/exclusive
    • natural monopolies: nonrival/exclusive
    • open-access goods: rival/nonexclusive
  147. People want nicer parks but they ________.
    A. do not want to pay for them
    B. do not like government influence
    C. do not care about the community
    D. too busy to have time for parks
    A. do not want to pay for them

    We do not want to openly pay for public goods if we know the government is providing them already.
    (this multiple choice question has been scrambled)
  148. People do not feel the need to pay for ________ goods because no one can force them to pay and nothing is contingent of their pay.
    A. public
    B. open-access
    C. natural monopolies
    D. private
    A. public
    (this multiple choice question has been scrambled)
  149. What is this dliema called?

    I get the benefit of these nicer parks whether I pay for them or not. The ___________.
    A. free rider problem
    B. drop in the bucket problem
    free-rider problem
  150. My payment is very small relative to the amount that must be collected to provide the service.  Thus, the amount of work done on the parks will not be significantly affected by the amount that I contribute, or whether I contribute at all. This is an example of ______.
    A. free rider problem
    B. drop in the bucket problem
    B. drop in the bucket problem
  151. _________ is a problem intrinsic to public goods:  Because people can enjoy the benefits of public goods whether they pay for them or not, they are usually unwilling to pay for them.
    Free rider problem
  152. ________ is a problem intrinsic to public goods:  The good or service is usually so costly that its provision generally does not depend on whether or not any single person pays.
    Drop in the bucket problem
  153. Why don't people contribute to helping pay for public goods?
    A. the economy is in a recession
    B. public goods don't play a role in our pleasure
    C. people do not use public goods
    D. there is no economic incentive
    D. there is no economic incentive
    (this multiple choice question has been scrambled)
  154. For private goods, consumers decide what ___________ to buy (at).
    A. price
    B. quantity
    B. quantity

    This is due to private goods being non-exclusive
  155. For public goods there is one shared ________ and many different ________.
    A. quantity, prices
    B prices, quantity
    A. quantity, prices

    This is because people are willing to pay different amounts for the public goods.
  156. For private goods, market demand is the ________ sum of individual demand curves.
    A. vertical
    B. horizontal
    B. horizontal

    We add the different quantities that households consume.
  157. For public goods, market demand is the _______ sum of individual demand curves
    A. vertical
    B. horizontal
    A. vertical

    We add the different prices that households are willing to pay to obtain each level of output.
  158. _________ is an efficient mix of public goods is produced when local land/housing prices and taxes come to reflect consumer preferences just as they do in the market for private goods.
    Tiebout hypothesis
  159. There are two houses that are in two neighboring communities. One house is linked to a very successful school, while the other house is linked to a unstable school. The value of the house near the good school becomes more expensive. What is this an example of __________.
    tiebout hypthesis
  160. One sole purpose of having a government?
    A. to make rules to stop anarchy
    B. to be profitable
    C. to provide public goods
    D. to make money for the economy
    C. to provide public goods
    (this multiple choice question has been scrambled)
  161. What are the 2 major things that the government decides? Check 2
    - The level of various public goods to provide
    - The quantity to limit anticompetitive firms
    - The answer to how to make the most profit
    - The amount of taxes collected and how to collect them
    • •The level of various public goods to provide
    • •The amount of taxes collected and how to collect them
  162. According to the ___________ the preference of the median voter will dominate other choices.
    Median Voter Theory

    The government should do what the median voter wants.
  163. Our rational ignorance leads to the ___________.
    A. principal-agent problem
    B. median voter theory
    C. free-rider problem
    D. drop-in-the-bucket problem
    A. principal-agent problem

    Why? Unfortunately our lack of knowledge opens the doors for special interest groups to influence politicians more than they ought to.
    (this multiple choice question has been scrambled)
  164. What are the 4 groups that legislation can be divided into?
    • 1.Widespread benefits; widespread costs
    • 2.Concentrated benefits; widespread costs
    • 3.Widespread benefits; concentrated costs
    • 4.Concentrated benefits; concentrated costs
  165. This describes what group of legislation?
    –Traditional “public-goods legislation”
    –Positive impact on economy
    -Total benefits > total costs
    widespread benefits: widespread costs
  166. This describes what group of legislation?
    –“Special-interest legislation”
    –Harms the economy
    -Total costs > total benefits
    –Pork-barrel spending
    Concentrated benefits: widespread costs

    This has to do with interest groups. They are benefiting but we are paying for it (usually through taxes).
  167. This describes what group of legislation?
    –“Populist legislation”
    –Those who pay the cost fight this legislation–Those who benefit usually see such little potential benefit that they remain rationally ignorant
    widespread benefit: concentrated costs
  168. This describes what group of legislation?
    –“Competing-interest legislation”
    –Fierce political battles (labor unions vs. employers)
    concentrated benefits: concentrated costs
  169. Which groups do these relate?
    - populist legislation
    - competing interest legislation
    -special interest legislation
    - public goods legislation
    • - populist legislation=widespread benefit: concentrated costs
    • - competing interest legislation=concentrated benefits: concentrated costs
    • -special interest legislation=concentrated benefit: widespread costs
    • - public goods legislation= widespread benefit: widespread costs
  170. They wanted to build a bridge from mainland to Alaska. It benefits 300 people, but America has to pay for it. This is an example of _______. (concentrated/widespread and benefits/costs)
    concentrated benefits: widespread costs
  171. Farm subsidizes are __________ and ________.
    benefits/ costs?
    • concentrated benefits
    • widespread costs

    Why? The benefit only goes to the farmer, yet, we pay in our taxes for the government to give money to farmers.
  172. National defense is an example of ________.
    benefits/ costs?
    • Widespread benefit
    • Widespread costs
  173. Labor union issues are an example of _______.
    benefits/ costs?
    • concentrated benefits
    • concentrated costs
  174. Tort Reforms are an example of ___________.
    Widespread benefit, concentrated costs

    US tort reform advocates propose, among other things, procedural limits on the ability to file claims, and capping the awards of damages.

    Basically you make someone pay for acting out wrongly. They pay the fine, everyone else doesn't.
  175. __________ is called the benefits that result from such policy (Special interest groups spend millions of dollars lobbying government officials for support on issues that benefit the group.)
    A. rent
    B. rent-seeking
    • A. rent
    • B. rent seeking
  176. ___________ is the lobbying that is required by special interests groups to get a law passed.
    A. rent
    B. rent seeking
    B. rent seeking
  177. Rent seeking is harmful for all but which one of the following reasons? ICLICKER
    A. It wastes real resources
    B. It leads to situations when costs outweigh benefits
    C. It leads to policies than benefit certain groups
  178. Why is rent seeking bad?
    • 1.Firms can make more money through lobbying than through improving efficiency or the quality of their product – so no incentive for economic efficiency.
    • 2.Shift resources from production (lobbying uses real resources – time and money – that could be used to make more product).
    • 3.Lobbying can convince politicians to spend money is ways that put a substantial cost on society but produce no real benefit.
  179. When costs are imposed on society because of lobbying, but there is no real improvement in the product. This is a issue with?
    A. free-rider problem
    B. drop in the bucket problem
    C. rent seeking
    D. provision of public goods problem
  180. These characteristics describe what?
    –Government departments, agencies
    –“Owned” by taxpayers
    –Funded by government appropriation
  181. What do bureaus do?
    A. set taxes for different states
    B. distribute funds to the needy
    C. implement government programs
    D. non of the above
  182. True or False: These bureaus have less incentive to eliminate waste and inefficiency since they cannot be sold or put out of business
  183. Bureaus are meant to serve the public, however, some tend to __________.
    A. help the lobbers
    B. rent seek
    C. provide for the public sector
    D. maximize their budget
  184. What is an example of what bureaus work for?
    public education
  185. Bureaus tend to ask for more money then the amount that is socially efficient.
    A. true
    B. false
  186. Do public goods provided by the government have to be produced by the government? Reasons to question.
    • 1. Private sector does not always do what is socially efficient.
    • 2. However, private sectors are pushed by the market and have incentive to be efficient
    • 3. They don't know what private firm would produce it.
  187. The government wants to make a bridge but it is more efficient for a private firm to construct it. The private firm could use bad nails and not make the best quality bridge. This is a concern about _________.
    allowing the government to produce needed goods or allowing it to be more efficient with a private firm
  188. Go read the milk subsidies text in the book.
    I believe it is in the later chapters.
  189. Define tragedy of commons.
    The depletion of a shared resource by individuals, acting independently and rationally according to each one's self-interest, despite their understanding that depleting the common resource is contrary to the group's long-term best interests.
  190. When you went out to fish, you behavior was based on the fact that you wanted more protein for yourself. This is an example of ______.
    A. tragedy of the commons
    B. free-rdier problem
    C. drop in the bucket problem
    D. rent seeking

    • Why?
    • Your actions harm the economy.
  191. What are the 4 reasons for market failure?
    • 1.imperfect market structure, or noncompetitive behavior
    • 2.imperfect information.
    • 3.the existence of public goods
    • 4.the presence of external costs and benefits
  192. What are the 3 critiques of market economy?
    • 1.The lack of adequate competition in some markets
    • 2.The distribution of income generated by market economies
    • 3.The problem of external costs that arise from economic activity (aka externalities)

    Summary: anti-competitive, income inequality, externalities
  193. _________ is a cost or benefit resulting from some activity or transaction that is imposed or bestowed on parties outside the activity or transaction.
  194. Pollution is an example of __________.
    A. public good
    B. private good
    C. externality
    D. transaction cost
  195. Implicit costs are also known as your __________.
    opportunity costs
  196. What are the explicit costs?
    The costs that are obvious
  197. You have a party at your house. It costs $300 to throw. That night you disturbed your neighbor who was studying. You pay her $100 to make up for it. What is the external cost?
  198. The noise from your party is an externality that led to your neighbor failing her exam.  Basically, the party imposed a cost on someone who was not involved in the party in any way.  This is an example of an _________.
    • external costs
    • or externality
  199. If you get flu shots, you are less likely to get flu. This is an example of a ___________.
    A. negative externality
    B. positive externality
    C. free-rider problem
    D. drop in the bucket problem

    My behavior benefits other people because it is saving them money.
  200. More educated people make more informed choices that may help us all. This is an example of ___________.
    A. negative externality
    B. positive externality
    C. free-rider problem
    D. drop in the bucket problem
    positive externality
  201. If your neighbor paints his house and hires a landscaper to beautify his yard, this will probably increase your property value as a result of their actions. This is an example of _________.
    A. free-rider problem
    B. positive externality
    C. negative externality
    D. drop in the bucket problem
    B. positive externality
    (this multiple choice question has been scrambled)
  202. Which of the following is a negative externality?
    A. If you eat onion, it makes you breath stink and you boyfriend is sad.
    B. You get a flu shot so your roommate is less likely to get the flu
    C. You plant flowers and your neighbor enjoys them
  203. Draw a graph representing the market equilibrium and the social equilibrium for negative externalities.
    Look at Lecture 28, slide 13 for help.

    • There is a demand curve (like usual)
    • Marginal social costs curve (the higher one)
    • marginal private costs curve (the lower one)
  204. ____________ is the cost of consumption or production paid by the consumer or firm.
    Marginal private costs
  205. __________ is the additional harm done by increasing the level of an externality-producing activity (consumption or production) by one unit.
    The marginal damage costs
  206. ________ is the total cost to society of producing an additional unit of a good or service.  MSC is equal to the sum of the marginal costs of producing the product (MPC) and the correctly measured damage costs involved in the process of production (MDC).
    Marginal social cost (MSC)
  207. What is the equation to finding marginal social costs?
  208. When discussing externalities, deadweight loss occurs because _________
    A. our usual equilibrium isn't efficient
    B. companies are producing too much
    C. the two other choices are both correct
  209. Draw the graph for an industry with externalities, then draw a graph for a firm with externalities.
    (Hint: 1st graph only has supply and demand
    2nd graph only has marginal costs and marginal social costs)
    • marginal costs: just like the regular check mark. it represents the private market.
    • marginal social costs: it simply moves up because the costs of externalities. (still a checkmark)
    • Look at lecture 28 slide 18
  210. Even in a perfectly competitive market,each firm will produce more than the socially optimal quantity and we will have deadweight loss since __>____
    A. MSC, P
    B. P. MSC
  211. Draw a negative externality graph and label marginal damage costs.
    • It is the section between marginal private costs and marginal social costs. because of the equation
    • MSC = MPC + MDC
  212. Draw and label the deadweight loss on a negative externality graph.
    Go to lecture 28, slide 17 for help.
  213. In the case of a negative externality what point is socially efficient ?
    MSC: marginal social costs
  214. ______________ the relationship between output and the generation of an externality is fixed.  The only way to reduce the externality is to reduce production.
    A. fixed-production technology
    B. variable technology
  215. ___________ the amount of externality produced at a given rate of output can be reduced by changing production techniques.
    A. fixed-production technology
    B. variable technology
  216. As economists we want to __________ the externality or ________ the externality.
    A. internalize, eliminate
    B. destroy, eliminate
    C. establish, produce
    D. eliminate, produce
  217. ___________ means to move the MPC curve so that it coincides with the MSC curve.
    A. Internalize
    B. eliminate
    A. Internalize

    It means moving the curve up.
  218. ___________ means to bring MSC down to MPC. 
    A. internalize
    B. eliminate

    This makes sense because we are getting rid of the pollution and the distance between MSC and MPC is the MDC( the externality).
  219. What are the 5 approaches that have been taken to solve externalities?
    • (1)direct government regulation.
    • (2) government-imposed taxes and subsidies(3) private bargaining and negotiation
    • (4) legal rules and procedures
    • (5) sale or auctioning of rights to impose externalities
  220. If you want to produce a product that uses nuclear waste there are rules and regulations that say you must dump in a certain way. Which one of the 5 approaches to solving externalities does this apply to?
    direct government regulation
  221. The government can force the firms to internalize the externality by taxing the product that is causing the externality. Which one of the 5 approaches to solving externalities does this apply to?
    Imposed Taxes
  222. The tax should be set equal to the ______.
    A. MSC
    B. MC
    C. MPC
    D. MDC

    Why? MDC is the externality. You want to tax the externality.
    (this multiple choice question has been scrambled)
  223. When a tax on the product is used to internalize an externality, the tax should be set equal to
    A. Marginal costs
    B. Marginal private cost
    C. Marginal damage cost
    D. Marginal social cost
    (this multiple choice question has been scrambled)
  224. Taxing cigarettes does what to the demand curve?
    A. it stays the same
    B. the point moves up
    C. it shifts forward
    D. it shifts back
    (this multiple choice question has been scrambled)
  225. Is it better for the government to tax the product or tax the pollution?
    • It should tax the pollution.
    • It is know as pollution tax.
  226. The government decides to put monitors next to the factory to measure the amounts of pollution that is being let out into the atmosphere. They are able to determine the amount and tax the company. This tax is called the _____________.
    A. external tax
    B. externality removal tax
    C. pollution tax
    D. internalizing tax
    (this multiple choice question has been scrambled)
  227. If there are 2 companies, A and B. If A owns a property, A will sue B for pouring polluting chemicals into the river that A owns. This situation relates to what solution to eliminating externalities?
    Private bargaining and negotiation

    This is when we should give someone property rights so that things like this wont happen.
  228. Suppose the river is assigned to the fishery.  The fishery can then charge the paper mill for the right to dump into the river.  In this way the cost of dumping is internalized by the _______.
    A. paper mill
    B. fishery
    A. paper mill

    The owner of the property can cause the other person to have to pay for it.
  229. ________ states that as long as property rights are clearly stated and bargaining costs are minimal, private parties can arrive at the efficient solution regardless of how property is assigned .
    Coase Theorem
  230. True or False: According to the coarse theorem how property rights are assigned decides whether or not the optimal level of pollution can be reached.  
    A. True   
    B. False
    A. False

    We will always reach the optimal level no matter what.
  231. If things work out the way Coase wants them too, the ________ solution to the problem will always be chosen. 
    A. most complex
    B. most expensive
    C. cheapest
    D. none of the above
    (this multiple choice question has been scrambled)
  232. In the Coase Theorem, the socially optimal point is the place where ____=_____.
    Social costs = social benefit
  233. Whoever has property rights, forces the other company to fix the problem.
    A. True
    B. False
  234. _________ is a court order forbidding the continuation of behavior that leads to damages.
    A. rent
    B. injunction
    C. liability rule
    D. rent seeking
    (this multiple choice question has been scrambled)
  235. _______ are laws that require A to compensate B for damages imposed.
    A. antitrust suits
    B. liability rules
    C. property imposed taxes
    D. none of the above
    (this multiple choice question has been scrambled)
  236. The people in a town in California got sick. The film involves making the firm pay for the health issues of the people. It is hard to prove that the factory is causing the pollution. This relates to which solution used to eliminate externalities?
    legal rules and procedures
  237. Finally, the government can decide how much total pollution is acceptable and then auction off or allocate tradable or marketable “pollution permits” that give the owner the right to pollute a certain amount. This relates to which solution used to eliminate externalities?
    Selling or Auctioning Pollution Rights
  238. Explain why cap and trade is a good solution to eliminating externalities?
    This method is attractive because the firms for whom pollution abatement would be very expensive will bid high and buy the permits while other firms will be forced to change their technology and cut pollution.
  239. Firms that have _______ technology are forced to clean up their pollution when it comes to permits (cap and trade).
    A. fixed-production
    B. variable
  240. ___________ like to buy permits to pollute in order to stop pollution.
    A. Economists
    B. Interest Groups
    C. the government
    D. Environmental Groups
    (this multiple choice question has been scrambled)
  241. True or False:
    In order to know how many pollution permits to auction off or allocate, the government  needs to find the “optimal” level of pollution or externality.
  242. Draw the graph representing the optimal level at which the government decides to allocate permits to pollute.
    (Hint: the graph use 2 line: MSC and MSB)
    Go to lecture 28, slide 36 for help

    • marginal social costs --> like other graph
    • marginal social benefit --> like demand at a curve
  243. The optimal level of pollution is:
    A. The level at which marginal cost equals demand
    B. The level which the cost of additional abatement equals the benefit
    C. the level at which the demand forecasted reaches is highest point
    D. the level at which the marginal social benefit is above the marginal social costs
    (this multiple choice question has been scrambled)
  244. As we get rid of more and more pollution, the marginal costs would ______ and the marginal benefit would _____.
    A. fall, rise
    B. rise, fall

    • It is harder and harder(more costly) to get rid of pollution.
    • why benefit though?
  245. Zero pollution is possible.
    A. True
    B. False

    Why? It is not economically realistic.
  246. When looking at a externatlity graph showing marginal social costs and marginal benefit costs, the optimal level (in this case 50) means that the government will give out permits totaling 50% of the current level of pollution.
    A. True
    B. False
  247. It is fair to make all firms cut pollution by 50% when it costs one firm a lot to do that and another firm a little. 
    A. True
    B. False
  248. ________ allows firms to choose whether to cut pollution or buy a permit.
    A. price
    B. external costs
    C. permits
    D. pollution
    (this multiple choice question has been scrambled)
  249. Pollution permits is preferred by many.
    A. True
    B. False

    Permits encourage greener technologies
  250. Every time they catch a net of fish, it will affect others. There will always be over consumption. This is known as the ___________.
    A. the rent seeking problem
    B. free-rider problem
    C. the common pool problem
    D. the drop in a bucket problem

    The costs to society is higher than the costs to the fisherman.
    (this multiple choice question has been scrambled)
  251. The livestock will graze on a farm and soon enough there is no grass to be had because everyone eats it. This problem is known as ________.
    A. the common pool problem
    B. the rent seeking problem
    C. the drop in a bucket problem
    D. free-rider problem
    (this multiple choice question has been scrambled)
  252. The common pool problem is also known as ________.
    A. the rent seeking problem
    B. tragedy of the commons
    C. the drop in a bucket problem
    D. free-rider problem
    (this multiple choice question has been scrambled)
  253. What are the 3 solutions to the common pool problem?
    • 1.Restrict output (limit amount that can be killed a season)
    • 2.Tax the product (fish)
    • 3.Rules and regulations to improve “allocative efficiency” (minimum fish size requirements)
  254. Restricting hunters from killing more than 10 deer a month is an example of which solutions to common pool problems?
    A. restricting output
    B. taxing the product
    C. rules and regulations to improve efficiency
    (this multiple choice question has been scrambled)
  255. When fishing starts, everyone knows that the best fish are during the beginning. Everyone rushes to get the fish in the beginning. Making fisherman have nets with big wholes so only the big fish are caught is an example of which solution to the common-pool problem?
    A. taxing the product
    B. restricting output
    C. rules and regulations to improve efficiency
    • C. 
    • This is because they only want a certain type of fish to be caught.
  256. Which example is not a positive externality?
    A. public education
    B. pollution from a factory
    C. free or cheap flu shots
    D. grants for students
    (this multiple choice question has been scrambled)
  257. How does the government deal with positive externalities?
    They susbsidize
  258. Because of _______ from positive externalities, deadweight loss is created – so the market is not socially efficient.
    A. overproduction
    B. underproduction
  259. For a positive externality, the government _______ consumption of such products in order to increase consumption to the socially optimal level.
    A. taxes
    B. subsidizes
  260. Draw a positive externality graph with deadweight loss and label the lines.
    • Study Lecture 28, slide 46
    • It should be marginal costs, marginal social benefit, marginal private benefit

    Demand is the only line that is moved (it moves upward).
  261. Subsidizes shift the _______  curve down in a positive externality graph.
    A. marginal cost
    B. marginal private benefit
    C. marginal social benefit
    (this multiple choice question has been scrambled)
  262. Positive Externalities are not a problem that needs to be fixed since the externalities are good things
    A. true
    B. False
    I don't know the answer
  263. __________ is a way to extract natural gas from the rock deep below the surface.
  264. What is wrong with fracking?
    • Basically a pipe shoots a water/chemical mixture (596 chemicals) at such high pressure that it cracks the rock and allows gas to seep out.
    • The gas is then collected deep underground by the pipes.  The water is brought back up and the chemicals dissipate into the air.
  265. People are getting sick because of fracking. This is an example of __________.
    A. private good
    B. positive externality
    C. public good
    D. negative externality
    (this multiple choice question has been scrambled)
  266. Why is fracking good?
    Using domestic natural gas lessens dependence on foreign oil and encourages new, often “greener” technology.  Also lowers prices by increasing supply.  Plus, the money stays here which is good.
  267. FRAC Act is used on upstate NY
  268. The fracking companies did not have to follow the rules of the Safe Drinking Water Act. This example can be referred to as _________.
    A. rent seeking
    B. special interest legislation
    C. both answers are correct
    (this multiple choice question has been scrambled)
  269. We do not have full inofmration because the fraking companies did not have to follow the rules.
  270. What is the market failure checklist?
    • -imperfect information
    • -imperfect competition
    • -public goods
    • -externalities
    • -unclear property rights
    • -special interest and rent seeking
  271. The market system inherently produces a large amount of ____________.
    A. income inequality
    B. private goods
    C. imperfect information
    D. public goods
    (this multiple choice question has been scrambled)
  272. The top 1% households earn what percentage of ______.
    A. 5%
    B. 45%
    C. 60%
    D. 23%
    (this multiple choice question has been scrambled)
  273. Compared to other countries the U.S. has
    A. about the same
    B. none
    C. more inequality
    D. less inequality
    (this multiple choice question has been scrambled)
  274. We have the ________ income inequality in the group of developed nations.
    A. most
    B. least
    C. same
    D. best
    (this multiple choice question has been scrambled)
  275. What has happened to average hourly wage over the past 30 years?
    A. it has increased
    B. it has decreased
  276. The United States now arguably has a _____ unequal distribution of wealth than Nicaragua, Venezuela and Guyana.
    A. more
    B. less
  277. If the bottom fifth percentile went from 5.0 to 4.8, there is ______ income inequality.
    A. more
    B. less
    A. more

    The bottom 20% has less of the wealth.
  278. True or False: Compared to the 1970s, everyone is better off. We have more real income.
    A. True
    B. False
  279. Why in equality bad for the United States? What has past history shown about income inequality?
    Researchers think it is destabilized. There is a historical trend that inequality leads to civil wars.
  280. Throughout history, what groups have lower income?
    A. single parent families
    B. Hispanic families
    C. African American families
    D. all of the above
  281. True of False: Wealth is less equal than income.
  282. Define net worth?
    It is similar to wealth. It is all your assets together. It is not simply just your income.
  283. __________ is a widely used graph of the distribution of income, with cumulative percentage of families plotted along the horizontal axis and cumulative percentage of income plotted along the vertical axis.
    Lorenz curve
  284. What is the line of equality on a Lorenz Curve?
    It is what it would looked like if we all earned the same amount of money.
  285. True or False: The more bowed out the Lorenz curve is, the more income inequality there is.
    A. True
    B. False
    A. True
  286. The 45 degree line is known as the _________.
    line of income inequality
  287. If we were evenly distributed, the Lorenz curve would be ___________.
    A. a straight line
    B. a curved line
  288. ________ is a commonly used measure of inequality of income derived from a Lorenz curve.  It can range from0 to a maximum of 1 and is measured as the area of the region between the Lorenz curve and the 45 degree line divided by the max possible area.
    Gini coefficent
  289. The Gini coefficient is between ___ and _____.
    A. 1000 and 1800
    B. 0 and 1
    C. 0 an 10
    D. 0 and 100
    (this multiple choice question has been scrambled)
  290. When referring to the Gini Coefficent, what does 0 mean? what does 1 mean?
    • 0 means no income inequality
    • 1 means one person owns all the income.
  291. Draw a Lorenz curve and identify the income inequality and gini coefficient.
    Look at lecture 29 slide 16
  292. If income is equally distributed among all citizens, then the GINI coefficient is equal to
    (this multiple choice question has been scrambled)
  293. If there is a large gap between the rich and the poor, the GINI coefficient is going to be closer to 1.
    A. true
    B. false
  294. Africa has a large area for the Lorenz curve graph that means that it has __________ income inequality.
  295. Our income inequality is similar to __________.
    A. Mexico
    B. Canada
    C. Denmark
    D. Africa
    (this multiple choice question has been scrambled)
  296. True or False: Our income inequality has been rising very steadily.
  297. _______ is the officially established income level that distinguishes the poor from the nonpoor. It is set at “money income” equal to three times the cost of the Department of Agriculture’s minimum food budget.
    Poverty Line

    It costs $100 a week to feed  family a week à they triple that à that is the poverty line
  298. A lot more people are in poverty than before. The prices of everything has gone up. A real income is higher than before.
    Important Fact
  299. Why has the percentage of poverty for the elderly decreased?
    The elderly are becoming more efficient. They are not being taken care of by their children. They are working longer.
  300. Households derive their incomes from three basic sources. What are they?
    • (1)from wages or salaries received in exchange for labor
    • (2) from property—that is, capital, land, and so forth
    • (3) from government.
  301. _________the stock of knowledge, skills, and talents that people possess; it can be inbornor acquired through education and training. People with more human capital normally get paid more – this explains alot of the income inequality in the “middle” of the distribution
    Human capital
  302. ____________ is differences in wages that result from differences in working conditions.  Risky jobs usually pay higher  wages; highly desirable jobs usually pay lower wages.
    Compensating differentials
  303. The U.S. was trying to recruit people to put out gas fires, so they offered a million to half a million. They are the same workers but it is very dangerous) a lot of it is expensive. This is an example of _________.
    compensating differentials
  304. ___________ is income from the ownership of real property and financial holdings.  It
    takes the form of profits, interest, dividends, and rents.  Differences in property income account for a large share of the inequality at the “top” of the distribution (the top 1% to the top 0.01%).
    Property income
  305. __________ are payments by the government to people who do not supply goods or services in exchange.
    Transfer payments
  306. Basic welfare, financial aid grants, food stamps are all examples of __________.
    transfer payments
  307. What are the explanations for income inequality?
    • 1. life cycle effects
    • 2. living arrangements and work patterns (are there 2 wage earners in the fam or one)
    • 3. Idiosynatic factors (you got a bonus during snapshot)
    • 4. Human capital investment (accept a high paid job after investing in college)
  308. Income inequality in part is a result of _________.
    A. Life cycle
    B. Living arrangements and work patterns
    C. Human capital investment
    D. All of the above
  309. How do we correct income inequality?
    redistribution of income
  310. __________ the idea that “a dollar in the hand of a rich person is worth less than a dollar in the hand of a poor person.”  If the marginal utility of income declines with income, transferring income from the rich to the poor will increase total utility.
    Utilitarian justice

    The utility of the dollar is low for a rich person and high for a poor person.
  311. ________ is when policies that help the rich are OK as long as they also help (or at least not hurt) the poor. It is very socialist.
    Rawlsian justice
  312. _______ is assuming we enter this world not knowing what our social station will be (rich, poor, etc). Choosing a system that maximizes the well-being of the worst-off member(which could be you!) is the safest thing to do.
    Veil of ignorance
  313. _________ stated most simply, the theory that the value of a commodity depends only on the amount of labor required to produce it.
    Labor theory of value

    Profits from the labor should go to the workers not the firm.
  314. Marx's theory is that _________.
    They are going to hirer until the last person is higher than the wage.
  315. ___________ is where payments from the system are related to payments into the system.
    Social Insurance
  316. _________ is where payments are based solely on need.
    Income assistance
  317. Social insurance give to people that are
    A. unemployed
    B. disabled
    C. retired
    D. all of the above
  318. What is the problem with social security?
    There are a lot of baby boomers. The social security we pay today, is used by people today who need the money(retirees).
  319. TANF is an example of
    A income assistance
    B. Social insurance
    C. Both
    D. neither
    A. income assistance
  320. Foods stamps are ____.
    A. in-kind
    B. means tested
    A. in-kind
  321. Cheap housing are ____________.
    A. in kind
    B. means tested
  322. Which ones are income assistance programs?
    A. Medicaid
    B. TANF
    C. Food Stamps
    D. Housing Programs
    E. The Earned Income Tax Credit
    F. All of the above
  323. ______ states that those that have more should pay more.
    Ability to pay principle.

    linked to progressive tax
  324. What are examples of progressive tax?
    A. income tax
    B. luxury tax
    C. labor income
    D. all of the above
  325. _________ those who benefit more should pay more.
    Benefit received Principle
  326. Gasoline tax used to pay for highways, cigarette tax used to fund health care, etc. This is an example of _____________.
    Benefits received principle
  327. _______ is what is being taxed.
    Tax base
  328. ________ how it is being taxed.
    Tax structure

    Ask is it progressive, regressive, or proportional?
  329. What are examples of stocks?
    A. houses
    B. properties
    C. cars
    D. estates
    E. all of the above
  330. What are examples of flows?
    A. income
    B. sales
    C. payroll
    D. profits
    E. all of the above
  331. __________ is the amount of money collected by the government.
    Tax revenue
  332. Ad valorem is ______.
    a set % for tax.
  333. Having a 5% tax on clothes is a __________.
    ad valorem
  334. A sales tax is a tax on a
  335. Social Income Tax accounts for  ___________ of taxes.
  336. ________ is a tax whose burden is the same proportion of income for all households (aka flat tax).
    Proportional tax
  337. Capital gains tax is flat at 15%. It is a _____ tax.
  338. _________ a tax that increases as income increases.
    Progressive tax
  339. ________ is a tax that decreases as income increases.
    Regressive tax
  340. Social security is a ______ tax overall.
  341. __________ –high income earners can pay less tax by investing their money and earning income as cap gains instead of salary.
    Encourage investment
  342. Average tax rate is calculated by _____.
    ATR = Total tax/ income
  343. If the percentage of your income you have to pay in taxes  decreases as your income rises, it is:
    B. regressive
    (this multiple choice question has been scrambled)
  344. _____ the ultimate distribution of a tax burden.
    Tax incidence
  345. Who pays part of the tax?
    A. consumers
    B. producers
    C. both
    (this multiple choice question has been scrambled)
  346. True or False: As D gets more elastic (ceteris paribus), consumers are unwilling to pay the higher prices and the firm is forced to bear the incidence.
  347. True or False: As S gets more elastic (ceteris paribus), firms are unwilling to absorb the tax and consumers are forced to bear the incidence
  348. Whoever has a steeper curve pays for the good more.
    Less elastic --> steeper
  349. All else equal, if the demand curve is steeper, then:
    A. more of the tax is paid by the consumer
    B. less of the tax is paid by the consumer
  350. True or False: The more elastic the D curve, the less revenue is collected as quantity purchased falls more.
  351. ______ can move us away from efficiency (causing deadweight loss) or can move us closer to efficiency (for example if we have an externality)
  352. When the price changes, behavior changes, this is called ________.
  353. Dealing with distortion.
    If externality was causing us to produce to much à it might help.
    If the market is all well functioning à it is moving away from efficiency.
  354. Deadweight loss when dealing with taxes is referred to as ___________.
    excess burden
  355. More elastic --> _____ distortion
  356. A tax on product with a steeper (less elastic) demand curve is consistent with
    A. Less distortion and less deadweight loss
    B. Less distortion and more deadweight loss
    C. More distortion and more deadweight loss
    D. More distortion and less deadweight loss
  357. Look at lecture 30, the last 2 slides
  358. _______ is the idea that in decision-making, rationality of individuals is limited by the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make a decision.
    Bounded rationality
  359. Unbounded willpower?
    We know what is right but cant do it. Selfishness