USC Manic econ 224 exam 3 study guide
USC Manic econ 224 exam 3 study guide ECON 224
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This 5 page Study Guide was uploaded by Sarah Albert on Friday January 29, 2016. The Study Guide belongs to ECON 224 at University of South Carolina taught by marian Manic in Winter 2016. Since its upload, it has received 97 views.
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Econ Test #4 Study Guide Chapter 9: Externalities and Public Goods ● Marginal social cost of pollthe additional cost imposed on society as a whole by an additional unit of pollution ● Marginal social benefit of pol the additional gain to society as a whole from an additional unit of pollution ● avoiding pollution requires using scarce resources that could have been used to produce other goods and services ● Socially optimal quantity of po the quantity of pollution that society would choose if all the costs and benefits of pollution were fully accounted for ● The optimal level of pollution in a society occurs when the marginal benefit of the last unit of pollution exactly equals the marginal cost of pollution. ● There are benefits resulting indirectly from pollution because we obtain goods and services we enjoy even though in the process we create pollution. ● the marginal benefit of pollution emissions decreases as the quantity of pollution emissions increase ● the upward sloping marginal social cost curve, msc, shows how the marginal cost to society of an additional ton of pollution emissions caries with the quantity of emissions ● marginal social benefit curve, msb, is downward sloping because it is progressively harder, and therefore more expensive, to achieve a further reduction in pollution as the total amount of pollution falls, increasingly more expensive technology must be used. As total pollution falls, the cost savings to a polluter of being allowed to emit one ton rises ● Qopt the quantity corresponding to the point O, where MSB crosses MSC ● marketdetermined quantity of pollution is the quantity at which the marginal social benefit of an additional ton of pollution is zero ● the quantity of pollution in a market economy without government intervention will be higher than its socially optimal quantity ● in the absence of government action, the quantity of pollution would be inefficient, polluters would pollute until the marginal social benefit of pollution is zero ● External co negative externalities an uncompensated cost that an individual or firm imposes on others ● External benefi positive externalities a benefit that an individual or firm confers on others without receiving compensation ● Externaliti External costs and benefits ● Coase Theorem even in the presence of externalities an economy can always reach an efficient solution as long as transaction costs are sufficiently low ● Transition cos the costs to an individual of making a deal ● Internalize the externawhen individuals take external costs or benefits into account ● if externalities are fully internalized, the outcome is efficient even without government intervention ● In many situations involving externalities, transition costs prevent individuals from making efficient rules ○ cost of communication among the interested parties ○ the costs of making legally binding agreements ○ costly delays involved in bargaining ● Environmental standards rules that protect the environment by specifying actions by producers and consumers ● Emissions tax A tax that depends on the amount of pollution a firm produces ● Pigouvian taxes taxes designed to reduce external costs ● Tradable emissions permits Licenses to emit limited quantities of pollutants that can be bought and sold by polluters ● these permits are tradeable. firms with differing costs of reducing pollution can now engage in mutually beneficial transactions, those that find it easier to reduce pollution will sell some of their permits to those that find it more difficult ● Marginal Social Benefit of a good or activequal to the marginal benefit that accrues to consumers plus its marginal external benefit ● Pigouvian Subsidy A payment designed to encourage activities that yield external benefits ● Technology spillover An external benefit that results when knowledge spreads among individuals and firms ● most important single source of external benefits is the creation of knowledge ● Industrial poli A policy that supports industries believed to yield positive externalities ● Marginal social cost of a good or acti equal to the marginal cost of production plus its marginal external costs ● It would be inefficient to produce goods when the marginal benefit is less than the marginal cost. Therefore an efficient level of product is achieved when marginal benefit is equal to marginal cost. ● excludable if the supplier of a good can prevent people who do not pay for it from consuming it ● Rival in consumption If the same unit of the good cannot be consumed by more than one person at the same time ● Private good when a good is both excludable and a rival in consumption ● markets cannot supply goods and services efficiently unless they are private goods ● Nonexcludable when a supplier of a good cannot prevent the consumption by people who do not pay for it ● Nonrival in consumption If more than one person can consume the same unit of the good at the same time ● Freerider ProblemIndividuals have no incentive to pay for their own consumption and instead will take a “free ride” on anyone who does pay for goods that are nonexcludable ● Public goods A good that is both nonexcludable and nonrival in consumption ● in the special case of a public good, the marginal social benefit of a unit of the good is equal to the sum of the individual marginal benefits that are enjoyed by all consumers of that unit ● CostBenefit analysiswhen governments estimate the social costs and social benefits of providing a public good ● http://www.scribd.com/doc/57605709/MicroeconomicsChapter9ISBN101429218290#scribd ● Chapter Ten Intro to Macroeconomics ● Paradox of thr when families and businesses are worried about the possibility of economic hard times, they prepare by cutting their spending. this reduction in spending depresses the economy as consumers spend less and businesses react by laying off workers. as a result families and businesses may end up worse off than if they hadn’t tried to act responsibly ● combined effect of individual decision can have results that are very different from what any one individual intended, results that are sometimes perverse ● Keynesian economics a depressed economy is the result of inadequate spending. government intervention can help a depressed economy through monetary and fiscal policy. ● the modern tools of macroeconomics are fiscal policy and monetary policy ● Monetary uses changes in the quantity of money to alter interest rates, which in turn affect the overall level of spending ● Fiscal polic uses changes in taxes and government spending to affect overall spending ● Real gross domestic produc a measure of the economy’s overall output ● Recession contractions periods of economic downturn when output and employment are falling ● If macroeconomic policy has been successful over time, it is likely that the economy has not seen any severe recessions. ● Expansions recoveries periods of economic upturn when output and employment are rising ● economic recessions tend to be short and economic expansions tend to be long ● Business cycl short run alteration between recession and expansion ● The sequence of business cycle phases is peak, recession, trough, expansion. ● Business cycle pea point at which the economy turns from expansion to recession ● Business cycle troug economy transforms from recession to expansion ● Unemployment rate most widely used indicator of conditions in the labor market ● Long run economic growth the sustained rise in quantity of goods and services the economy produces ● result of growing population and workforce ● Economists use the term ongterm growthto indicate growth of the economy over several decades. ● long run economic growth is crucial for many economic concerns such as a higher standard of living or financing government programs. It is especially crucial for poorer countries ● Inflatio a rise in the overall level of prices ● Deflatio a fall in the overall level of prices ● inflation discourages people from holding onto cash, because cash loses value over time if the overall price level is rising, that is the amount of goods and services you can buy with a given amount of cash falls ● deflation causes a reverse problem. If price level is falling, cash gains value over time, so holding onto it can become more attractive than investing. this can deepen a recession ● Open economy an economy that trades goods and services with other countries ● Trade defici the value of the goods and services bought from foreigners is more than the value of the goods and services it trades to them ● Trade surplus when the value of goods and services bought from foreigners is less than the value of the goods and services it sells to them ● determined by decisions about investment spending and saving Chapter 11: GDP and the CPI ● National Accounts / National income and products accouKeeps track of the flows of money between different sectors of the economy ● Final Goods and Services Goods and services sold to the final, or end, user. ● Intermediate Goods and ServicesGoods and services that are inputs for production of final goods and services. ● The reason the dollar value of only final goods and services are counted in GDP is that if we counted the value of all goods, we would count inputs, more than once. ● Gross Domestic Product The total value of all final goods and services produced during a given period, usually a year. ● Calculating GDP: ○ adding up the total value of all final goods and services produced ○ adding up spending on all domestically produced goods and services ○ adding to total factor income earned by households from firms in the economy ● Value Added The producer's value of sales minus the value of its purchases of intermediate goods and services ○ The price of the final good must be equal to the sum of value added at each intermediary production step ● Aggregate Output The total quantity of final goods and services the economy produces. Measured by the Real GDP ● Real GDP Total value of final goods and services produced in the economy during a year, calculated using prices of a base year ● Real GDP= (Quantity of A in yeaX Price of A in base year) + (Quantity of B iX price of B in base year) ● real GDP represents current quantities at past prices. Real GDP in the base year is always the same as the nominal GDP in the base year because that’s the year that the other year is being compared to ● Nominal GDP The value of all final goods and services produced in the economy during a year, calculated using current prices. ● Nominal GDP = (Quantity of A x Price of a) + (Quantity of B x Price of B) ● Chained Dollars The method of calculating changes in real GDP using the average between the growth rate of an early base year and a late base year ● GDP Per Capita GDP divided by the size of the population. ● Aggregate price levelA measure of the overall level of prices in the economy. ● Market basket A hypothetical set of consumer purchases of goods and services. ● Market basket = (Quantity of A times Price of A in other year + Quantity of B times Price of B in other year + etc ) / (Quantity of A times Price of B in base year + Quantity of B times price of B in base year +etc) X 100 ● Price Index A measure of the cost of purchasing a given market basket in a given year, where the cost is normalized so that it is equal to 100 in the selected base year ● price index in a given year= cost of market basket in a given year / cost of market basket in base year X 100 ● Inflation Rat The annual percent change in an official price index. Usually the consumer price index. ● inflation rate= price index in year 2 price index in year one / price index in year 1 x 100 ● Consumer Price Index CPI Measures the cost of the market basket of a typical urban American family. ● Producer Price Index PPI Measures change in the prices of goods purchased by producers ● GDP deflator Is 100 times the ratio of nominal GDP to real GDP in that year. http://quizlet.com/_1abho5
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