Exam%2%Study%Guide:%!Chapter%3:%Interdependence%&%Gains%from%Trade%=Production*Possibilities*Frontier=%graph%that%shows%the%combination%of%output%that%an%economy%can%produce%with%available%factors%of%production%=slope%of%PPF%=%opportunity%cost%=%Qgood%1%/%Qgood%2%(amt%of%good%1%given%up%for%good%2)%! % %!=absolute*advantage=%ability%to%produce%a%good%using%fewer%inputs%than%another%producer%=comparative*advantage=%ability%to%produce%a%good%at%a%lower%opportunity%cost%than%another%producer%=opportunity*cost=%amount%of%good%1%given%up%to%produce%good%2%(slope%of%PPF)%!Chapter%9:%International%Trade%=world*price=%price%of%a%good%that%prevails%in%the%world%market%for%a%good% %!=tariff=%tax%on%goods%produced%abroad%and%sold%domestically%(imported%goods)%=tariffs'reduce'the'amount'of'imports'and'moves'the'domestic'market'closer'to'its'equilibrium'without'trade% %=fall%in%total%surplus%(D+F)%is%the%deadweight*loss%!Chapter%10:%Externalities%=externality=%uncompensated%impact%of%one’s%actions%on%the%well=being%of%a%bystander%=negative'externality=%impact%on%a%bystander%is%detrimental%=positive'externality=%impact%on%a%bystander%is%beneRicial%=private*cost=%cost%of%producing%an%additional%unit%of%a%good%(marginal%cost)%=social*cost=%cost%incurred%by%the%producer%Negative%Externalities:% %=negative%externalities%in%production:%private%cost%is%less%than%social%cost%(pollution,%global%warming)%=positive%externalities%in%production:%private%cost%is%greater%than%social%cost%(fable%of%the%bees)%=internalizing*the*externality=%altering%incentives%so%that%people%take%account%of%their%actions%Positive%Externalities:% %=private*value=%beneRit%from%an%addt’l%unit%of%a%good%that%the%consumer%receives%(willingness%to%pay)%=social*value=%beneRit%enjoyed%by%the%consumer%and%society%=negative%externalities%in%consumption:%private%value%is%greater%than%social%value%(loud%music)%=positive%externalities%in%consumption:%private%value%is%less%than%social%value%(vaccinations)%=gov’ts%internalize%the%externality%by%taxing'goods%with%negative%extern.%and%subsidizing'goods%with%positive%extern.%Corrective%Taxes%and%Subsidies:%=corrective*taxes*(Pigovian)=%induce%businesses%to%take%into%account%social%costs%that%arise%from%a%negative%extern.% %=coase*theorem=*%if%private%parties%can%bargain%without%cost%of%allocation%of%resources,%they%can%solve%the%problems%of%extern.%=Coase'thm'says'that'private'economic'actors'can'solve'the'problem'of'extern.'among'themselves.'Interested'parties'can'always'reach'a'bargain%=Transaction*costs=%costs%that%parties%incur%in%the%process%of%implementing%a%bargain%(lawyers)%!Chapter%11:%Public%Goods%and%Common%Resources%=excludable=%property%of%a%good%whereby%a%person%can%be%prevented%from%using%it%=rival=%property%of%a%good%whereby%one%person’s%use%diminishes%other%people’s%use%=public*goods=%not%rival,%not%excludable;%person%cannot%be%prevented%from%using%it,%one%person’s%use%does%not%reduce%another’s%ability%to%use%it%=common*resources=%rival%but%not%excludable;%anyone%can%use%it%but%if%someone%takes%some,%there%is%less%available%for%others% %Public%Goods:%=free*rider=%person%who%receives%beneRit%of%a%good%without%paying%for%it%(Rireworks)%=if%gov’t%decides%total%beneRits%of%public%good%exceed%costs,%it%can%provide%the%good%thru%tax%revenue%(defense,%research)%=cost=bene?it*analysis=%compares%costs%and%beneRits%to%society%of%providing%a%public%good%Common%Resources:%=tragedy*of*the*commons=%When one person uses a common resource, he or she diminishes other people's enjoyment of it. Because of this negative externality, common resources tend to be used excessively. The government can solve the problem by using regulation or taxes to reduce consumption of the common resource. Alternatively, the government can sometimes turn the common resource into a private good =examples%of%common%resources:%clean%air%and%water,%congested%roads,%wildlife%!Chapter%21:%Consumer%Choice%! %=budget*constraint=%line%that%shows%consumption%bundles%that%the%consumer%can%afford%=slope%of%budget%constraint%measures%the%rate%at%which%the%consumer%can%trade%one%good%for%the%other%=slope%=%price%of%good%1%(x%axis)%/%price%of%good%2%(y%axis)%=slope'='quantity%of%good%1%(y%axis)%/%quant it y%of%good%2%(x %ax
View Full Document
Unlocking...