Basic Concepts
Define free goods
Unlimited goods without a price.
What can explain the negative sign of PED?
The law of demand--when price increases, quantity demanded decreases.
What is demerit good?
Consumers do not know how bad it is and the consumption usually generates negative externality.
What are the differences between monopoly and monopolistic competition?
What kind of allocation mechanism in price controls except price mechanism?
first come first serve
discrimination
What are the main skills of entrepreneurship?
The ability to gather resources, organize production and take risks
Explain how weather conditions can influence both supply and demand as a non-price factor in different situations.
Weather influences the preference for certain products, such as ice cream and fan.
Weather condition also influences the harvest of agricultural products, or as raw materials of manufacturing products.
Use free rider to explain why public goods are often insufficiently provided.
Free riders are the consumers who consumes public goods without paying. The producers cannot get any profit as incentive to provide them.
Explain the differences of short run and long run in cost analysis and profit analysis
In cost analysis, short run means one factor of production stays constant.
In profit analysis, long run means there is exit and entry in the market.
Ideally, what's the standard and how much should be the tax per unit to show perfect effectiveness of tax to solve negative externality?
Qm=Qopt, Welfare loss is emilinated, and unit tax should equal to external cost.
What does productive efficiency mean in PPC?
All the resources are fully used.
What is called bounded selfishness?
People are not always selfish, only to certain extent. There are situations where people will reduce personal welfare.
How to define and describe welfare loss in externality graph
Welfare loss is the economic welfare reduction caused by the ignorance of social cost and benefit on the 3rd party. In the graph, it should be the triagle of MSB, MSC, and the extension vertical line from Qm.
Explain the barriers of entry that natural monopoly creates in the market?
Economies of scale, ATC is low.
Give 2 examples of Nudge from government to encourage merit goods and discourage demerit goods
Information and education,
putting images on cigarrettes packageallocate the merit goods on the eye-level shelf in super market.
How can spare capacity be shown on PPC? Use words to describe it.
The space between the combination of actual output and the combination on the curve.
When will rationing function as a price mechanism happen?
When supply decreases, quantity shrinks, and consumers are pushed out of the market by higher price.
How do you justify your decision to burn fossil fuel as a production externality or a consumption externality?
Production externality: creating electricity/car services that use fuel, in the process of production--the market of electricity or car services
Consumption externality: market of fuel itself.
Why cannot collusion be maintained?
What's the 2 main factors to affect the effectiveness of regulation or legislation?
What's the main cause of increasing opportunity cost?
Specialization happens, and each labor has different productivity in each product.
Assuming capital stays constant, which is the fixed cost, the producer gains less and less extra output everytime one labor is added into production process. That means, it generates more of additional costs when the producers try to increase one more unit of output. Hence, marginal costs increases after first phase of increasing marginal return.
Lacking of, or instability of funding.
LRATC is an envelop curve of ATC from different short-run periods. In the graph, is it accurate that each of them is tangent to LRATC at the lowest points of SRATC?
No. If it is, it means that every period the expansion will happen when the producer achieves productive efficiency. In reality, it would not be possible for each period.
Common pool resources in some situations are privatized, while in some situations are nationalized. What are the differences in the main purpose of the 2 different solutions?
Privatization aims for efficiency production and allocation of the resources.
Nationalization aims for the lower price, more access and reservation of the resources---public welfare.