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ECON TEST 2
Terms in this set (20)
A side effect of an action that affects a third party other than the buyer or seller. (Ex: we benefit from everyone being immunized)
Goods and services provided from the government to additional users at no extra cost
Recreation paid for by government taxes; includes monies sent to cities for museums, libraries, and municipal golf courses.
This means that one consumer's enjoyment of the benefits of a good does not diminish any other consumer's enjoyment of its benefits.
rival in consumption good
if one person's use of it diminishes others' use
Other than correcting externalities, other economic functions of government include
providing a legal system, allocating public goods, promoting competition, and stabilizing the economy.
The economic functions of government include
providing a legal system
Benefits given by the government directly to individuals. Transfer payments may be either cash transfers, such as Social Security payments and retirement payments to former government employees, or in-kind transfers, such as food stamps and low-interest loans for college education.
income transfers in kind
money from government which people must direct to spending on specific goods
What does the price elasticity of demand measure?
The responsiveness of quantity demanded to a change in the price of a good.
All of the following determine the price elasticity of demand except
a change in the price of resources used to produce the good.
The price elasticity of demand for a particular commodity depends upon all of the following except
availability of complementary goods.
What are the determinants of the degree of price elasticity of demand for an item?
1. the share of a consumer's budget spent on the item
2. the length of time allowed for adjustment to changes in the price of the item
3. the existence, number, and closeness of substitutes
The long-run elasticity of supply in most industries is ___________ than the short-run elasticity because in the long run, ________________.
more elastic; resources and firms can enter the industry
When the cross-price elasticity of demand is negative
The goods are complements.
What is the substitution effect of a price change on the quantity demanded of a good or service?
A price change induces people to substitute among goods.
Why is the price of diamonds usually so much higher than the price of water even though people cannot survive long without water?
Marginal utility, not total utility, determines how much a person is willing to pay for a good.
Advocates of behavioral economics
argue that utility theory is explained by applying the assumption of bounded rationality.
Which of the following examples are used as evidence favoring the bounded rationality assumption?
When purchasing electric appliances such as refrigerators, people sometimes buy the lowest-priced, energy-inefficient models even though the price savings often fail to compensate for higher future energy costs.
a process of making decisions by constructing simplified models that extract the essential features from problems without capturing all their complexity
Recommended textbook explanations
Principles of Microeconomics
N. Gregory Mankiw
Brief Principles of Macroeconomics
Bianca Murphy, N. Gregory Mankiw
Principles of Macroeconomics
N. Gregory Mankiw
Essential Foundations of Economics,
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