Econ review quiz 2

Absolute advantage is
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Terms in this set (26)
A positive externality causesThe marginal private benefit to exceed the marginal social cost at the market equalibriumWhen a negative externality exists, the private market producesmore than the economically efficient output levelWhich of the following is a source of market failureincomplete property rights or inability to enforce property rightsWhat is market failureA market failure is when the market fails to produce the efficient level of output.A negative externality exists ifthe marginal social cost of producing a good or service exceeds the private cost.Which of the following represents the true economic cost of production when firms produce goods that cause negative externalitiesthe social cost of productionWhat is a "social cost" of productionthe sum of all costs to individuals in society, regardless of whether the costs are borne by those who produce the products or consume the productA key difficulty facing insurance companies is that people know more about their health than do insurance companies. What is this phenomenon called?asymmetric informationWhat is moral hazard?It refers to the actions people take after they have entered into a transaction that makes the other party to the transaction worse off.An insurance company is likely to attract Customers like Clancy who want to purchase insurance because he knows better that the company that he is more likely to make a claim on a policy. What is the term used to describe the situation aboveadverse selectionIn markets with asymmetric informationasymmetric information causes adverse selection and then it causes moral hazard.Consider a used car market in which half the cars are good and half or bad (lemons) suppose the average price of a good car is $9,000 and the average price of a lemon is $3,000. If factional buyers are willing to pay $6,000 for a used car, then sellers will agree to sell mostly lemons at this price. What is the term used to describe this situationSuppose that in a market for used cars there are good used cars and bad used car (lemons). Consumers are willing to pay as much as $6,000 for a good used car but only $1,000 for a lemon. Sellers of a good used cars value their cars at $5,000 each and sellers of lemons value their cars at $800 each. Buyers cannot tell if a used car is reliable or is a lemon. Based on this information, what is likely the outcome in the market for used cars?market priceThe price where it can be soldquantity demandedthe amount of a good or service that a consumer is willing and able to purchase at a given pricethe domestic quantity supplied.If a nation that imports a good imposes a tariff, it will increase