Economics Chapter: Market Interventions and Effects

Price rationing occurs when the price of a good determines whether a consumer can obtain it. Higher prices may limit access for some consumers.

Allocative efficiency refers to producing the quantity of goods that society most desires, achieved when marginal benefit equals marginal cost (MB = MC).

Consumer surplus is the difference between what consumers are willing to pay and what they actually pay, while producer surplus reflects the difference between the price received by producers and their minimum acceptable price. Together, they represent the social surplus.

<p>The equation MB = MC signifies allocative efficiency, where the value derived from consuming an additional unit equals the cost of producing it, leading to optimal resource allocation.</p> Signup and view all the answers

<p>Price elasticity of demand measures how responsive the quantity demanded of a good is to changes in its price, indicating whether demand is elastic or inelastic.</p> Signup and view all the answers

<p>Government intervention is justified when markets fail to achieve efficiency due to unrealistic conditions, or when they cannot adequately answer who receives the goods produced.</p> Signup and view all the answers

<p>A steeper demand curve indicates that the quantity demanded is less responsive to price changes, meaning demand is inelastic.</p> Signup and view all the answers

<p>Export subsidies increase domestic employment and help producers by providing financial support for each unit exported.</p> Signup and view all the answers

<p>Non-price rationing in planned economies refers to the allocation of goods and services without reliance on market prices, often through central planning or quotas.</p> Signup and view all the answers

<p>Consumers and taxpayers are the main groups negatively impacted by increased trade protection.</p> Signup and view all the answers

<p>The infant industry argument suggests that new domestic industries require protection to develop and compete against established foreign competitors.</p> Signup and view all the answers

<p>Administrative barriers increase the costs and time needed for customs procedures, ultimately reducing the quantity of imports.</p> Signup and view all the answers

<p>One unintended consequence is global misallocation of resources, as subsidies distort market prices.</p> Signup and view all the answers

<p>Trade protection leads to higher prices for consumers, resulting in decreased consumer surplus.</p> Signup and view all the answers

<p>The winners are domestic workers and producers, as protectionist measures often lead to job creation.</p> Signup and view all the answers

<p>Inefficient production leads to a loss of overall economic welfare, as resources are not allocated to their most productive uses.</p> Signup and view all the answers

<p>A rivalrous resource is one whose consumption by one person reduces its availability for others.</p> Signup and view all the answers

<p>A negative externality occurs when the actions of producers create external costs for third parties, such as pollution from a factory.</p> Signup and view all the answers

<p>MPC refers to the costs to producers for producing one more unit, while MSC includes the external costs borne by society from that production.</p> Signup and view all the answers

<p>Pigouvian taxes impose a cost equal to the external cost associated with an activity, shifting the marginal private cost curve to align with the marginal social cost curve.</p> Signup and view all the answers

<p>Tradable permits are government-issued allowances to pollute that can be bought and sold among firms, encouraging lower overall pollution through market mechanisms.</p> Signup and view all the answers

<p>Market-based policies like taxes and tradable permits internalize externalities and provide incentives for firms to reduce pollution at lower costs.</p> Signup and view all the answers

<p>Designing an effective tax is difficult due to the need to accurately value the external costs and understanding the specific production methods that generate pollution.</p> Signup and view all the answers

<p>A positive externality occurs when an individual's actions benefit third parties, such as a homeowner who plants a garden that beautifies the neighborhood.</p> Signup and view all the answers

<p>It suggests that the market quantity produced exceeds the socially optimal quantity, leading to welfare loss.</p> Signup and view all the answers

<p>Renewable resources can last indefinitely if managed correctly, while non-renewable resources have a finite supply and cannot be replenished.</p> Signup and view all the answers

<p>Microeconomics studies individual decision-making units like consumers and firms, while macroeconomics examines the economy as a whole using aggregates.</p> Signup and view all the answers

<p>The four factors of production are land (natural resources), labor (human effort), capital (man-made resources), and entrepreneurship (the organizer of other factors and risk-taker).</p> Signup and view all the answers

<p>Opportunity cost is the value of the next best alternative that is sacrificed when making a choice.</p> Signup and view all the answers

<p>Scarcity refers to the limited availability of resources in contrast to the infinite wants of individuals.</p> Signup and view all the answers

<p>The basic economic questions are: what/how much to produce, how to produce, and for whom to produce.</p> Signup and view all the answers

<p>A free good is not scarce and has zero opportunity cost, while an economic good is scarce and has a positive opportunity cost.</p> Signup and view all the answers

<p>Government intervention can alter the allocation of resources by imposing regulations, taxes, or subsidies.</p> Signup and view all the answers

<p>The production possibilities curve represents all combinations of maximum output that can be produced with given resources, illustrating concepts of efficiency and trade-offs.</p> Signup and view all the answers

<p>To provide goods that are underprovided by the market, often at low or zero prices.</p> Signup and view all the answers

<p>It provides a sum of money to residents regardless of their other income sources.</p> Signup and view all the answers

<p>Legislation that forbids discrimination in hiring and employment practices.</p> Signup and view all the answers

<p>It sets a legal minimum wage that employers must pay their workers.</p> Signup and view all the answers

<p>It indicates that most redistribution occurs through benefits rather than through taxes.</p> Signup and view all the answers

<p>Monetary policies and fiscal policies.</p> Signup and view all the answers

<p>To control the supply of money and interest rates.</p> Signup and view all the answers

<p>It involves setting numeric targets for inflation, usually between 1.5% and 2.5%.</p> Signup and view all the answers

<p>Real interest rate = nominal interest rate - rate of inflation.</p> Signup and view all the answers

<p>To increase the money supply to expand aggregate demand and economic activity.</p> Signup and view all the answers

<p>Flexibility, reversibility, and limited political constraints.</p> Signup and view all the answers

<p>Interest rates cannot fall below zero, limiting the central bank's ability to stimulate the economy.</p> Signup and view all the answers

<p>A plan of a country's revenues and expenditures over a specified period.</p> Signup and view all the answers

<p>(number of unemployed / labour force) x 100.</p> Signup and view all the answers

<p>They do not account for discouraged workers who have stopped looking for a job.</p> Signup and view all the answers

<p>They include a loss of real output, income for unemployed workers, and reduced tax revenue.</p> Signup and view all the answers

<p>It occurs when workers are temporarily between jobs, often seeking better opportunities.</p> Signup and view all the answers

<p>Cyclical unemployment occurs during economic downturns due to low aggregate demand.</p> Signup and view all the answers

<p>Inflation is a sustained increase in the general price level of goods and services.</p> Signup and view all the answers

<p>Demand-pull inflation results from increased aggregate demand, while cost-push inflation arises from rising production costs.</p> Signup and view all the answers

<p>They include increased indebtedness, loss of self-esteem, and higher rates of crime.</p> Signup and view all the answers

<p>The CPI measures the cost of living by comparing the value of a basket of goods over time.</p> Signup and view all the answers

<p>Hyperinflation results from significant increases in the money supply.</p> Signup and view all the answers

<p>The misery index is the sum of the unemployment rate and the inflation rate of a country.</p> Signup and view all the answers

<p>It fosters economic growth and increases predictability in purchasing power.</p> Signup and view all the answers

<p>They can increase productivity, leading to higher output and economic expansion.</p> Signup and view all the answers

<p>It generally allows for increased consumption and improved living standards.</p> Signup and view all the answers