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| The most prominent classical liberal economist of the late 20th century was ___ . |
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| One of the most prominent classical liberal authors of the mid-20th century was ____ . |
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| ______ is a Nobel Prize in economics winning classical liberal. |
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| T/F: Milton Friedman, while he was a professor at the University of Chicago, won the Nobel Prize in economics. |
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| T/F Classical liberals generally beleive that the distribution of income across individuals should be market determined, and not seriously altered by the federal government. |
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| In contrast to the classical liberals, John Rawls argued that . . . |
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| . . . government should guarantee a minimum in come to the poorest people. |
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| For the vast majority of economists, what is a good reason to have the government interfere in the economy? |
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| Protect children and the insane from abuse. |
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| T/F: A classical liberal could not be counted on to agree that I should not be free to engage in activities that interfere with your welfare without your consent. |
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| T/F: So-called "third party" or neighborhood effects that can't be negotiated are justifiable ground for government interference to make sure that the full social costs of activities are paid. |
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| Classical liberals generally think that . . . |
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| . . . free, competitive markets are the best way to allocate resources. |
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| Milton Friedman's overriding concern is . . . |
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| . . . the danger of government power. |
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| T/F: As a classical liberal, Milton Friedman was against the volunteer army. |
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| False: Milton Friedman would be pro volunteer army. |
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| T/F: As a classical liberal, Milton Friedman was against redistribution of income through the negative income tax. |
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| False: Milton Friedman would be in favor of the negative income tax. |
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| T/F: As a classical liberal, Milton Friedman was in favor of flexible exchange rates in internation trade and commerce. |
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| T/F: As a classical liberal, Milton Friedman was in favor of affirmative action plans in employment. |
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| False: Milton Friedman would be against affirmative action plans in employment. |
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| T/F: As a classical liberal, Milton Friedman was against minimum wage laws. |
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| According to Cassidy's article in The New Yorker, neuro-economics has shown that in many circumstances people's behavior is . . . |
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| . . . irrational and inconsistent. |
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| According to some neuro-economists, people, in making decisions, often . . . |
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| . . . have only a vague idea of the risks they face. |
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| T/F: According to Cassidy's article in The New Yorker, people faced with the so-called "ultimatum game" often react emotionally, rather than as rational utility maximizers. |
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| T/F: Most economists agree that, left alone, people will act in their own best interest, and that the marker will coordinate their actions to produce outcome beneficial to all. Neuro-economics challenges BOTH of these claims, and so opens a much wider field for government intervention in markets. |
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| Asymmetric paternalism refers to attemps to save people from . . . |
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| . . . making irrational choices by giving them a better default response. |
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| "What if it could be shown that even highly competent, well-informed people fail to make choices in their best interest?" This statement, if true, would justify a new kind of government policy called . . . |
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| Libertarian critics of so-called "self binding schemes" don't approve of them |
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| . . . if they're run by governments. |
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| What is Dan Ariely's specialty within economics? |
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| One of Dan Ariely's objections to the Classical Liberal view of human beings is that in fact. . . |
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| . . . people behave in predictably irrational ways, often making choices that are not in their own self-interest. |
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| T/F: Dan Ariely, in his interview on NPR, made two claims about the standard model of consumer behavior. One is that the model is basically incorrect -- consumers are not able to consistently and rationally decide which options are in their own self interest. |
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| What does Dan Ariely say is the most important consequence of his experiments on people's decision making? |
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| Policy prescriptions on people's making rational decisions are likely to be wrong. |
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| The idea that people are the best judges of what's good for them would most likely be associated with . . . |
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| The person most likely to say that free, competitive markets are a poor way to get goods provided for people, and that government intervention in markets is a good idea is . . . |
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| . . . MIT economist Dan Ariely |
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| Two important characteristics of competitive markets are that. . . |
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| . . . there are many buyers and many sellers. |
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| The law of demand means that . . . |
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| . . . demand curves are negatively sloped. |
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| An improvement in the technology for producing hamburgers would cause the demand curve to. . . |
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| An increase in consumers' incomes would cause the demand curve for base ball tickets to. . . |
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| The demand curve for any good shows. . . |
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| . . . the relationship between the amount demanded and the good's own price. |
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| A shift to the right in the demand curve in the market for turkeys might be due to. . . |
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| . . . a change in taste's for turkey. |
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| Chicken wings are an example of an inferior good because. . . |
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| . . . they are bought by low income people and not usually by high income people. |
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| Restaurant meals are a normal good. This implies that. . . |
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Definition
1. If incomes for up, the demand curve for restaurant meals will shift to the right.
2. The income elasticity of demand for restaurant meals is positive.
3. If incomes go down, the demand curve for restaurant meals will shift to the left. |
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| In the market for a normal good, if consumer incomes increase and the price of a complement to the good decreases, the demand curve will surely shift to the. . . |
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| In the market for a normal good, if the price of the good decreases and the price of a substitute for the good increases, the demand curve will surely shift to the. . . |
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| A decrease in the price of a normal good would lead to an increase in. . . |
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| Laptop computers and desktop computers are substitutes. If the price of laptops decreases, then. . . |
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| . . . the demand curve for desktops will shift to the left. |
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| Two goods are complements if. . . |
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| . . . an increase in the price of one of them causes a decrease in demand for the other. |
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| ______ is a principal determinant of the market supply curve. |
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| The level of input prices. |
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| An improvement in the technology of cherry production would cause the supply curve to shift to the. . . |
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| A decrease in the price of memory chips, an input to computers, would cause the supply curve in the market for computers to shift to the. . . |
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| An increase in the prices of inputs used in the production of apples and a tax of $2 per bushel of apples produced, would be expected to shift the supply curve for apples to the. . . |
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| An increase in the price of spaghetti would cause a(n) ________ in the quantity supplied of spaghetti. |
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| An imposition of a tax of $7 per plate on all spaghetti produced would would cause the supply curve in the market for spaghetti to shift to the. . . |
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| When the market price is above equilibrium there is. . . |
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| . . . an excess supply and price will fall. |
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| Suppose that incomes of consumers of white flour decrease. White flour is an inferior good. Assuming all other variables affecting demand and supply remain constant, one would predict that the equilibrium price and quantity of white flour would both. . . |
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| Coke and Pepsi are substitute goods. An increase in the price of Coke would ____ the price of Pepsi. |
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| Citric acid is an input to Spartan Lemon-Lime, peanuts are a complementary good with Lemon-lime. Suppose there is an increase in the price of citric acid, and a decrease in the price of peanuts. These two simultaneous changes would cause the price of Lemon-Lime to. . . |
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| Apple farms produce and sell apples, and hire labor as input. A decrease in the price of labor 9the wage rate) would cause the apple market to have. . . |
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Definition
| . . . the supply curve shift to the right. |
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| The price of stainless steel goes down. Stainless steel is an input to the production of toasters. As a result of the decrease in the price of stainless steel, what will happen to the equilibrium price and quantity of toasters? |
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Definition
| Price will fall, quantity will rise. |
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| The wages of workers go down in the commercial aircraft industry. Assume that commercial aircraft are a normal good. As a result, the supply curve for commercial aircraft will shift to the. . . |
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| The demand curve for candy bars shifts to the right. At the same time, the supply curve for candy bars shifts to the left. What will be the net effect on the equilibrium price and quantity of candy bars, if the two are taken together? |
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Definition
| Price will rise, but the effect on quantity is indeterminate. |
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| An increase in the supply of candy bars, with demand unchanged, would lead to a(n) ___ in the equilibrium price and a(n) ____ in the equilibrium quantity of candy bars. |
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Definition
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| When the market price is above equilibrium there is. . . |
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Definition
| . . . an excess supply and price will fall. |
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Term
| Ham and beef are substitutes. A tax of $2 per pound is imposed on the production of beef. The effect of the tax on the market for beef is to. . . |
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Definition
| . . . raise the price of beef by less than $2 per pound. |
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Term
| Ham and beef are substitutes. A tax of $2 per pound is imposed on the production of beef. The effect of the tax on beef production on the market for ham is to. . . |
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Definition
| . . . cause the demand curve for ham to shift to the right. |
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Term
| Spaghetti is a normal good, and the current equilibrium price is $10/plate. An increase in consumer incomes and a tax on spaghetti of $5 per plate would cause the equilibrium price of spaghetti to. . . |
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Definition
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| Spaghetti is a normal good, and the current equilibrium price is $10/plate. If the price of wine (a complement with spaghetti) falls, and there is no change in the supply conditions, economists would predict that in the next year both the equilibrium price and quantity of spaghetti will certainly _____. |
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The market for pizza is in equilibrium, and the demand curve for pizza then shifts to the right. There is,
therefore, an excess demand for pizza at the original market price. What will happen as a result of the market price rising? |
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| The quantity demanded of pizza will fall, and the quantity supplied of pizza will rise. |
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| When the price of gasoline recently rose by 30 percent we observed that the demand for gas guzzling vehicles like SUV's went down. We can conclude that. . . |
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| . . . gasoline and SUV's are complements. |
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| MEASURING SOCIAL WELFARE! |
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| T/F: Economists believe that they can measure social welfate (the welfare of a group of people, or a society). |
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| T/F: To economists, the idea of economic efficiency, and maximizing social welfare are pretty much the same thing. |
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| T/F: Economists generally believe that they can talk about social welfare independent of the distribution of income or wealth across individuals. |
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| T/F: To most economists, the idea of "consumer surplus" or "buyer surplus" (or "buyer profit") is a good way to think about the welfare of buyers when they consume a good or service. |
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| T/F: Most economists believe that the welfare associated with the production and consumption of a good can be measured by the sum of producer and consumer surplus. |
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| . . . the difference between firms' revenues, and the minimum amount they would accept to produce a particular quantity. |
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| A good measure of the increase in the welfare of consumers from consuming a particular amount of a good is called. . . |
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| One reason economists are interested in finding consumer and producer surplus is that . . . |
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Definition
| . . . they help understand and measure consequences for a country's welfare of some kinds of government policies. |
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Definition
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| In trying to decide what level of output of a good is in society's interest, economists often use the good's market price as a measure of. . . |
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| . . . the marginal social benefit from consumption. |
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Suppose that when 1,000 pizzas per week are produced and sold the marginal social benefit of another
pizza is $13.00, and the marginal social cost of another pizza is $5. From society's point of view, ____ pizza should be produced. |
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The bagel industry has no external effects whatsoever. If the bagel industry were perfectly competitive
then it . . . |
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Definition
| . . . would produce the socially best quantity of bagels. |
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| ANATOMY OF MARKET FAILURE! |
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Definition
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| Classical liberals like Milton Friedman agree that true neighborhood effects. . . |
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Definition
| . . . are ground for government interference in the economy. |
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| In trying to decide what level of output of a good is in society's interest, economists often use the good's market price as a measure of. . . |
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Definition
| . . . the marginal social benefit from consumption (willingness to pay). |
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Suppose that when 1,000 pizzas per week are produced and sold the marginal social benefit (social
value) of another pizza is $13.00, and the marginal social cost (social cost) of another pizza is $5. Then
is must be true that from society's point of view . . . |
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Definition
| . . .more pizzas should be produced. |
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The bagel industry has no external (neighborhood) effects whatsoever. It the bagel industry were
perfectly competitive then it would produce. . . |
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Definition
| . . .the socially best quantity of bagels. |
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Term
| T/F: A public good or service that is produced by the government and then given away to people who need it. |
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Definition
False: A public good is a good or service that is consumed by everyone. When one person consumes another unit of a public good we all consume more.
The most common example is national defense. |
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| ______ are in many ways non-rival in consumption. |
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| A lighthouse would be an example of ______, as economists use the term. |
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| An unscrambled, on-the-air TV signal is an example of ________ . |
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| "My partner wears smelly cologne and the smell drives me crazy." This is an example of . . . |
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| The reason economists generally favor government intervention in the market for vaccinations against infectious diseases is that. . . |
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Definition
| . . .marginal social benefits of getting vaccinated are not equal to the marginal private benefits. |
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Term
| Water pollution due to paper factories in Michigan's Upper Peninsula would be an example of . . . |
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Definition
| . . .an external cost of production. |
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| To control external benefits and costs, and achieve the socially best amount of a good or service, economists generally favor. . . |
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Definition
| . . .taxes and subsidies linked to the value of the externality. |
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| A paper factory polluting a nearby river would be an example of a . . . |
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Definition
| . . .negative externality. |
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| T/F: Market failure is generally grounds for government interference in a market. |
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Definition
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Term
| The problem with air pollution is that. . . |
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Definition
| . . . the cost to the firm of producing a good is different from the social cost. |
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| Cable television is an example of a good that is. . . |
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Definition
| . . .non-rival and excludable. |
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| Market failure means that. . . |
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Definition
. . . in some cases even competitive markets achieve the wrong level of output from society's point of
view. |
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| The failure of health insurance markets is usually attributed to. . . |
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Definition
| . . .the result in information asymetries leading to adverse selection. |
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Economists often claim that health insurance markets fail to achieve the socially best level of service
because of. . . |
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Definition
| . . .adverse selection (an information failure) |
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| A good is excludable if. . . |
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Definition
| . . .by making the good available to one person, it is still possible to keep others from consuming units of the good. |
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Definition
| . . . when Mike consumes a unit, that unit is not available to be consumed by Sue. |
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| Adverse selection is a phenomenon that always involves. . . |
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Definition
| . . .unequal access to information. |
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Term
A neighborhood effect (externality) that originates with a consumer using a good that imposes costs on
other consumers is called an external. . . |
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Definition
| . . . diseconomy of consumption |
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Term
| A neighborhood effect (externality) that originates with a firm producing a good that confers uncompensated benefits on consumers is called an external. . . |
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Definition
| . . . economy of production. |
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Term
| When more fishing boats operating in an area of the ocean raises the cost of catching fish to other fishing boats we have an example of. . . |
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Definition
| . . .external production diseconomies. |
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Term
| When more fishing boats operating in an area of the ocean raises the cost of catching fish for all of the other fishing boats we have a situation in which. . . |
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Definition
| . . .marginal social costs from fishing are more than the marginal private costs of fishing. |
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| TAXES, SUBSIDIES, AND SOCIAL WELFARE! |
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Definition
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| T/F: An excise tax on cigarettes to be paid by sellers will shift the supply curve for cigarette up by EXACTLY the amount of the tax |
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Definition
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| T/F: An excise tax on cigarettes to be paid by sellers will cause the price of cigarettes to go up by exactly the amount of the tax. |
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Definition
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| T/F: A subsidy to corn farmers of $1 per bushel will have the effect of shifting the supply of corn down by EXACTLY $1 |
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Definition
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| T/F: A subsidy to corn farmers of $1 per bushel will have the effect of lowering the price of corn by EXACTLY $1 |
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Definition
False: A per unit subsidy paid to farmers will. . .
1. Cause market price to fall, but price will fall by less than the amount of the subsidy per unit.
2. cuase market quantity to rise
3. result in total subsidy payments to farmers of the subsidy per unit times the post-subsidy equilibrium quantity. |
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| T/F: An excise tax on a good will ALWAYS result in a deadweight loss in social welfare from the good. |
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Definition
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| T/F: An excise tax will ALWAYS lower the amount of consumer surplus from a taxed good. |
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Definition
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Term
| According to the New York Times, the largest subsidy per one way airline ticket is for the route between. . . |
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Definition
| . . . Brookings and Siox Falls, South Dakota |
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| According to the New York Times, the subsidy for a one way airline ticket between Pueblo and Colorado Springs, Colorado, a distance of 40 miles, is. . . |
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Definition
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| Robert Frank, in his article in the New York Times, favors a larger tax on gasoline, because the market price. . . |
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Definition
| . . . understates the full social cost of consuming gasoline. |
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| According to Monica Prasad, a country whose carbon tax has actually led to a decrease in carbon emissions is. . . |
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