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Bcom MBM Year 2
Economics
| Question | Answer |
|---|---|
| Name the 9 resource allocation methods | Market price. Command. Majority rule. Contest. First come first serve. Sharing equally. Lottery. Personal characteristics. Force. |
| Explain "market price" (resource allocation methods) | The people who are willing to pay the market price get the scarce resources. |
| Explain "command" (resource allocation methods. | Command system allocates resources by the order (command) of someone in authority. works well in businesses but badly in economy. |
| Explain :majority rule" (resource allocation methods) | Majority rule allocates resources in the way that a majority of voters choose. |
| Explain "contest" (resource allocation methods) | A contest allocates resources to a winner (or group of winners). |
| Explain "first come first serve" (resource allocation methods) | A first-come, first-served allocates resources to those who are first in line. |
| Explain "sharing equally" (resource allocation methods) | When a resource is shared equally, everyone gets the same amount of it. |
| Explain "lottery" (resource allocation methods) | Lotteries allocate resources to those with the winning number, draw the lucky cards, or come up lucky on some other gaming system. |
| Explain "personal characteristics" (resource allocation methods) | Personal characteristics allocate resources to those with the “right” characteristics. |
| Explain "force" (resource allocation methods) | For example, war has played an enormous role historically in allocating resources. |
| What is allocative efficiency? | Allocative efficiency is a situation in which the quantities of goods and services produced are those that people value most highly. It is not possible to produce more of one good or service without producing less of something else. |
| What does the PPF tell you? | The PPF tells us what can be produced, but the PPF does not tell us about the value of what we produce. |
| What is the best situation according to the PPC? | Producing at the highest-valued point on PPF. |
| What is marginal benefit? | Marginal benefit is the benefit that a person receives from consuming one more unit of a good or service. |
| What is the principle of marginal benefit? | Marginal benefit decreases as the quantity of the good increases—the principle of decreasing marginal benefit. |
| What is marginal cost? | Marginal cost is the opportunity cost of producing one more unit of a good or service and is measured by the slope of the PPC. |
| Draw the marginal benefit and marginal cost curve. | lalala |
| What is efficient allocation? | That is, the allocation is efficient if it is not possible to produce more of any good without producing less of something else that is valued more highly. |
| What is production efficiency? | All points on the PPF. |
| Where does allocative efficiency occur? | Where marginal benefit curve and marginal cost curve intersect. |
| What is value? (buyer) | What the buyer gets. |
| What is price? (buyer) | What the buyer pays. |
| How can marginal benefit be measured? | Marginal benefit can be measured as the maximum price that people are willing to pay for another unit of the good or service. |
| When will a consumer buy another unit? | When the price is less or equal to the value of the product. |
| Marginal benefit curve is the same as? | Demand curve. |
| What is consumer surplus? | Consumer surplus is the marginal benefit from a good or service minus the price paid for it, summed over the quantity consumed. |
| What is cost? (seller) | How much a seller must give up to product a unit. |
| What is price? (seller) | Amount a seller gets for a unit. |
| What is marginal cost? (seller) | The cost of producing one more unit of a good or service is its marginal cost. |
| What is a marginal cost curve? | Supply curve. |
| What is a producer surplus? | Producer surplus is the price of a good minus the opportunity cost of producing it, summed over the quantity produced. |
| What is total surplus? | Total surplus is the sum of consumer surplus and producer surplus. |
| Name the two ways inefficiency can occur. | Too little is produced—underproduction. Too much is produced—overproduction. |
| Explain underproduction. | When a firm cuts production to less than the efficient quantity, a deadweight loss is created. |
| What is deadweight loss? | Deadweight loss is the decrease in total surplus and that results from an inefficient underproduction or overproduction. |
| Explain overproduction. | When the government pays producers a subsidy, the quantity produced exceeds the efficient quantity. |
| Name the six reasons why markets can be inefficient. | Price and quantity regulations. Taxes and subsidies. Externalities. Public goods and common resources. Monopoly. High transactions costs. |
| What are price regulations? | Price regulations sometimes put a block of the price adjustments and lead to underproduction. |
| What are quantity regulations? | Quantity regulations that limit the amount that a farm is permitted to produce also leads to underproduction. |
| What are taxes? | Taxes increase the prices paid by buyers and lower the prices received by sellers. |
| What are subsidies? | Subsidies lower the prices paid by buyers and increase the prices received by sellers. |
| What is an externality? | An externality is a cost or benefit that affects someone other than the seller or the buyer of a good. (environment) overproduction. |
| What are public goods and common resources? | A public good benefits everyone and no one can be excluded from its benefits. It is in everyone’s self-interest to avoid paying for a public good (called the free-rider problem), which leads to underproduction. |
| What is a common resource? | A common resource is owned by no one but used by everyone. It is in everyone’s self interest to ignore the costs of their own use of a common resource that fal on others (called tragedy of the commons), which leads to overproduction. |
| What is a monopoly? | A monopoly is a firm that has sole provider of a good or service. The self-interest of a monopoly is to maximize its profit. To do so, a monopoly sets a price to achieve its self-interested goal. |
| What are transaction costs? | Transactions costs are the opportunity costs of making trades in a market. To use market prices as the allocators of scarce resources, it must be worth bearing the opportunity cost of establishing a market. |
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