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Econ Midterm
My flashcards
| Question | Answer |
|---|---|
| Utility | Utility is the satisfaction from consuming goods. Marginal utility is the added satisfaction from one more unit, which usually decreases with each use. |
| Price Changes | A price change causes a substitution effect (switching to cheaper goods) and an income effect (change in buying power), explaining why demand changes with price. |
| Utility Maximization | A consumer maximizes utility when marginal utility per dollar is equal across goods. Equal marginal utility alone doesn’t confirm this without knowing prices. |
| Consumption vs. Saving | Rational consumers balance spending and saving so the benefit per dollar is equal now and in the future, based on their preferences and interest rates. |
| Definition of Utility Misconception | Utility isn’t about use; it’s the satisfaction or pleasure from consuming something, like enjoying a slice of pizza. |
| Downward-Sloping Demand Curve | Demand curves slope downward because lower prices increase the relative attractiveness of a good (substitution effect) and raise consumers’ effective purchasing power (income effect), leading to greater quantity demanded. |
| Giffen Goods | Giffen goods are inferior goods where demand rises as price increases, often due to lack of substitutes. Some alcohol use may show this under minimum pricing. |
| Inferior Goods Example | If demand drops as income rises, the good is inferior—like cheaper baby food losing out to better brands as incomes grow. |
| Ticket Bots and Profit | Bots profit from low ticket prices and high resale values. Sellers could raise prices but often don’t due to fairness and public image. |
| Health Care Markets | The U.S. health care market is unique—government and insurers pay most costs, and consumers don’t make fully independent choices. |
| Health Improvements | U.S. health has improved with longer lives and better care, but issues like obesity remain a challenge. |
| Income and Health | Higher national income improves health through better food, sanitation, and medical research. |
| PPF Shifts and Health | Better health boosts the workforce and shifts the PPF outward; health crises reduce it. |
| Declining Mortality | U.S. death rates fell due to less smoking and better care, though obesity-related deaths rose. |
| Long-Term Health Trends | In 170 years, infant mortality dropped, life expectancy doubled, and average height increased. |
| Socialized Medicine | Socialized medicine means government-run care, like in the UK—unlike Canada’s single-payer or the U.S. private model. |
| Health Insurance | Most Americans have employer-based or government insurance; the U.S. uses a mixed system, unlike Canada’s universal one. |
| Single-Payer System | Canada’s government pays for all care. Other countries, like Japan, use regulated multipayer systems. |
| Socialized Medicine | The government owns hospitals and employs doctors, unlike private systems. |
| Tax Treatment of Insurance | Equal tax treatment for all health insurance could boost competition and lower premiums but may raise out-of-pocket costs. |
| Perfect Competition Supply Curve | A firm’s short-run supply is its marginal cost curve above average variable cost. |
| Short-Run Decline | If price drops below cost, firms may temporarily shut down to cut losses. |
| Short-Run Profits | Higher demand raises prices and profits, but new firms enter, reducing profits over time. |
| Long-Run Equilibrium | Firm entry boosts supply, lowers prices, and eliminates economic profits in the long run. |
| Case of Ardenia | Profits attract new firms, increasing supply and lowering prices until profits disappear. |
| NYT Paywall | The paywall segments readers by willingness to pay, boosting revenue through price discrimination. |
| Price Elasticity | Firms charge more to inelastic-demand consumers and less to elastic ones to boost revenue. |
| Price Discrimination Over Time | Firms vary prices over time—like airlines charging more during peak periods or books priced high at release. |
| Examples of Price Discrimination | Airlines and theaters charge different prices based on customer type or time, without cost differences. |
| Resale Restrictions | When resale isn’t possible, firms can price discriminate more effectively. |
| Book Publishing | Hardcovers target loyal buyers first; cheaper paperbacks follow for budget-conscious readers. |
| Robinson-Patman Act | This 1936 law bans unfair price discrimination that harms competition in wholesale markets. |
| Celler-Kefauver Act | Passed in 1950, it blocked anticompetitive mergers done through asset purchases. |
| Antitrust Laws | These laws stop monopolies, price fixing, and unfair mergers to protect market competition. |
| Sherman Act | Passed in 1890, it banned monopolies and efforts to restrain trade. |
| Monopolistic Competition & Consumer Welfare | Offers more variety than perfect competition but with higher prices and less cost efficiency. |
| Efficiency in Long-Run | Perfect competition is efficient; monopolistic competition has excess capacity and higher costs. |
| Monopolistic vs. Perfect Competition | Monopolistic firms price above marginal cost, unlike perfect competition, giving them market power. |
| Diseconomies of Scale | Large firms can become inefficient, while smaller firms in competitive markets may have lower costs. |
| Barriers to Entry | Patents, licenses, and quotas can block entry and protect oligopolies. |
| Oligopolies | Few firms dominate due to scale economies, high entry barriers, and strategic behavior. |
| Technological Change | Positive change boosts output or reduces inputs; negative change lowers productivity. |
| Xylo Case (Profits) | Lower costs and higher demand should boost profits, but weak sales could still lead to losses. |
| Xylo Case (Sales) | Subsidies can raise demand, challenging Wilma’s concerns. Incentives drive solar panel sales. |
| Rent Control | Price ceilings cause shortages—helping current renters but hurting new ones and landlords. Black markets may appear. |
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