1
Q
What is a market failure?
A
when markets fail to produce desirable outcomes
2
Q
What are externalities?
A
the costs or benefits that affect a third party
3
Q
What are negative externalities?
A
when a decision imposes harm on others
4
Q
What are positive externalities?
A
when a decision imposes positive effects on others
5
Q
What does the Coase Theorem, developed by Ronald Coase, state?
A
parties should be able to be able to resolve inefficiencies created by externalities
6
Q
What are all the types of goods? (4)
A
private goods, collective goods, common resources, and public goods
7
Q
What type of good are food, clothes, and cars? (rival and excludable)
A
private goods
8
Q
What type of good are roads and fishing ponds? (rival and non-excludable)
A
common resources
9
Q
What type of good are toll roads and electricity? (nonrival and excludable)
A
collective goods
10
Q
What type of good are national defense and air? (nonrival and non-excludable)
A
public roads
11
Q
What are markets that only have a few suppliers?
A
imperfectly competitive
12
Q
How is the curve of an imperfectly competitive market?
A
downward sloping
13
Q
Until 2000, DeBeers owned what percent of diamond mines?
A
80%
14
Q
Patents provide rights to something for how many years?
A
20 yearsW
15
Q
What causes natural monopolies?
A
economies of scale
16
Q
When was AT&T broken up for being a monopoly?
A
1984
17
Q
What is price discrimination?
A
charging different consumers different prices
18
Q
What does price discrimination allow monopolies to do?
A
capture more profits
19
Q
A
20
Q
What must happen for price discrimination to be successful?
A
it must be able to separate different groups based on demand elasticity AND it must be able to prevent the resale of products
21
Q
What is a market with a few independent firms?
A
oligopoly
22
Q
What do competitors in an oligopoly compete on?
A
nonprice competition
23
Q
What type of market is OPEC?
A
OPEC is a cartel lol
24
Q
What does OPEC stand for?
A
Organization of Petroleum Exporting Countries
25
What is a cartel?
a group of firms that cooperate to raise prices artificially
26
What is collusion? (that often occurs in oligopolies)
occurs in cartels, when firms raise prices through artificial competition
27
What law gives the government the power to break up monopolies?
the 1890 Sherman Anti-Trust Act
28
In 1986, oil prices to dropped to this much as a result of OPEC lifting production limits?
$13 a barrel
29
What is the most common type of market model in economics?
monopolistic competition
30
What is monopolistic competition?
when varying firms compete to serve variations of a similar product
31
How are barriers to entry in a monopolistically competitive markets?
low
32
Why is advertising not needed in a perfectly competitive market?
because all products are identical
33
What is the least competitive and least efficient market?
a monopoly
34
What is the most competitive and efficient market?
perfect competition
35
How can entrepreneurs create a legal monopoly?
through patents
36
What is creative destruction, coined by Joseph Schumpter?
when potential profits encourage firms to figure out how to overcome barriers to entry
37
What mitigates the impacts of imperfect competition?
collective decision-making
38
What do markets rely on to ensure they function properly?
institutions
39
What are institutions?
formal or informal rules that structure human interaction and facilitate exchange
40
How do organizations differ from institutions?
organizations have more formal rules and structures
41
What do institutions and organizations require to be effective?
voluntary cooperation
42
Governments have which two powers?
taxation and price controls
43
Governments have a __________ on the legitimate use of force.
(legal) monopoly
44
Is supply and demand for housing in a city in the short-term highly elastic or inelastic?
highly inelastic
45
What does a marginal tax (ex: sales tax) create?
a price difference between producer revenue and consumer cost (since some money goes to the government)
46
How does the US affect the sugar market?
it supports domestic sugar while restricting sugar imports
47
Due to government intervention, sugar prices in the US are twice the world average. This costs consumers how much money yearly?
$1 billion a year
48
What is pork and barrel politics?
steering money to officials' local districts through projects
49
In 2010, how much of the federal budget was consumed from pork and barrel projects?
0.45%
50
How do pork and barrel projects affect benefits?
it redirects benefits, rather than creating them
51
What are the 2 main concerns of macroeconomics?
long-run and short-run concerns
52
What are the long-run concerns of macroecon?
size of economy, standard of living, and price level
53
What are the short-run concerns of macroecon?
level of econ activity, unemployment, inflation
54
Money is any item that fulfills which 3 functions?
acts as a medium of exchange, uses a unit of account for the values of goods, and acts as a store of value
55
What is wealth in economics?
all the value in the economy
56
What is liquidity?
the ease of converting an asset into a medium of exchange
57
What is the most liquid asset?
currency
58
What is money supply?
the amount of liquid assets in an economy
59
What are examples of commodity money?
gold and silver
60
During WWII, what commodity money was used by POWs?
cigarettes
61
What comprises most of the world's money today?
fiat money
62
Where does fiat money derive it's worth from?
the government
63
What is a fiat?
an order or decree
64
In Early America, what did the government exchange money for?
silver
65
What are demand deposits?
money stored in accounts
66
What are demand deposits more commonly known as?
savings deposits
67
What are time deposits?
money stored in accounts that cannot be withdrawn for a predetermined period of time
68
What are Eurodollars?
dollar accounts held outside the US
69
Are credit cards money?
No
70
What are credit cards considered?
a type of temporary loan
71
What is the narrowest possible definition of money supply?
Monetary Base, or M0
72
What is M0?
all liquid money
73
What is M1?
very liquid forms of money like currency, used in transactions
74
What type of money is considered the best definition of money supply?
M2
75
What is M2?
everything in M1, time deposits of 100k+, and money market funds
76
At what amount are time deposits considered small?
<100k
77
How does M2 compare to M1 on liquidity?
M2 is less liquid
78
The CPI has increased over 7 times from 29.6 in 1960 to how much in 2008?
215.3
79
Why has CPI increased so much?
because money has lost value
80
Who sets the money supply, which is inelastic?
the Fed
81
What do financial institutions coordinate?
the saving and investment savings decisions within the economy
82
What does debt finance involve?
bond issuance
83
What is the date of maturity in a bond/loan?
when the loan must be repaid
84
What is the original amount of a bond called?
principal
85
Why can the US gov borrow money at lower rates?
because it is considered a safe credit risk
86
What is the risk of purchasing a bond?
the risk of the issuer defaulting if they declare bankruptcy
87
Most companies use what 2 types of financing tools?
equity and debt finance
88
If a company runs into trouble, who receives payments before shareholders?
bondholders
89
What do bondholders get from bonds?
interest payments
90
What do shareholders get if a company does well?
dividends
91
What is an intermediary?
a 3rd party that connects other actors
92
What does the amount of money in the US depend on?
the public, commercial banks, and the Federal Reserve System
93
When was the Federal Reserve created?
1913
94
How many regional banks are part of the Federal Reserve?
12
95
Why do Federal Reserve members (7) have long terms of 14 years?
to protect them from political pressure
96
What is the Federal Open Market Committee (FOMC) composed of?
7 governors, the president of NY regional bank, and 4 rotating regional bank presidents
97
How often does FOMC (Federal Open Market Committee) meet?
every 6 weeks (in DC)
98
What does FOMC (Federal Open Market Committee) assess?
the economy and if changes in monetary policy are necessary
99
Why is the reserve requirement rarely changed?
because it requires large adjustments by banks
100
What is fractional reserve banking?
when banks keep a fraction of their deposits and loan out the rest
101
What is a bank run?
a rush of depositors to the bank who withdraw deposits
102
What are solvent banks?
banks whose assets exceed their liabilities
103
How do banks finance bank runs?
they borrow from the fed
104
What does contractionary policy do to money supply?
it makes the money supply decrease
105
What does expansionary policy do to money supply?
it makes the money supply increase
106
What is GDP made up of?
production, income, and expenditures
107
What are the 2 types of international capital flows?
Foreign Direct Investment (FDI) and Portfolio Investment
108
What is FDI?
when someone acquires assets in a foreign country
109
Mitsubishi bought what US building in 1989?
the Rockefeller Center
110
What does Net Capital Outflow (NCO) equal?
purchase of foreign capital by citizens - the foreign purchase of domestic assets
111
What is the real interest rate formula?
the nominal interest rate minus the rate of inflation
112
What equation describes the relationship between interest rates and inflation?
the Fisher Equation
113
If the real interest rate is higher, will more or less people save?
more since they will gain more money from interest
114
Will businesses invest more or less if the interest rate is low?
more because they don't have to pay as much for loans
115
Since when has inflation been positive in the US? (war)
WWII
116
What do governments use to measure inflation?
the Consumer Price Index (CPI)
117
What are the limitations of CPI?
Can't account for new items or tech, substitution biases (where people substitute an item for a cheaper one that isn't included in the CPI), doesn't account for changes in quality
118
Does CPI overstate or understate the cost of living?
overstate
119
Michael Boskin in 1996 found that CPI overstates inflation by how much?
1.3% a year
120
What is a CPI alternative that corrects for increases in GDP?
GDP deflator
121
What are the 2 main differences between GDP deflator and CPI?
GDP deflator only reflects domestic goods and they both weight goods and services differently
122
Why is GDP deflator only published once a year?
because it is difficult to calculate
123
What is the main limitation of both GDP deflator and CPI?
they can't account for changes in quality
124
What is Gross Domestic Product (GDP)?
the market value of all goods and services produced in a country under a specific period
125
What type of goods don't count toward GDP?
intermediate goods, or goods used in the process of making an end product
126
Why is excluding intermediate goods in GDP good?
because it ensures GDP is not affected by vertical integration
127
What are capital goods?
goods used to produce other goods or services, ex: factories
128
When do capital goods account for GDP?
when they are first produced
129
Who invented the concept of GDP in 1934?
Simon Kuznets
130
Who commissioned Simon Kuznets to make GDP in 1932?
the Department of Commerce
131
What are the 3 main limitations of GDP?
it's not always easy to determine a final product, it excludes goods not bought and sold in markets, and it ignores the negative impacts of activities, like pollution
132
How is Real GDP calculated?
it takes the nominal GDP and adjusts it for inflation
133
Since 1900, US GDP has increased by how much?
32x
134
Output has grown (faster/slower) than population since 1900.
faster
135
What model shows the relationship between different sectors of the economy?
the circular flow model
The Royal Compendium #2
flashcards
Decks in class (32)
# Cards
-
Science Section I103
-
Science Section II50
-
Science Section 39
-
Science Power Guide55
-
Literature Fundamentals51
-
Literature Section II79
-
Lit Section III50
-
Lit Section 4 (Short Stories)8
-
Lit Cram Kit22
-
Literature cram kit S4105
-
Literature Power Guide12
-
The Great Gatsby43
-
Economics Fundamentals74
-
Econ S2130
-
Econ S46
-
Econ Power Guide135
-
Art Fundamentals250
-
Art S257
-
Art S356
-
Art Power Guide34
-
art cram kit300
-
SS 138
-
SS 256
-
SS Cram Kit44
-
Music S165
-
Music S214
-
Music S328
-
Music S459
-
Music Cram Kit6
-
New music cram kit162
-
MATH!!! Desmos approved12
-
Econ S3 + S4 Cram Kit74
