ECON 201 Test questions with
answers graded A+
The property of a good whereby one person's use diminishes by someone else's use -
ANS✅✅Rivalry in consumption
One person's consumption does not limit someone else from consuming or diminishing someone
else's use - ANS✅✅Non rivalry in consumption
the property of a good whereby a person can be prevented from using it - ANS✅✅Excludability
the property of a good whereby a person cannot be prevented from using it - ANS✅✅non
excludability
private goods (house, car, sweater, congested toll roads) - ANS✅✅Rival in consumption AND
excludable?
Common resources (fish in the ocean, clean water, congested NON toll roads) - ANS✅✅Rival in
consumption AND not excludable
Club goods (cable tv, uncongested toll road) - ANS✅✅NON rival in consumption AND excludable
Public goods (tornado siren, national defense, court system, radio waves, uncongested non toll road
way, basic research, fighting poverty) - ANS✅✅NON rival in consumption AND NON excludable
still receive public goods without contributing money - ANS✅✅Free rider
too many people don't contribute so to get efficient scale of provision, the gov't must provide due to
a private sector incentive problems - ANS✅✅The Free Rider Problem
A study that compares the costs and benefits to society of providing a basic good. - ANS✅✅Define
Cost/Benefit Analysis
, New Traffic light reduces chances of fatalities by 1/2%.
Human life = $10 million
Marginal Benefit of producing a new light
.005*10 mil = $50,000 MB
Install light at $10,000 MC
50,000 MB > MC $10,000
Yes, Install light - ANS✅✅Example of a Cost/Benefit Analysis
Overuse of a resource when property rights are not established and the resource is nonexcludable.
(clean air & water) - ANS✅✅Tragedy of the Commons (common resources)
"open access resource problem"
"common pool problem"
Private property rights, corrective taxes/regulations - ANS✅✅Solutions to the common pool
problem
maximize profit - ANS✅✅Primary Goal of the FIrm
total revenue - total cost = PROFIT - ANS✅✅Formula for PROFIT
the amount a firm receives for the sale of its output - ANS✅✅Define total revenue
the market value of the inputs a firm uses in production - ANS✅✅Define total cost
the agent undertakes an action that affects the principal. (hiring a contractor to fix your roof. You are
the principal and contractor is the agent) - ANS✅✅Principal-Agent Relationships
bad behaviors, lower than possible production, not keeping costs low - ANS✅✅define Shirking
payment schemes (incentives, managers, profit sharing)
Monitoring (floor managers, hidden cameras)
Precautionary measures - ANS✅✅Ways to control shirking
answers graded A+
The property of a good whereby one person's use diminishes by someone else's use -
ANS✅✅Rivalry in consumption
One person's consumption does not limit someone else from consuming or diminishing someone
else's use - ANS✅✅Non rivalry in consumption
the property of a good whereby a person can be prevented from using it - ANS✅✅Excludability
the property of a good whereby a person cannot be prevented from using it - ANS✅✅non
excludability
private goods (house, car, sweater, congested toll roads) - ANS✅✅Rival in consumption AND
excludable?
Common resources (fish in the ocean, clean water, congested NON toll roads) - ANS✅✅Rival in
consumption AND not excludable
Club goods (cable tv, uncongested toll road) - ANS✅✅NON rival in consumption AND excludable
Public goods (tornado siren, national defense, court system, radio waves, uncongested non toll road
way, basic research, fighting poverty) - ANS✅✅NON rival in consumption AND NON excludable
still receive public goods without contributing money - ANS✅✅Free rider
too many people don't contribute so to get efficient scale of provision, the gov't must provide due to
a private sector incentive problems - ANS✅✅The Free Rider Problem
A study that compares the costs and benefits to society of providing a basic good. - ANS✅✅Define
Cost/Benefit Analysis
, New Traffic light reduces chances of fatalities by 1/2%.
Human life = $10 million
Marginal Benefit of producing a new light
.005*10 mil = $50,000 MB
Install light at $10,000 MC
50,000 MB > MC $10,000
Yes, Install light - ANS✅✅Example of a Cost/Benefit Analysis
Overuse of a resource when property rights are not established and the resource is nonexcludable.
(clean air & water) - ANS✅✅Tragedy of the Commons (common resources)
"open access resource problem"
"common pool problem"
Private property rights, corrective taxes/regulations - ANS✅✅Solutions to the common pool
problem
maximize profit - ANS✅✅Primary Goal of the FIrm
total revenue - total cost = PROFIT - ANS✅✅Formula for PROFIT
the amount a firm receives for the sale of its output - ANS✅✅Define total revenue
the market value of the inputs a firm uses in production - ANS✅✅Define total cost
the agent undertakes an action that affects the principal. (hiring a contractor to fix your roof. You are
the principal and contractor is the agent) - ANS✅✅Principal-Agent Relationships
bad behaviors, lower than possible production, not keeping costs low - ANS✅✅define Shirking
payment schemes (incentives, managers, profit sharing)
Monitoring (floor managers, hidden cameras)
Precautionary measures - ANS✅✅Ways to control shirking
