Econ 201 Test questions and
answers graded A+
Protective Function - ANS✅✅Government maintains a frame work of security and order - an
infrastructure of rules within which people can interact.
Production Function - ANS✅✅Government sometimes produces products that private markets
don't produce at efficient levels.
Externality - ANS✅✅Third party affected by market transaction.
External Costs - ANS✅✅When a third party bears a cost from market transaction in which they
take no part in. Ex. someones decision to smoke affecting those around them, texting and driving.
External Benefits - ANS✅✅When a third party benefits from a market transaction they take no
part in. Ex. personal hygiene, vaccinations.
Negative Externalities - ANS✅✅Overall impact on the market - market over provides the goods.
Positive Externalities - ANS✅✅Overall impact on the market - market under provides the goods.
Coase Thereom - ANS✅✅Private economic actor can potentially solve the problem of externalities
among themselves. Whatever the initial distribution of rights, the interested parties can reach a
bargain in which everyone is better off and the outcome is efficient.
Excludability - ANS✅✅Situation in which anyone who does not pay for a good cannot consume it.
Rivalry in Consumption - ANS✅✅Situation that occurs when one persons consuming a unit of good
means no one else can consume it or one persons use diminishes other persons use.
Nonexcludable - ANS✅✅A person cannot be prevented from using it.
, Non-rival in Consumption - ANS✅✅One persons consumption does not limit someone else's from
consuming diminishes someone else's use.
Free Rider - ANS✅✅Where people consume more than their fare share of a common resource or
pay less than their fair share of the cost of a common resource.
Free Rider Problems - ANS✅✅Market failure: private markets under provide public goods.
Government can provide public goods at efficient levels (forces us to pay taxes through taxation).
Cost-Benefit Analysis - ANS✅✅Basically "weighing the pros and cons before making a decision."
Tragedy of the Commons - ANS✅✅"Open access resource problem" and "common pool problem"
Open Access Resource Problem/Common Pool Problem - ANS✅✅Problem of overuse of a
resource when proper rights are not clearly established.
Primary goal of the firm - ANS✅✅Maximize profit
Total Revenue - ANS✅✅Amount a firm receives for sale of its output
Total Cost - ANS✅✅Market value of the inputs a firm used in production
Profit - ANS✅✅Profit = total revenue - total costs
Transaction Costs - ANS✅✅The costs that parties incur in the process of agreeing to and following
through on a bargain.
Economies of Scale - ANS✅✅Increases in efficiency that take place do to the increase the quantity
produced.
The property whereby long-run avg. total costs falls as the quantity of output increases.
answers graded A+
Protective Function - ANS✅✅Government maintains a frame work of security and order - an
infrastructure of rules within which people can interact.
Production Function - ANS✅✅Government sometimes produces products that private markets
don't produce at efficient levels.
Externality - ANS✅✅Third party affected by market transaction.
External Costs - ANS✅✅When a third party bears a cost from market transaction in which they
take no part in. Ex. someones decision to smoke affecting those around them, texting and driving.
External Benefits - ANS✅✅When a third party benefits from a market transaction they take no
part in. Ex. personal hygiene, vaccinations.
Negative Externalities - ANS✅✅Overall impact on the market - market over provides the goods.
Positive Externalities - ANS✅✅Overall impact on the market - market under provides the goods.
Coase Thereom - ANS✅✅Private economic actor can potentially solve the problem of externalities
among themselves. Whatever the initial distribution of rights, the interested parties can reach a
bargain in which everyone is better off and the outcome is efficient.
Excludability - ANS✅✅Situation in which anyone who does not pay for a good cannot consume it.
Rivalry in Consumption - ANS✅✅Situation that occurs when one persons consuming a unit of good
means no one else can consume it or one persons use diminishes other persons use.
Nonexcludable - ANS✅✅A person cannot be prevented from using it.
, Non-rival in Consumption - ANS✅✅One persons consumption does not limit someone else's from
consuming diminishes someone else's use.
Free Rider - ANS✅✅Where people consume more than their fare share of a common resource or
pay less than their fair share of the cost of a common resource.
Free Rider Problems - ANS✅✅Market failure: private markets under provide public goods.
Government can provide public goods at efficient levels (forces us to pay taxes through taxation).
Cost-Benefit Analysis - ANS✅✅Basically "weighing the pros and cons before making a decision."
Tragedy of the Commons - ANS✅✅"Open access resource problem" and "common pool problem"
Open Access Resource Problem/Common Pool Problem - ANS✅✅Problem of overuse of a
resource when proper rights are not clearly established.
Primary goal of the firm - ANS✅✅Maximize profit
Total Revenue - ANS✅✅Amount a firm receives for sale of its output
Total Cost - ANS✅✅Market value of the inputs a firm used in production
Profit - ANS✅✅Profit = total revenue - total costs
Transaction Costs - ANS✅✅The costs that parties incur in the process of agreeing to and following
through on a bargain.
Economies of Scale - ANS✅✅Increases in efficiency that take place do to the increase the quantity
produced.
The property whereby long-run avg. total costs falls as the quantity of output increases.
