All Flashcards
How does a subsidy affect the marginal cost of a good?
A subsidy decreases the marginal cost, encouraging more consumption.
How does a tax affect the marginal cost of a good?
A tax increases the marginal cost, discouraging consumption.
How can cost-benefit analysis be used to evaluate environmental regulations?
It weighs the costs of implementing the regulations against the benefits of reduced pollution and improved health.
How might a price ceiling affect consumer surplus?
A price ceiling may increase consumer surplus for some consumers but decrease it overall due to shortages.
How might a price floor affect producer surplus?
A price floor may increase producer surplus for some producers but decrease it overall due to surpluses.
What are potential drawbacks of using cost-benefit analysis for public projects?
Difficulty in accurately quantifying all costs and benefits, especially intangible ones.
How does cost-benefit analysis help in deciding whether to implement a public health program?
It helps in comparing the costs of the program (e.g., vaccinations) with the benefits (e.g., reduced disease incidence).
How does a minimum wage policy affect the marginal cost of labor for firms?
It increases the marginal cost of labor.
What is the impact of rent control on the availability of housing?
Rent control can lead to a shortage of available housing.
What are the potential unintended consequences of a policy designed to promote renewable energy?
Increased energy costs for consumers, dependence on subsidies, and environmental impacts from resource extraction.
In a graph of MB and MC, what does the intersection point represent?
The optimal quantity where total benefit is maximized (MB = MC).
On a MB/MC graph, what does the area where MB > MC indicate?
Consuming more of the good will increase total benefit.
On a MB/MC graph, what does the area where MB < MC indicate?
Consuming less of the good will increase total benefit.
How would a change in price affect the MC curve?
An increase in price would shift the MC curve upward.
How would increased consumer preference affect the MB curve?
Increased consumer preference would shift the MB curve upward.
If the MC curve shifts upward, what happens to the optimal quantity?
The optimal quantity decreases.
If the MB curve shifts upward, what happens to the optimal quantity?
The optimal quantity increases.
What does the area under the MB curve represent?
Total Benefit.
What does the area under the MC curve represent?
Total Cost.
How does the steepness of the MB curve relate to diminishing marginal utility?
A steeper MB curve indicates a faster rate of diminishing marginal utility.
How does the concept of opportunity cost apply when deciding whether to attend college?
It includes tuition, fees, books, and forgone wages from not working full-time.
How does diminishing marginal utility explain why you eventually stop eating pizza?
Each slice provides less satisfaction than the previous one, until the additional satisfaction is not worth the cost.
Explain how marginal analysis helps a business decide how much to produce.
A business should produce as long as the marginal benefit (revenue) exceeds the marginal cost.
How does cost-benefit analysis apply to government decisions about building a new highway?
The government must weigh the costs of construction against the benefits of reduced travel time and increased commerce.
How does opportunity cost affect the decision to start a business?
It includes the salary you could be earning at another job and the return you could get from investing your capital elsewhere.
If MB > MC, what should a consumer do?
Consume more of the good or service.
If MB < MC, what should a consumer do?
Consume less of the good or service.
If MB = MC, what should a consumer do?
Maintain the current level of consumption, as total benefit is maximized.
Explain how implicit costs impact a business's profit differently than explicit costs.
Implicit costs are not recorded in accounting statements, but they are crucial for economic decision-making when considering profitability.
How does understanding marginal analysis help in personal budgeting decisions?
It helps in deciding whether the additional satisfaction from buying one more item is worth the additional cost.