Socially Efficient and Inefficient Market Outcomes - AP Microeconomics
Card 1 of 30
State the Coase Theorem.
State the Coase Theorem.
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Efficient outcomes can be achieved with private bargaining. Assumes low transaction costs and clear property rights.
Efficient outcomes can be achieved with private bargaining. Assumes low transaction costs and clear property rights.
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What happens when MSB exceeds MSC?
What happens when MSB exceeds MSC?
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Underproduction occurs. Market quantity below socially optimal level.
Underproduction occurs. Market quantity below socially optimal level.
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What outcome is achieved by internalizing an externality?
What outcome is achieved by internalizing an externality?
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Achieves social efficiency. Makes external costs and benefits part of market decisions.
Achieves social efficiency. Makes external costs and benefits part of market decisions.
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Identify the market outcome if goods are underproduced.
Identify the market outcome if goods are underproduced.
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Socially inefficient due to positive externalities. Market produces less than socially optimal quantity.
Socially inefficient due to positive externalities. Market produces less than socially optimal quantity.
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What is a common solution for a positive externality?
What is a common solution for a positive externality?
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Government subsidy. Compensates for external benefits causing underproduction.
Government subsidy. Compensates for external benefits causing underproduction.
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What is the role of property rights in market efficiency?
What is the role of property rights in market efficiency?
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Clarified rights can lead to efficient outcomes. Clear ownership enables efficient bargaining solutions.
Clarified rights can lead to efficient outcomes. Clear ownership enables efficient bargaining solutions.
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Which term describes a benefit to non-buyers and non-sellers?
Which term describes a benefit to non-buyers and non-sellers?
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External benefit. Positive spillover effects to third parties.
External benefit. Positive spillover effects to third parties.
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What outcome results from a subsidy on production?
What outcome results from a subsidy on production?
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Increases supply, reducing social inefficiency. Encourages more production when external benefits exist.
Increases supply, reducing social inefficiency. Encourages more production when external benefits exist.
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What is an example of a public good?
What is an example of a public good?
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National defense. Non-excludable and non-rivalrous good requiring government provision.
National defense. Non-excludable and non-rivalrous good requiring government provision.
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Find the socially optimal quantity on a demand curve.
Find the socially optimal quantity on a demand curve.
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Where MSB equals MSC. Point where social marginal benefit equals social marginal cost.
Where MSB equals MSC. Point where social marginal benefit equals social marginal cost.
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Identify a cause of market failure.
Identify a cause of market failure.
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Externalities. When markets fail to account for external effects.
Externalities. When markets fail to account for external effects.
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What does a deadweight loss indicate in a market?
What does a deadweight loss indicate in a market?
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Loss of economic efficiency. Shows society is worse off than at optimal allocation.
Loss of economic efficiency. Shows society is worse off than at optimal allocation.
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What does internalizing an externality mean?
What does internalizing an externality mean?
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Adjusting market incentives to reflect external costs/benefits. Making external effects part of private cost-benefit calculations.
Adjusting market incentives to reflect external costs/benefits. Making external effects part of private cost-benefit calculations.
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What happens when MSB exceeds MSC?
What happens when MSB exceeds MSC?
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Underproduction occurs. Market quantity below socially optimal level.
Underproduction occurs. Market quantity below socially optimal level.
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How does a Pigouvian tax affect supply?
How does a Pigouvian tax affect supply?
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Increases the cost of production, reducing supply. Forces producers to internalize external costs.
Increases the cost of production, reducing supply. Forces producers to internalize external costs.
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What is the role of government in public goods?
What is the role of government in public goods?
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Provision and financing. Government must supply non-excludable, non-rivalrous goods.
Provision and financing. Government must supply non-excludable, non-rivalrous goods.
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Find the equilibrium price in a market.
Find the equilibrium price in a market.
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Price where quantity supplied equals quantity demanded. Where supply and demand curves intersect.
Price where quantity supplied equals quantity demanded. Where supply and demand curves intersect.
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Which term describes failing to allocate resources efficiently?
Which term describes failing to allocate resources efficiently?
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Market failure. When markets don't achieve socially optimal outcomes.
Market failure. When markets don't achieve socially optimal outcomes.
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What happens when MSC exceeds MSB?
What happens when MSC exceeds MSB?
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Overproduction occurs. Market quantity above socially optimal level.
Overproduction occurs. Market quantity above socially optimal level.
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Find the deadweight loss area on a graph.
Find the deadweight loss area on a graph.
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Triangle between supply and demand curves. Area showing lost welfare from market inefficiency.
Triangle between supply and demand curves. Area showing lost welfare from market inefficiency.
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What is an external cost?
What is an external cost?
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A cost not reflected in the market price. Negative spillover not captured in market price.
A cost not reflected in the market price. Negative spillover not captured in market price.
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Which policy tool addresses positive externalities?
Which policy tool addresses positive externalities?
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Subsidies. Payments that encourage production with external benefits.
Subsidies. Payments that encourage production with external benefits.
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Which policy tool addresses negative externalities?
Which policy tool addresses negative externalities?
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Pigouvian tax. Tax that equals the marginal external cost.
Pigouvian tax. Tax that equals the marginal external cost.
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What is the outcome when goods are overproduced?
What is the outcome when goods are overproduced?
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Socially inefficient due to negative externalities. Market produces more than socially optimal quantity.
Socially inefficient due to negative externalities. Market produces more than socially optimal quantity.
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What defines a socially efficient market outcome?
What defines a socially efficient market outcome?
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Marginal social cost equals marginal social benefit. This occurs where social costs and benefits are balanced.
Marginal social cost equals marginal social benefit. This occurs where social costs and benefits are balanced.
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Identify the impact of a negative externality on supply.
Identify the impact of a negative externality on supply.
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Shifts supply curve leftward, increasing price. External costs raise true social cost of production.
Shifts supply curve leftward, increasing price. External costs raise true social cost of production.
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What does MSB stand for in microeconomics?
What does MSB stand for in microeconomics?
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Marginal Social Benefit. Total benefit to society including external benefits.
Marginal Social Benefit. Total benefit to society including external benefits.
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Which condition indicates a market failure?
Which condition indicates a market failure?
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Marginal social cost differs from marginal social benefit. When social costs and benefits aren't equated.
Marginal social cost differs from marginal social benefit. When social costs and benefits aren't equated.
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What does deadweight loss represent in a market?
What does deadweight loss represent in a market?
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Loss of total social surplus due to inefficiency. Represents welfare lost when markets operate inefficiently.
Loss of total social surplus due to inefficiency. Represents welfare lost when markets operate inefficiently.
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Define a negative externality.
Define a negative externality.
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A cost suffered by a third party due to a transaction. External costs imposed on parties not in the transaction.
A cost suffered by a third party due to a transaction. External costs imposed on parties not in the transaction.
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