Term
| Demand-Side market failure |
|
Definition
where demand curve doesnt fully show what consumers are willing to pay for a good
"problem with public goods"
ex. fireworks |
|
|
Term
| supply side market faulure |
|
Definition
when suppply curves dont fully reflect the full cost of producing a good or service
Problem of Externalities
pollution from a plant |
|
|
Term
|
Definition
| the difference between the maximum price a consumer is willing to pay for a product and the actual price of the product |
|
|
Term
| calculate consumer surplus |
|
Definition
| max price willing to pay-actual price |
|
|
Term
graph consumer surplus
and calculate from graph |
|
Definition
|
|
Term
C. Producer Surplus
def
calculate
graph it
calculate from graph |
|
Definition
the difference between the actual price a producer receives and the minimum price they are willing to receive (and still produce the product)
calc: actual price-minimum Acceptable price
graph: page 96
calculate from graph: area of ps triangle |
|
|
Term
|
Definition
when mb=mc
max willingness to pay=min accept price
economic surplus (cs+ps) is at max
(shown on 96) |
|
|
Term
|
Definition
| reduction in economic surplus resulting from overproduction or underproduction |
|
|
Term
|
Definition
| once one person uses it, no one else can |
|
|
Term
|
Definition
| anyone who does not pay can use it |
|
|
Term
|
Definition
|
|
Term
|
Definition
must pay but othesrs can use it
ex. toll road |
|
|
Term
|
Definition
fish in river or rublic grazing land
(rival nonexclude) |
|
|
Term
|
Definition
national defense
court system |
|
|
Term
|
Definition
low or nonexistant demand curve
demand side market failure |
|
|
Term
| optimal quantity of public goods |
|
Definition
vertical adding to obtain collective willingness to pay
demand curve cannot be determined
mb=mc (optimal) |
|
|
Term
|
Definition
| result of inequality in cost or benefits |
|
|
Term
|
Definition
|
|
Term
|
Definition
|
|
Term
|
Definition
|
|
Term
|
Definition
| private cost+exterbal cost (ex. contaminated water) |
|
|
Term
|
Definition
when producers dont take full scoail loss into account
market failure on supply side
see 105
causes dwl on right side |
|
|
Term
| correcting negative externality |
|
Definition
1. direct control-pass legislation limiting an activity. would raise mc of production bc firms have to maintain pollution control
2. Market for Externality rights-cap and trade of co2
3. specific taxes-related to particual good ex. tax raises marginal cost of production by two |
|
|
Term
| correcting positive externality |
|
Definition
1. subsidies to buyers-coupons, vouchers
2. subsidies to producers-tax in reverse (lower marginal cost of production)
3. government provision-rare case occurrs when a huge positive externality-government will give it for free, like a polio vaccination |
|
|
Term
|
Definition
under right conditions, individuals can engage in private bargaining w/out the need for government intervention
ex. a bee farmer
get a graph of this foolishness in 109 |
|
|
Term
| optimal externality reduction |
|
Definition
where mb=mc og 109
some foolishness about polluction |
|
|
Term
|
Definition
| total amount of satisfaction a person gets from consuming a quantity of a good |
|
|
Term
|
Definition
| "extra" satisfaction that a consumer gets from an additional good |
|
|
Term
| law of diminishing marginal Utility |
|
Definition
| added satisfaction declining as a consu,er acquires additional units or a given product |
|
|
Term
|
Definition
|
|
Term
|
Definition
|
|
Term
| consumer choice (4 things) |
|
Definition
1. i rational
has compete preferences
obeys a budget constraint
does not affect Price |
|
|
Term
|
Definition
| consumers want the grestest level of satisfaction |
|
|
Term
|
Definition
| consumers have clear preferences |
|
|
Term
|
Definition
| consuers have a fixed income at any given time |
|
|
Term
|
Definition
| price is unaffected by the amount an individual buys |
|
|
Term
|
Definition
| Consumers want the greatest satisfaction they can obtain within their budget |
|
|
Term
|
Definition
shows all combinations of two goods that gives us the same total satisfaction utility
further out higher utilility |
|
|
Term
|
Definition
| monetary payments to purchase resources the firm doesnt own |
|
|
Term
|
Definition
| opportunity costs of using resources already owned by the firm to make a product instead of selling them for cash |
|
|
Term
| calculate accounting profit |
|
Definition
| Total revenue-explicit cost (ec=ac) |
|
|
Term
|
Definition
| total revenue-implicit cost-explicit cost |
|
|
Term
|
Definition
| cost that doesnt vary w/changes in output ie- rent |
|
|
Term
|
Definition
| cost that change with the level of output |
|
|
Term
|
Definition
|
|
Term
|
Definition
| Total fixed cost/quantity |
|
|
Term
| Average variable cost (avc) |
|
Definition
|
|
Term
|
Definition
|
|
Term
marginal cost
calculated by |
|
Definition
additional cost of producing one more unit of output
MC=Change in TC |
|
|
Term
|
Definition
higher output
lowerATC
from specializationa and efficient equipment |
|
|
Term
| characteristics of pure competition (four of em) |
|
Definition
very large number of firms
standardized product
"price-takers"
free entry into and exit from the market |
|
|
Term
|
Definition
|
|
Term
|
Definition
revenue per unit (price)
AR=P |
|
|
Term
|
Definition
|
|
Term
|
Definition
change in TR from selling one more unit
MR=P |
|
|
Term
| should produce where MC O MR |
|
Definition
MC=MR
round down if hitting fraction |
|
|
Term
|
Definition
occurs when P=MC=MinATC
economic profit is equal to zero in logrun
basically long run |
|
|
Term
|
Definition
producing a good in the least costly way
when P=minATC |
|
|
Term
|
Definition
distributing resources to produce goods most wanted by customers
when P=MC |
|
|
Term
| steps of restoring market equilibrium |
|
Definition
demand increase
price increase
firms make profit
more firms enter
supply increases
price decreases
equilibrium |
|
|
