Term
| Efficient Market Hypothesis |
|
Definition
| theory that markets combine all available information into the current price |
|
|
Term
|
Definition
| imbalances in the information when one party knows more than the other |
|
|
Term
|
Definition
arises whenever those who are the worst risks are the ones most likely to be a part of a transaction
EX- prevents lenders from making loans, dating services |
|
|
Term
|
Definition
occurs because of a change in behavior AFTER a transaction or policy is completed
EX- Insurance, Loans (paying off debts) |
|
|
Term
|
Definition
a conflict exists between agents charged with carrying out the wishes of absentee owners (own objectives over firms principals & goals)
EX- travelling first class, company vehicles, extravagant expense accounts |
|
|
Term
| Eliminate Adverse Selection |
|
Definition
get more information
EX- mechanic look at the used car first |
|
|
Term
|
Definition
fix incentive structure
EX- require collateral for a loan |
|
|
Term
| Eliminate Principal-Agent |
|
Definition
| make more frequent observations |
|
|
Term
|
Definition
| spending more than your income |
|
|
Term
|
Definition
| when you save a portion of your income for future consumption |
|
|
Term
|
Definition
|
|
Term
|
Definition
| the price of earlier availability |
|
|
Term
| Positive Pure Rate of Interest |
|
Definition
| more positive time preference users than negative time preference |
|
|
Term
|
Definition
| the price you pay to compensate the lender for the risk of you paying of the loan |
|
|
Term
|
Definition
| the price you pay to compensate the lender for the change in prices between the time you borrow the funds and when you payoff the loan |
|
|
Term
|
Definition
| taking the sure thing even when it pays less |
|
|
Term
|
Definition
| risk tolerance changes from risk aversion to risk taking |
|
|
Term
|
Definition
easy to form and dissolve, simple decision making, profit is taxed once
unlimited liability |
|
|
Term
|
Definition
| owner of firm is personally responsible for all debts |
|
|
Term
|
Definition
easy to form, relatively easy to dissolve, simple decision making, profit is taxed once
permits more effective specialization |
|
|
Term
|
Definition
1) Persons own share in company
2) Limited Liability
3) Can raise large sums of money |
|
|
Term
| Corporations Disadvantages |
|
Definition
1) Double Taxation
2) Separation of ownership and control |
|
|
Term
| The Law of Diminishing Returns |
|
Definition
| an increased number units of a variable factor in the production process are applied to a fixed set of resources, output will eventually increase by smaller and smaller amounts |
|
|
Term
| Minimium Efficient Scale (MES) |
|
Definition
| the lowest rate of output per unit time at which long-run average costs for a particular firm are at a minimum |
|
|
Term
|
Definition
| high degree of competition due to low barriers to entry |
|
|
Term
|
Definition
| less competition and often time high prices |
|
|
Term
|
Definition
costs that have already been incurred as a result of past decisions.
historical costs that are irrelevant because they are no longer an opportunity cost |
|
|
Term
|
Definition
| attachment to existing item that prevents you from switching to a newer, better option |
|
|
Term
|
Definition
study of how society is organized
provide incentives to produce goods and services that others want |
|
|
Term
| What does it take to create Pure Competition? |
|
Definition
1) The firms in the market produce identical products
2)A large number of firms exist in the market
3)Each firm supplies only a very small portion of the market
4)Firms are free to enter and leave the market |
|
|
Term
|
Definition
| the price taker will expand output until marginal revenue is just equal to the marginal cost |
|
|
Term
|
Definition
| condition for stopping production at the point where profit opportunities no longer exist |
|
|
Term
|
Definition
| production continues to be profitable and firm should expand production |
|
|
Term
|
Definition
| firm is producing too much |
|
|
Term
|
Definition
| occurs whenever the firm producces at the level consistent to the minimum point on the ATC curve |
|
|
Term
|
Definition
| occurs when the price charged is equal to the MC of production |
|
|
Term
|
Definition
| the idea that markets serve the common good |
|
|
Term
|
Definition
| a market that is a single seller who produces a well-defined product for which there are no good substitutes. |
|
|
Term
|
Definition
1) Ownership of resources without close substitutes
2) Problems raising adequate capital
3) Economies of scale
- low unit costs and prices drive out rivals |
|
|
Term
|
Definition
| exists when a business sells a given prodcut at more than one price with difference being unrelated in difference in cost |
|
|
Term
|
Definition
competing to become a monopolist
resources will be wasted in attempt to secure and maintain grants of market protection |
|
|
Term
|
Definition
1) Restructure the industry in order to create rivals
2) Reduce trade barriers
3) Regulate Producers with monopoly power |
|
|
Term
|
Definition
| The theory that there are no predictable trends in stock prices that can be used to "get rich quick". |
|
|
Term
|
Definition
| information that is not available to the general public about what is happening in a corporation |
|
|
Term
|
Definition
| the value of a future amount expressed in today's dollars |
|
|
Term
|
Definition
| ___ = Future Value/ 1 + interest rate (i) |
|
|
