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ECO 1304 > Final > Flashcards

Final Flashcards

1
Q

Four kinds of goods

A
  • private goods
  • club goods
  • common resources
  • public goods
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2
Q

Private goods

A

excludabe
rival in consumption
ie: clothing, congested toll rodes

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3
Q

Public goods

A

not excludable
not rival in consumption
ie: national defence, tornado siren

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4
Q

Common resources

A

not excludable
rival in consumption
ie: fish in the ocean, Crown land, congested non-toll roads

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5
Q

Club goods

A

excludable
not rival in consumption
ie: cable tv, fire protection, uncongested toll roads

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6
Q

Non-excludable

A

Producers cannot prevent particular individuals from enjoying its benefits.

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7
Q

Explicit costs

A

Input costs that require an outlay of money by the firm.

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8
Q

Implicit costs

A

Input costs that do not require an outlay of money by the firm.

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9
Q

Short-run

A

Time period where the number of firms in the industry and the amount of land and capital employed by existing firms towards the production of a good are fixed.

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10
Q

Long-run

A

Time period were all factors of production (FOP) are variable.

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11
Q

Monopoly

A

A market where one firm dominates the market for a good that has no substitutes and where significant barriers to entry exist.

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12
Q

Barriers to entry

A

Technical, competitive or cost-related impediments to joining a market and competing against the existing firms.

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13
Q

Natural monopoly

A

Occurs in a market where the lowest cost can be achieved when only one firm sells to the market. It is typically associated with large fixed start-up costs.

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14
Q

Price discrimination

A

Occurs when different prices are charged to different consumers for the same good by the same provider.

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15
Q

Marginal benefits

A

The additional utility or satisfaction derived by an increase or a decrease in the amount of an item consumed or an activity enjoyed.

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16
Q

Deadweight loss

A

The loss of welfare, utility or benefits to market participants, typically as a result of taxes, protectionist policies or externalities.

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17
Q

Shut-down rule

A

price of its output is less than its average variable cost of production.

(If the firms total losses exceed its total fixed costs, then the firm will minimise its losses by shutting down).

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18
Q

Monopolistic competition

A

A market is monopolistically competitive if there are many firms producing differentiated products and there are no barriers to entry.

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19
Q

Free Rider problem

A

A person who receives the benefit of a good but avoids paying for it

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20
Q

marginal changes

A

small incremental adjustments to a plan of action

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21
Q

inflation

A

an increase in the overall level of prices in the economy

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22
Q

cost-benefit analysis

A

A study that compares the costs and benefits to society of providing a public good.

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23
Q

Tragedy of the Commons

A

a parable that illustrates why common resources are used more than is desirable from the standpoint of society as a whole

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24
Q

allocative efficeny

A

perfect amount of goods in market

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25
fixed costs
costs that do not vary with the quantity of output produced
26
variable costs
costs that vary with the quantity of output produced
27
sunk cost
a cost that has already been committed and cannot be recovered
28
Economies of scale
when long-run average total cost falls as it increases production
29
Diseconomies of scale
when long-run average total cost increases as it increases production
30
Constant returns to scale
when it can increase production without changing long-run average total cost
31
Competitive market
A market in which there are many buyers and many sellers so that each has a negligible impact on the market price (price takers).
32
Three characteristics of economics
1. There are many buyers and many sellers in the market. 2. The goods offered by the various sellers are largely the same. 3. Firms can freely enter or exit the market.
33
Exit
refers to a long-run decision to leave the market
34
Moral hazard
The tendency of a person who is imperfectly monitored to engage in dishonest or otherwise undesirable behaviour
35
Agent
A person who is performing an act for another person, | called the principal
36
Principal
A person for whom another person, called the agent, is performing some act
37
Adverse selection
The tendency for the mix of unobserved attributes to become undesirable from the standpoint of an uninformed party
38
Signalling
An action taken by an informed party to reveal private information to an uninformed party
39
Screening
An action taken by an uninformed party to induce an informed party to reveal information
40
Two types of of asymmetric information
hidden action | hidden characteristic
41
Hidden action
employer doesn't see the work and effort only the results
42
Hidden Characteristic
true condition of a product trying to be sold
43
Factors of production
the inputs to produce goods and services
44
3 most important inputs
- labour - capital - land
45
Market for factors of production
- differ from the markets for goods and services - the demand for FP comes from the decision to supply goods - "demand demand"
46
Competitive firms
- many firms - some good - free entry and exit
47
Monopolies
- has no competitors - no perfect substitutes - power to influence the price
48
Comp. firms
- take price as given | - choose level of output (Q)
49
Causes of Monopolies
barrier to entry
50
3 forms of barrier to entry
1. monopoly owns a key resources - natural resource 2. gov't regulation - copyrights - patnets - licenses 3. Natural Monopolies - can supply the good at a lower cost
51
Price discrimination
- sell the same good at different prices - monopoly is a price maker - willingness to pay - age, occupation, etc. disocunts
52
Imperfect price discirmination
2nd and 3rd degree
53
2nd degree
buy one get one 50% off willingness to pay for the first unit is different than the 2nd
54
3rd degree
- segment the market and choices - different ticket prices for children - student pricing
55
Public Policy
- monopolies fail to allocate resources efficiently - quantity too low - price too high - competition law
56
Regulation
- regulate prices - subsidize the monopoly - no incentive for monopoly to lower costs
57
Public ownership
- gov't run monopolies - "crown corporations" - debated in news
58
profit formula
= total revenue (TR) | - total costs (TC)
59
variable cost
you sometimes have to pay this depending on the situation ex: penalty fee, attorney bill, seasonal workers
60
law of supply
The higher the price, the more producers are willing to supply
61
Total costs formula
= total variable costs | + total fixed costs
62
Average Fixed Cost formula
(1) TFC÷Qs (2) ATC − AVC (Quantity supplied to market by producers)
63
Average Variable Cost formula
(1) TVC÷Qs | (2) ATC − AFC
64
Average Total Cost formula
= AVC (average variable cost) | + AFC (average fixed cost)
65
Average Product formula
= TP (total ) | ÷ Units of Labor
66
Marginal cost formula
= ∆ in TC÷ ∆ in Qs
67
Total Cost formula
= TFC | + TVC
68
Total Revenue formula
= P × Qs
69
Total Product formula
= TR | − TC
70
Average Revenue formula
= TR ÷ Qs
71
Marginal Revenue formula
= ∆ in TR | ÷ ∆ in Qs
72
Tax revenue
= T× Q
73
Externality
The uncompensated impact of one person’s actions on the well-being of a bystander
74
Negative externalities
- For each unit of aluminum produced, the social cost includes the private costs of the aluminum producers plus the costs to those bystanders affected adversely by the pollution. - Negative externalities lead markets to produce a larger quantity than is socially desirable.
75
Positive externalities
- Although some activities impose costs on third parties, others yield benefits. For example, consider education. - To move the market equilibrium closer to the social optimum, a positive externality requires a subsidy. - Positive externalities lead markets to produce a smaller quantity than is socially desirable
76
Demand curve
social cost curve
77
Quantity curve
social benefit curve
78
the government can respond to | externalities in one of two ways
1. Command-and-control policies regulate behaviour directly. 2. Market-based policies provide incentives so that private decision makers will choose to solve the problem on their own
79
Command and control policies
- The government can remedy an externality by making certain behaviours either required or forbidden. - It is a crime to dump poisonous chemicals into the water supply.
80
Corrective taxes and subsidies
- the government can use market-based policies to align private incentives with social efficiency - For instance, the government can internalize the externality by imposing taxes on activities that have negative externalities and subsidizing activities that have positive externalities
81
Corrective taxes
Taxes enacted to correct the effects of negative externalities
82
Possible private solutions
- Moral codes and social sanctions. - Charities. - The self-interest of the relevant parties. - Contracts.
83
Marginal product:
The increase in output that arises from an additional unit of input
84
Diminishing marginal product:
the marginal product of an input declines as the quantity of the input increases.
85
Variable costs:
Costs that do vary with the quantity of output produced
86
Coase theorem
if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own

ECO 1304 (2 decks)

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