Micro Flashcards
(27 cards)
What are merit goods
Goods deemed more beneficial to consumers than they realise due to imperfect info
What are demerit goods
Goods deemed more harmful to consumers than they realise due to imperfect info
What is gov failure
When the cost of intervention outweighs the benefits
Tradable pollution permits analysis
1) Cap set at Q1 and permits issued to match cap
2) Firms make decision based on least cost (green tech or buy permits)
3) Enforcement of permits
4) Pollution reduces to SocOpQ. Allocative efficiency
5) Firms can profit from sale of permits in LR (P1-P2)
3 Downsides of Tradable pollution permits
1) Enforcement. Expensive especially in developing countries
2) Unintended consequences. Firms could shut down or move and pollute elsewhere
3) Need for international cooperation
What is the short run vs long run
Short run: at least 1 fixed FOP
Long run: all FOP are variable
Formulas for MC and AC
MC = Change in TC / Change in Q
AC = TC / Q
What are economies of scale
A reduction in LRAC as output increases
What is divorce of ownership of control and the principal agent problem
Doooc: Managers take over to revenue maximise for their own interests
Pap: Interests of owners (principals) not aligned with managers (agents)
Where is each efficiency achieved
Allocative: AR = MC (or P=MC)
Productive: P = Min AC
Dynamic: LR SN Profit
What is price stickiness
When prices may be slow to adjust to changes in demand or cost conditions (despite changes in costs of production)
Factors affecting demand for labour
- Demand and expected future demand
- Productivity of labour
- Substitutes to labour
- Wage rate
Factors affecting wage elasticity of labour
- Price elasticity of demand
- Substitutes to labour
Factors affecting long run supply of labour
- Pecuniary such as wage rate or bonuses
- Flexibility of hours / location
- Qualifications (barriers to entry)
- Job security
Factors that give employers more bargaining power
- Greater financial reserves to last out any dispute
- Lower proportion of workers in a union
- Large degree of sub between capital and labour
OPPOSITE FOR TRADE UNIONS
Evaluation points for a trade union
- TU doesn’t necessarily cause unemployment if productivity increases
- TU may be more damaging in comp market structures where only normal profit is made in LR
- Depends on bargaining power
Advantages of nationalisation
- Natural monopoly - Increases output and reduces price to allocative, no large subsidies and no unnecessary dupe
- Minimum standard, addresses neg exts such as immobility due to expensive tickets eg
Disadvantage of nationalisation
When gov takes over, there is a lack of competition and incentives for efficiency
This results in poor performance and higher costs
In a comp market, companies strive to operate efficiently to stay ahead of competitors
Expensive + burden on taxpayer
Regulatory capture context
Asymmetric info is a pre requisite of financial markets.
The 2008 financial crisis saw 3 large US regulators give ratings to toxic financial assets.
This included $3tn of loans to homebuyers with bad credit scores and undocumented incomes.
Why is a high subsidy bad
If set too high, the gov have to worry about a high cost.
If money is borrowed, high cost can lead to tax rises which burden the poor.
Spending cuts towards public spending which presents a resource opp cost.
Competition policy analysis
- Reg sets a price of RPI-X
-Deemed by regulator that monopolist should permitted to change price to RPI-X
- E.g. if RPI is 6% and X is 2% then mono permitted to raise price max 4% a year
-Price cap shown, increases output and reduces SN profit
What is productive efficiency
Ability of a firm to produce products at the lowest possible cost, given level of output and available technology
(Producing max output w min input)
What is allocative efficiency
Where all goods and services meet the needs and wants of society
4 Behavioural economics strategies
- Information provision
- (Combine with framing or social norms)
- Change the default choice
