Theme 1 Flashcards
(38 cards)
Opportunity costs def
The next best alternative forgone
Why is the ppF curved?
-not all factors of production are equally suited to produce both sorts of goods
-thus opportunity costs varries along the ppF
What causes a shift in d curve
-Population
-Advertising
-Substitutes’ prices
-Interest rates
-Fashion and trends
-Income
-Complementary’s prices
What causes shift in s curve
-Policies
-Indirect taxes
-Number of firms
-Technology
-Subsidies
-Weather
-Costs of production
Factors that effect PED
-Nesscity
-Addictiveness
-Subsidies
-Time
-income % of price
-Quality
-Brand loyalty
factors that affect PES
-Barrier of entry
-factor mobility
-Raw materials prices
-Inventory
-Time
-spare capacity
types of market failure
-irrational behavior
-extarnalities
-imperfect information
-missing markets (including public goods)
ways to correct market failure
-regulation
-maximum prices
-minimum prices
-state provision
-state provision of information
-subsidies
-indirect tax
-extension of property rights
-prohabition
def of asyemetric info
(with e.g.)
def: when one economic agent have more informaton than the other
e.g. when consumers cannot compare prices so producers can set a higher price
def of adverse selection
e.g. needed
def: when participents of a market is affected by asyemetric info
e.g. insurence charges higher prices because they dont have info on how frequent consumers are going to need them. (solution can be monitoring)
def of moral hazard
(with e.g.)
def: when people behave wreklessly because they have some form of insurence
e.g. might consume more aclcohol be cause they have NHS
State provision of information pros and cons and def
def: government providing or force firms to publish informaton about a particular product through social media
pros:
-informs consumers
-(should) reduce consumption of unhealthy products
-consumers retain a choice
cons:
-risk of regaltory capture
-doesn’t stop irrational behavior (e.g. addiction)
-can ignore information if wanted
types of irrational behavior
-consideration of others behavior (peer preasure)
-habbiual behavior
consumer weakness of computation
nudges def, pros and cons
def: using psychological tricks to influence the behavior of consumers
pros:
-encourages consumers to make a better choice
-still have a choice
cons:
- might be called sneaky
- doesn’t always work
- discourages people to think independently
def of private goods
-excludable
-rivalrous
-rejectable
def of public goods = opposite of def of private goods
hint free ridwer prowbem
why are public goods not provided by the free market
-because they are non-exculdable and non-rivalrous
-so it is possible to use them without paying
-making it hard for free market to determine the value of this good
-this is known as the free rider problem
how the government “solves” the free rider problem
-state provison of public oods
what is def of social cost
sum of external cost and private cost
external cost of production def
MPC>MSC
aka over production
external cost of consumption def
MPB >MSB
aka over consumption
external benefits of consumption
MSB>MPB
aka under consumption
external benefit of production
-MSB>MPB
indirect taxes pros and cons
(on reducing externalities)
Pros:
-forces polluter to pay (internallizing externality)
-more government revenue
-consumers can still acess the product
cons:
-regressive
-may encourage black mrket
-difficult to set tax in right level
-little effect if PED is inelastic
-may cause more business failure
regulation def, pros and cons
(on reducing externalities)
def: limiting on quantity supplied of a product
Pros:
-works on inelastic PED
-encourages innovation
cons:
-encourages unhealthy innovation
-higher price and unemployment (if limits too strict)
-more cost to gov (oppertunity cost or fiscal balence worsen)
-no social equibrium if limits too low
-prone to regulatory capture
